PCIT-18 Vs Pravesh Kumar Jaiswal (Calcutta High Court)
Summary: Bogus purchases cannot be disallowed merely because suppliers did not respond to notices under section 133(6) or their GST registrations were cancelled where the assessee’s books are accepted, sales are not disputed and purchase invoices and banking-payment records support the transactions.
Core Issue
Whether the ITAT was justified in deleting the addition of Rs. 12,73,85,064/- made under section 69C read with section 115BBE towards alleged bogus or unexplained purchases merely because the suppliers did not respond to notices issued under section 133(6), certain suppliers’ GST registrations were allegedly cancelled or suspended, and supporting stock or transportation records were not available, when the assessee’s books of account were accepted, corresponding sales were not doubted and purchase and payment documents were produced.
Facts
The assessee, an individual, filed a revised return for AY 2021-22 on 17 January 2022 declaring total income of Rs. 16,13,860/-. The case was selected for scrutiny on the ground that substantial purchases had been made from parties who were non-filers of returns, had filed non-business returns or had disclosed lower income in their returns compared with the turnover reported in their GSTR-1 returns, creating a possibility of bogus purchases. During assessment, the Assessing Officer issued notices under section 133(6) to the suppliers seeking verification of the transactions. As the suppliers did not respond to the notices, the AO concluded that the purchases were sham and non-genuine and completed the assessment at Rs. 12,89,98,924/- after making an addition of Rs. 12,73,85,064/- under section 69C read with section 115BBE. Penalty proceedings under section 271AAC(1) were also initiated separately.
AO / CIT(A) Finding
The Assessing Officer held that the assessee had failed to substantiate the genuineness of the purchases. According to the AO, the payments relating to the purchases could not be verified because the suppliers did not respond to notices under section 133(6), and therefore the transactions were treated as sham and non-genuine. The AO also relied upon the alleged cancellation or suspension of GST registrations of certain suppliers and noted that only some purchase bills and ledger confirmations had been furnished. Accordingly, the entire amount of Rs. 12,73,85,064/- was added under section 69C read with section 115BBE. The CIT(A) upheld the assessment and dismissed the assessee’s appeal.
ITAT Finding
The ITAT allowed the assessee’s appeal after examining the documentary evidence produced by the assessee. The Tribunal noted that the assessee had furnished books of account, purchase invoices, payment details through banking channels and other supporting documents. It observed that the addition had essentially been made on account of non-response by the suppliers to notices under section 133(6) and the alleged cancellation of their GST registrations, circumstances which were beyond the assessee’s control. The Tribunal further noted that the assessee’s books of account had not been rejected under section 145(3) and that the corresponding sales had not been doubted. It therefore held that the purchases could not be disallowed in their entirety merely on the basis of the adverse circumstances relied upon by the AO. The Tribunal concluded that the finding that the purchases were bogus was based on presumption rather than tangible material and deleted the addition of Rs. 12,73,85,064/-.
High Court Finding
The High Court upheld the Tribunal’s factual findings. It noted that the ITAT had examined the books of account, purchase invoices, banking-payment evidence and other supporting documents before arriving at its conclusion. The Court agreed that non-response by suppliers to notices under section 133(6) and cancellation or suspension of GST registrations were circumstances beyond the assessee’s control and, by themselves, could not displace the documentary evidence produced by the assessee.
The Court also affirmed the principle that where the books of account have been accepted and the corresponding sales have not been doubted, the purchases corresponding to such sales cannot ordinarily be treated as entirely bogus. Referring to the decision of the Bombay High Court in PCIT v. Nitin Ramdeoji Lohia, the Court observed that if a purchase were genuinely bogus, the corresponding sale would also have to be questioned because the business transaction could not otherwise be completed. Where the sales are accepted, the case may at most involve purchases from parties or entities whose genuineness is questioned, rather than rendering the entire purchases themselves bogus.
The High Court therefore found that the Tribunal had arrived at its conclusion after considering the evidence and that the finding that the AO’s addition was based on presumption rather than tangible material was a factual finding. As the ITAT is the final fact-finding authority and no perversity was demonstrated in its order, the Revenue’s proposed questions did not constitute substantial questions of law.
Cases Relied Upon
The High Court relied upon Principal Commissioner of Income Tax-1, Nashik v. Nitin Ramdeoji Lohia, 2022 (11) TMI 480 / [2022] 145 taxmann.com 546 (Bombay), wherein it was held that where corresponding sales are accepted, purchases cannot simply be treated as bogus because the supplier entities are found to be non-genuine. The Revenue had also relied upon PCIT v. Mrs. Premlata Tekriwal, 2022 (7) TMI 1352 (Calcutta High Court) and other authorities, but the High Court found that the present case turned upon the factual findings recorded by the Tribunal after examination of the evidence.
Outcome
The Revenue’s appeal was dismissed. The High Court held that the deletion of the addition of Rs. 12,73,85,064/- was justified on the facts of the case and that the Tribunal’s findings were neither perverse nor based on an erroneous appreciation of law. The proposed questions raised by the Revenue were held to be questions of fact and no substantial question of law arose. There was no order as to costs.
Cases Discussed
- Principal Commissioner of Income Tax-1, Nashik v. Nitin Ramdeoji Lohia, 2022 (11) TMI 480 / [2022] 145 taxmann.com 546 (Bombay)– Held that if purchases are bogus, the corresponding sales would also have to be bogus; where sales are accepted, corresponding purchases cannot simply be treated as bogus, though they may have been made from questioned entities or parties. The Calcutta High Court held that the ratio squarely applied because the assessee’s sales were not doubted after examination of the books of account.
- PCIT Vs Mrs. Premlata Tekriwal (Calcutta High Court) – Relied upon by the Revenue while contending that purchases should be disallowed where their genuineness is not proved. The High Court nevertheless concluded that the present appeal turned on the Tribunal’s factual findings after considering the assessee’s evidence.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. This appeal is directed against the order dated 16th October, 2025 passed by the Income Tax Appellate Tribunal, “B” Bench, Kolkata in I.T.A. No. 1269/Kol/2024 for the assessment year 2021-2022 at the behest of revenue.
2. The revenue has proposed the following substantial questions of law:-
i. Whether the Hon’ble ITAT was justified in law in deleting the addition of Rs. 12,73,85,064/- made under section 69C read with section 115BBE of the Act, despite the assessee’s failure to discharge the primary onus of proving the genuineness of purchase, when suppliers were found to be non-existent, untraceable, had denied transactions during departmental verification?
ii. Whether the Hon’ble ITAT erred in holding that rejection of books of account under section 145(3) is a precondition for invoking section 69C, when the statute does not mandate such rejection for making additions on account of unexplained expenditure?
iii. Whether the Hon’ble ITAT was correct in law in ignoring adverse material record, including verification reports of the Department, cancelled/suspended GST registrations of suppliers, and absence of stock register/transportation evidence, and thereby deleting the addition solely on the ground that sales were accepted?
iv. Whether the Hon’ble ITAT’s finding that purchase cannot be disallowed in entirety merely because suppliers are untraceable is perverse and contrary to binding precedents, including the judgment of the Hon’ble Calcutta High Court in PCIT v. Mrs. Premlata Tekriwal [2022] 143 taxmann.com 173, and other High Court rulings holding that entire purchases should be disallowed when genuineness is not proved?
v. Whether the Hon’ble ITAT erred in law in treating the addition made by the A.O. as presumptive and thereby deleting the addition on technical ground, when the A.O. had relied upon independent inquiries, third-party verification, and tangible material evidencing bogus purchases?”
3. At the outset, we have asked the learned advocate appearing for the appellant to satisfy us as to whether the substantial questions of law as formulated by the appellant are at all substantial questions of law or not.
4. The learned advocate for the appellant showed us the impugned order and argued that the Appellate Tribunal has committed an error while deleting the addition of Rs. 12,73,83,064/- made under Section 69C read with Section 115BBE of the Act, despite the respondent/assessee’s failure to discharge the primary onus of proving the genuineness of the purchases, when suppliers were found to be non-existent, untraceable and had denied transactions during departmental verification.
5. It is also argued that the Appellate Tribunal committed an error in ignoring adverse material on record, including verification reports of the department, cancelled/suspended GST registrations of suppliers and absence of stock register/transportation evidence and thereby wrongly deleted the addition solely on the ground that sales were accepted. It is also argued that the Appellate Tribunal has erred in holding that rejection of books of account under Section 145(3) is precondition for invoking 69C when statute does not mandate such rejection for making additions on account of unexplained expenditure.
6. We have not called upon the respondent/assessee to address us since we are deciding as to whether questions formulated by the revenue are at all substantial questions of law or not.
7. Before deciding this issue, it is important to discuss the facts of the case which are narrated hereinbelow.
8. The respondent/assessee as an individual had filed his revised return of income for the assessment year 2021-2022 on 17.01.2022 declaring a total income of Rs. 16,13,860/-. The said return was subsequently processed under Section 143(1) of the Income Tax Act, which is hereinafter referred to as “the said Act”. Thereafter, the case of the respondent/assessee was selected for scrutiny on the issue that the respondent/assessee had made substantial purchases from parties who were non-filers of the return or had filed non-business returns or had declared lower return in their return compared to turnover showed in GSTR-1 return filed leading to the possibility that the respondent/assessee had booked bogus expenses.
9. During the assessment proceedings, the Assessing Officer had issued notice under Sections 133(6) of the said Act to the purchasers calling for information. Since no response was received from any of the parties, the Assessing Officer finally came to the conclusion that not a single purchases were confirmed to have been made with the respondent/assessee in respect of all the cases to whom notices were issued under Section 133(6) of the said Act.
10. Finally, the Assessing Officer came to the conclusion that the transactions made by the respondent/assessee for purchases were all sham transactions and the assessment of the respondent/assessee was completed by the Assessing Officer vide order dated 29th December, 2022 at Rs. 12,89,98,924/- after making the total addition of Rs. 12,73,85,064/- under Section 69C read with Section 115BBE of the said Act on account of bogus or un-explained purchases.
11. While passing the said order, the Assessing Officer did not accept the reply given by the respondent/assessee. While passing the said order, the Assessing Officer recorded that respondent/assessee had only submitted some of the purchase bills and some of the ledger confirmation.
12. The Assessing Officer while making the said addition of Rs. 12,73,85,064/- had observed that payment made by the respondent/assessee for purchase to the extent of the said amount could not be verified are treated as sham transactions and non-genuine transactions and accordingly disallowed the same under Section 69C read with Section 115BBE of the said Act and directed the said amount to be added to the account of the respondent/assessee. Penalty proceedings under Section 271AAC(1) of the said Act were also initiated separately for same.
13. The said order was carried in appeal by the respondent/assessee and the Commissioner of Income Tax (Appeals) upheld the order of the Assessing Officer and dismissed the appeal.
14. Challenging the said order of the Commissioner of Income Tax (Appeals), the respondent/assessee had preferred an appeal before Income Tax Appellate Tribunal “B” Bench, Kolkata and by the impugned order dated 16th October, 2025, the Income Tax Appellate Tribunal has allowed the appeal of the respondent/assessee holding that respondent/assessee had duly furnished books of account, purchase invoices, payment details through banking challans and other supporting evidence.
15. We have gone thought the impugned order. After careful examination of the impugned order, we find that the Appellate Tribunal has passed the order of deletion after being satisfied that the respondent/assessee had duly furnished books of account, purchase invoices, payment details through baking challans and other supporting evidence. The Appellate Tribunal has also correctly observed that the Assessing Officer had passed the order of addition solely on the non-response of the suppliers to the notice issued under Section 133(6) of the said Act and alleged cancellation of GST registrations. The Appellate Tribunal has correctly recorded that these things were beyond the control of the respondent/assessee.
16. In furtherance thereto, the Appellate Tribunal has also recorded after considering all the documents that once the sales have been accepted the corresponding purchases cannot be disbelieved.
17. In furtherance thereto, the Appellate Tribunal has also recorded that books of account of the respondent/assessee were not rejected by invoking Section 145(3) of the said Act.
18. We also find from the Appellate Tribunal’s order that after considering the entire evidence, the Appellate Tribunal has correctly recorded the fact that once the books have been accepted and sales are not doubted, the corresponding purchases cannot be disallowed in its entirety.
19. The Learned Tribunal after considering the entire evidence and the documents produced before it finally came to the conclusion that the finding of the Assessing Officer to the effect that the purchase was bogus, was incorrect and the addition was made purely on presumption and not based on any tangible material.
20. In our view, the Appellate Tribunal has correctly arrived at the finding that the explanation offered by the respondent/assessee was satisfactory and such finding of the Appellate Tribunal was made only after the documents were produced and books of account had been accepted and the sales were not doubted as there was no rejection of the same as contemplated under Section 145(3) of the said Act. In our view, the Tribunal has correctly held that the addition made under Section 69A of the said Act is bad in law as the respondent/assessee has offered proper explanation relating to the purchases made by the respondent/assessee.
21. The law is also well settled in this regard.
22. The Bombay High Court in the matter of Principal Commissioner of Income Tax vs. Nitin Ramdeoji Lohia [2022] 145 taxmann.com 546 (Bombay) has specifically held if the purchases are bogus, it would be impossible for the assessee to complete the business transaction and that if the purchase is bogus, the corresponding sale also must be bogus or else the transaction would be impossible to complete and as a necessary corollary, unless the corresponding sale is held to be bogus, the purchase also cannot be held to be bogus, rather it would be a case of purchase from bogus entities/parties. The ratio of the said judgment squarely applies in the instant case. Here, the sales are not doubted after examining the books of account and accordingly the question of disbelieving the purchase does not and cannot arise. Therefore, the finding of the Tribunal on this issue is correct.
23. According to us, these questions are pure questions of fact and the Appellate Tribunal being the last fact finding authority has correctly arrived at such finding and the deletion of Rs. 12,73,85,064/- was justified.
24. In view of the above facts and circumstances of the case, we hold there is no substantial questions of law involved in the matter and accordingly, the instant appeal is dismissed.
25. There will be no order as to costs.
26. Urgent photostat certified copy of this order, if applied for, be given to the parties upon compliance with the all necessary formalities.
