ITO Vs Tufail Ahmed Bakhshullah Siddiqui (ITAT Mumbai)
Steel Purchases Doubtful, Sales Accepted: ITAT Cuts Addition to 6% and Rejects Revenue’s Demand for Full Disallowance
Summary: The dispute concerned ₹35,41,340 of steel purchases from a supplier whose existence and transactions were questioned. The Assessing Officer added the full purchase amount under section 69C; the Commissioner (Appeals) restricted the addition to 12%; and the Tribunal finally fixed it at 6%, or ₹2,12,480.
How the Dispute Began
The assessee carried on a steel trading business as proprietor of Hindustan Steels. He filed his return for Assessment Year 2019–20 declaring income of ₹16,59,190.
The Department received information alleging that purchases of ₹35,41,340 from Moksh Alloy Pvt. Ltd. were supported by accommodation bills rather than actual supplies. The Assessing Officer issued a notice under section 148A(b), passed an order under section 148A(d) and issued a reassessment notice under section 148, all culminating in proceedings initiated on 31 March 2023.
During reassessment, the assessee produced purchase invoices and e-way bills, along with other records. The officer remained unconvinced. Moksh Alloy did not respond to a notice under section 133(6), and verification at its stated address found another entity occupying the premises. Treating the entire purchase as unexplained expenditure, the officer added ₹35,41,340 under section 69C and applied section 115BBE.
The Commissioner (Appeals) found that the supplier remained doubtful but that the assessee’s corresponding sales had not been disputed. He therefore restricted the addition to an estimated profit element of 12%. The Revenue appealed for restoration of the full addition, while the assessee challenged both the reopening and the 12% estimate.
The Reopening Challenge Failed
In his cross-objection, the assessee argued that reassessment had been initiated merely on Investigation Wing information without an independent inquiry. He relied on Shodiman Investments and Odeon Builders. He also contended, citing Hexaware Technologies, that the jurisdictional Assessing Officer should not have issued the section 148 notice.
The Tribunal rejected these jurisdictional objections. It noted that the information specifically identified the assessee, Moksh Alloy and the purchase amount. A section 148A(b) notice had been issued, and the assessee did not respond at the section 148A stage. The information was therefore not a vague allegation with no connection to his transactions.
The Tribunal also distinguished the earlier decisions relied upon by the assessee in the context of the reassessment provisions applicable here. On the jurisdictional officer issue, it referred to section 147A, inserted by the Finance Act, 2026 with retrospective effect from 1 April 2021, and the subsequent Supreme Court order in ITO v. Tej Partap Singh. In light of those developments, it declined to quash this reassessment on the basis of Hexaware. The assessee’s challenge to the initiation of reassessment was dismissed.
Why the Entire Purchase Could Not Be Added
On the merits, the Tribunal considered evidence on both sides. The assessee had recorded the purchases in his books and produced invoices, e-way bills, banking details, GSTR-2A information and quantitative records. He also correlated the purchases with subsequent sales. Crucially, the Department had accepted those sales.
The adverse material concerning Moksh Alloy was nevertheless significant. The supplier had not answered the section 133(6) notice, and verification did not establish its presence at the stated address. The Tribunal concluded that, while the purchase of goods could not simply be discarded in light of the accepted sales, the assessee had not satisfactorily proved that the goods came from the supplier named in his books.
The Revenue relied on the Bombay High Court’s decision in Kanak Impex to seek a full section 69C addition. The Tribunal distinguished that case on its facts, noting the documentary material produced here and the accepted sales. It also found no material showing that the payments made through banking channels had flowed back to the assessee in cash. The Tribunal applied the profit-element approach discussed in Mohammad Haji Adam & Co., while recognising that the appropriate estimate depended on this trader’s circumstances.
Why 12% Became 6%
The gross profit figures before the Tribunal were 4.62%, 7.23% and 6.01% for the three preceding assessment years, and 4.44% for the year under appeal. Their average was approximately 5.58%.
Considering that history, the steel trading business, the evidence of goods and sales, and the unresolved doubt about the named supplier, the Tribunal found the Commissioner (Appeals)’s 12% estimate excessive. It restricted the addition to 6% of ₹35,41,340, rounded to ₹2,12,480. This was a final direction on the amount; the issue was not remanded for another estimate.
The Revenue also invoked CBDT Circular No. 5/2024. The Tribunal explained that its exception to departmental appeal limits could affect whether an appeal may be filed; it did not require a fresh assessment merely because the case involved information from an agency. The Revenue’s appeal was dismissed, and the assessee’s cross-objection was partly allowed.
Author’s Comments
This decision keeps three questions distinct: was reopening valid, were goods acquired, and was the named supplier genuine? The assessee lost on the first. His records and accepted sales supported the existence of goods, but did not fully establish purchases from Moksh Alloy.
The final 6% addition reflects those mixed findings and the assessee’s own gross profit history. It should not be treated as a standard rate for disputed purchases. Equally, Kanak Impex does not compel full disallowance without regard to the evidence in a particular case. Here, the reassessment survived, but the proposed addition of the entire ₹35.41 lakh did not.
Cases Discussed
- PCIT v. Shodiman Investments (P.) Ltd., 422 ITR 337 (Bombay High Court) — Relied upon by the assessee against reopening based on Investigation Wing information; distinguished because it concerned the erstwhile reassessment regime requiring formation of “reason to believe”.
- CIT v. Odeon Builders Pvt. Ltd. — Relied upon by the assessee; Tribunal held that its principle concerning additions based solely on unverified third-party information was relevant to the merits rather than invalidating initiation of reassessment on the facts of this case.
- Hexaware Technologies Ltd. v. ACIT, 464 ITR 430 (Bombay High Court) — Relied upon against issuance of notice by the Jurisdictional Assessing Officer; Tribunal declined to apply it to quash reassessment in view of retrospective section 147A and the subsequent Supreme Court order.
- Income Tax Officer v. Tej Partap Singh, [2026] 185 taxmann.com 1007 (Supreme Court) — Tribunal noted that the Supreme Court, considering the insertion of section 147A, set aside judgments favouring assessees on the JAO/FAO issue on that limited ground and remitted the controversy to the respective High Courts.
- PCIT v. Mohammad Haji Adam & Co., (2019) 103 taxmann.com 459 (Bombay High Court) — Applied for the principle that where corresponding sales of a trader are accepted, the entire disputed purchases cannot be brought to tax and the addition should be confined to the profit element.
- PCIT v. Kanak Impex (India) Ltd., (2025) 172 taxmann.com 283 (Bombay High Court) — Relied upon by the Revenue for restoration of the full section 69C addition; distinguished because the evidentiary position in the present case was materially different.
- Arham Star v. ITO, [2025] 180 taxmann.com 44 (ITAT Mumbai) — Followed for the factual distinction of Kanak Impex where purchase and sales records, banking evidence and quantitative details existed and corresponding sales were not doubted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal by the Revenue and the Cross Objection filed by the assessee are directed against the order dated 06/12/2025 passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], u/s 250 of the Income-tax Act, 1961 (“the Act”) for Assessment Year 2019-20 on following grounds of appeal:
Appeal filed by the Revenue:
“a. On the facts and in circumstances of the case, the CIT(A) erred in restricting the disallowance of purchases to 12% of total bogus purchases of Rs.35,41,340/- from non-existent vendors by not following the decision of the Hon’ble Bombay High Court in the case of Kanak Impex (India) Ltd. reported in 172 Taxmann.com 283.
b. It is submitted that present appeal may be filed in accordance with the CBDT’s Circular No.5/2024 dated 15.03.2024 as per Para 3.1(c) of the said Circular. The Order of the CIT(A) may kindly be vacated and the matter may be set-aside to the file of the AO for fresh assessment.
c. The appellant craves leave to add, amend or alter any ground/grounds, which may be necessary.”
Cross Objection filed by the assessee:
“1. In the facts and circumstances of the case and in law, the Assessing Officer erred in issuing Notice u/s 148:
a) only on the basis of information received from investigation wing and without making any enquiry which is against the judgement of Shodiman Investments (P.) Ltd (422 ITR 337 Bombay High court.)
b) No reopening can be made as was held in the case of Odeon Builders.
2. In the facts and circumstances of the case and in law, the JAO erred in reopening the case which was required to be reopened by FAO as per the judgement of Bombay High Court in the case of 464 ITR 430 (Bombay) Hexaware Technologies Ltd. vs. ITO.
3. In the facts and circumstances of the case and in law, the CIT[A] erred in confirming alleged Bogus purchases @12%:
a) Even though the payment for purchases is made from the books by A/C payee cheques and cannot be termed as bogus and hence section 69C does not apply.
b) Without appreciating the fact that no addition can be made even if the supplier is not traceable as per the judgment of the Bombay High Court.
d) Sales cannot be made without purchases.
e) Quantity records were produced.
f) No cash trail is established by the Assessing Officer.
g) Without rejecting books of accounts.
h) Without showing comparable case of GP of 12% in trading business.
i) It was already held by the jurisdictional Bombay High Court in the case of M/S Haji Mohd Adam and also followed by the jurisdictional ITAT in several cases holding that only differential GP between verifiable and unverifiable purchases could only be added instead of whole amount of purchases which is not verifiable.
General:
This cross objection is filed in time. The cross objection prays leave to add, alter or amend the above grounds of cross objection on or before the disposal of this cross objection.”
2. Brief facts of the case are as under:-
2.1 The assessee is an individual and is carrying on business as proprietor of M/s Hindustan Steels, engaged in trading of steel. The assessee filed his return of income for the year under consideration on 16/10/2019 declaring total income of Rs.16,59,190/-.
2.2 Information was received by the Department, in respect of alleged bogus purchases amounting to Rs.35,41,340/- made by the assessee from M/s Moksh Alloy Pvt. Ltd. Accordingly, notice u/s 148A(b) was issued which was followed by order u/s 148A(d) dated 31/03/2023. Consequent thereto, notice u/s 148 was issued on 31/03/2023 and reassessment proceedings started.
2.3 During the course of reassessment proceedings, the assessee furnished certain details including copy of Form 26AS, tax audit report, computation of income, purchase invoices and e-way bills pertaining to the purchases made from M/s Moksh Alloy Pvt. Ltd. The Ld. AO, however, observed that information received from the Investigation Wing indicated that M/s Moksh Alloy Pvt. Ltd. was engaged in providing accommodation bills without actual delivery of goods. Notice issued u/s 133(6) to the said concern remained uncomplied with and the verification conducted at its stated address revealed that some other entity was occupying the premises. The Ld. AO, thus, treated the entire purchases of Rs.35,41,340/- as unexplained expenditure u/s 69C of the Act and brought the same to tax in terms of section 115BBE.
Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A).
3. The Ld.CIT(A), on considering the material placed by the assessee, observed that though the genuineness of the supplier remained doubtful, the corresponding sales had not been disputed. The Ld.CIT(A), was of the opinion that the entire purchases could not be brought to tax u/s 69C and restricted the addition to the profit element embedded in such purchases estimated at 12% of Rs.35,41,340/-. The Ld.CIT(A) accordingly partly allowed the assessee’s appeal on this issue.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.
4. Cross Objection by the assessee
4.1 The assessee, in the Cross Objection, challenged the reopening of assessment as well as the estimation of profit at 12%. It is contended that, the reopening was merely on the basis of information received from the Investigation Wing without independent enquiry by the Ld.AO.
4.2. The assessee placed reliance on PCIT v. Shodiman Investments (P.) Ltd. reported in 422 ITR 337 (Bom.) and CIT v. Odeon Builders Pvt. Ltd.. The assessee also challenged the issuance of notice u/s.148 by the Jurisdictional Assessing Officer by placing reliance on Hexaware Technologies Ltd. v. ACIT reported in 464 ITR 430 (Bom.).
4.2 On merits, the assessee contends that payments towards purchases were made through account-payee cheques; corresponding sales have been recorded and accepted; quantitative records were maintained; there is no material demonstrating any cash trail flowing back to the assessee; and that merely because the supplier could not be traced or did not respond to notice u/s 133(6), the entire purchases could not be treated as unexplained expenditure. Reliance has also been placed on the decision of the Hon’ble Bombay High Court in case of PCIT v. Mohammad Haji Adam & Co. reported in (2019) 103 taxmann.com 459 for restricting the addition to the profit element embedded in the disputed purchases.
4.4. The Ld.DR strongly relied n the assessment order and submitted that the supplier was found to be a non-genuine concern failed to respond to notice issued u/s 133(6). It was submitted that the Ld.CIT(A) was not justified in restricting the addition to 12%. The Ld.DR on the contrary, placed reliance on the decision of Hon’ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd. reported in (2025) 172 taxmann.com 283 and prayed that the addition made by the Ld.AO be restored. The Ld. DR also relied upon para 3.1(c) of CBDT Circular No.5/2024 dated 15/03/2024 and prayed that, alternatively, the matter be restored to the Ld. AO for fresh assessment.
5.2 The Ld. AR, on the other hand, relied on the grounds raised in the Cross Objection and submitted that the purchases were duly supported by purchase invoices, e-way bills, banking transactions, GSTR-2A and quantitative details. It was submitted that corresponding sales were accepted and there is no evidence brought on record by the Revenue to demonstrate that the purchase consideration paid through banking channels had flown back to the assessee. Reliance was placed on Mohammad Haji Adam & Co. (supra), Shodiman Investments (P.) Ltd. (supra), Odeon Builders Pvt. Ltd. (supra) and Hexaware Technologies Ltd. (supra).
Reliance was also placed on the decision of the Coordinate Bench in Arham Star v. ITO [2025] 180 taxmann.com 44 (Mumbai-Trib.) was also brought to our notice.
We have perused the submissions advanced by both sides in light of the record placed before us.
6. We first take up Grounds 1 and 2 raised in the Cross Objection challenging the validity of the reassessment proceedings.
6.1. Insofar as the reliance on Shodiman Investments (P.) Ltd. (supra) is concerned, we note that the said decision was rendered in the context of the erstwhile reassessment regime requiring formation of “reason to believe”. In the present case, proceedings have been initiated under the reassessment regime substituted with effect from 01/04/2021. The material available with the Ld. AO contained specific information identifying the assessee, the alleged supplier, namely M/s Moksh Alloy Pvt. Ltd., and the amount of purchases of Rs.35,41,340/-. Notice u/s 148A(b) was issued to the assessee before passing the order u/s 148A(d). It is also an undisputed position emerging from the record that the assessee did not furnish any response at the stage of proceedings u/s 148A.
6.2. Thus, this is not a case where reopening has been initiated merely on the basis of some vague or general information having no nexus with the assessee. The information was specific to the transaction undertaken by the assessee. We therefore do not find merit in the contention that the assumption of jurisdiction itself stands vitiated merely because the information originated from the Investigation Wing.
6.3. The reliance on Odeon Builders Pvt. Ltd. (supra) also does not assist the assessee for invalidating the initiation of reassessment proceedings. The principle laid down therein, regarding addition based solely on unverified third-party information despite supporting evidence furnished by the assessee, would be relevant to appreciating the addition on merits rather than for holding the very initiation of proceedings to be without jurisdiction on the facts before us.
6.4. As regards the contention that notice u/s 148 could not have been issued by the Jurisdictional Assessing Officer in view of Hexaware Technologies Ltd. (supra), we note that subsequent thereto section 147A was inserted by Finance Act, 2026 with retrospective effect from 01/04/2021. The said provision contains a non-obstante clause and clarifies the meaning of the Assessing Officer for purposes of sections 148 and 148A. Further, the Hon’ble Supreme Court in Income Tax Officer v. Tej Partap Singh reported in [2026] 185 taxmann.com 1007 (SC), having regard to the aforesaid legislative intervention, set aside the judgments rendered in favour of the assessees on the JAO/FAO issue on that limited ground and remitted the controversy for fresh consideration by the respective Hon’ble High Courts.
6.5. In the circumstances, the decision in Hexaware Technologies Ltd. (supra), as it stood prior to the aforesaid statutory amendment and the subsequent order of the Hon’ble Supreme Court, cannot be applied to quash the present reassessment. Accordingly, Grounds 1 and 2 of the Cross Objection are dismissed.
We now take up the Revenue’s appeal together with Ground no.3 of the assessee’s Cross Objection.
7. It is an admitted position that the assessee recorded the impugned purchases in its books. The assessee furnished purchase invoices and e-way bills and claimed that the payments were made through banking channels. The GSTR-2A details were also placed on record. Further, the assessee furnished details correlating the purchases with subsequent sales. Importantly, the sales declared by the assessee have not been disturbed.
7.1. At the same time, the material collected by the Revenue concerning M/s Moksh Alloy Pvt. Ltd. cannot altogether be ignored. The said concern was found to be connected with the information received from the GST authorities relating to issuance of accommodation bills; notice issued u/s 133(6) remained uncomplied with; and physical verification at the stated address also did not establish the existence of the supplier. Thus, though the purchase of goods as such cannot be discarded when corresponding sales stand accepted, the assessee has not satisfactorily established the purchases from the very party appearing in the books.
7.2. The Hon’ble Bombay High Court in case of PCIT v. Mohammad Haji Adam & Co. (supra) held that, in case of a trader where corresponding sales are not disputed, the entire purchase cannot be brought to tax and the addition has to be confined to the profit element embedded in such purchases. We have also considered the decision in PCIT v. Kanak Impex (India) Ltd. [2025] 172 taxmann.com 283 (Bom.), relied upon by the Revenue. In that case, the assessee had not participated in the reassessment proceedings and had failed to discharge the initial burden of proving the genuineness of the purchases. The finding that the purchases were bogus had attained finality and, in such circumstances, the Hon’ble High Court held that there was no justification for reducing an addition made u/s 69C merely by estimating the profit at 12.5%.
7.2. The factual position before us is materially different. The assessee herein furnished documentary evidence in support of purchases and demonstrated corresponding sales which remain accepted. The Ld.AO has not brought any material on record to establish that the payments made by the assessee through banking channels were returned to the assessee in cash. In this regard, we also find support from the subsequent decision of the Coordinate Bench in Arham Star v. ITO reported in (2025) 180 taxmann.com 44, wherein the Coordinate Bench of this Tribunal distinguished Kanak Impex (India) Ltd. (supra) on facts and held that where the assessee furnished purchase and sales records, banking evidence and quantitative details and the corresponding sales were not doubted, the entire purchases could not be disallowed. The Coordinate Bench restricted the addition to the profit element having regard to the facts of that case. The principle emerging therefrom is that Kanak Impex (India) Ltd. (supra) cannot be applied de hors the evidentiary position obtaining in each case. The factual distinction drawn by the Coordinate Bench is material to the present controversy.
7.3. We further note that the comparative gross profit chart forming part of the proceedings before the Ld. CIT(A) shows the GP ratio at 4.62% for A.Y. 2016-17, 7.23% for A.Y. 2017-18, 6.01% for A.Y. 2018-19 and 4.44% for the year under consideration. The average works out to approximately 5.58%. Considering the nature of the assessee’s business of trading in steel, the past GP declared, the documentary evidence available on record, the accepted sales on one hand and the failure of the assessee to conclusively establish the genuineness of the stated supplier on the other, we are of the considered view that the estimation made by the Ld.CIT(A) at 12% is on the higher side.
7.4. In the totality of facts and circumstances, we deem it appropriate to restrict the addition to 6% of the disputed purchases of Rs.35,41,340/-, which works out to Rs.2,12,480/-, rounded off. The Ld. AO is directed to restrict the addition accordingly.
7.5. We may also deal with the Revenue’s reliance on CBDT Circular No.5/2024 dated 15/03/2024. Para 3.1(c) of the Circular carves out an exception to the monetary limits prescribed for filing Departmental appeals where the assessment is based upon information received from the specified law-enforcement or intelligence agencies. Thus, the said Circular may govern the maintainability of the Revenue’s appeal notwithstanding the monetary limit. However, nothing contained in para 3.1(c) mandates that the order of the Ld. CIT(A) be vacated and the matter restored to the Ld. AO for fresh assessment merely because the case falls within such exception. We therefore find no merit in the Revenue’s prayer for setting aside the matter on the basis of the said Circular.
Accordingly, the grounds raised by the Revenue stands dismissed. Ground 3 of the Cross Objection filed by the assessee stands partly allowed.
Remaining grounds raised by the assessee in its Cross Objection do not require separate adjudication.
In the result, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee stands partly allowed.
Order pronounced in the open Court on 25-09-2026.
