JCIT (In situ) Vs Sharmanji Yarns Pvt. Ltd. (ITAT Chandigarh)
The cross-appeals before the ITAT Chandigarh for AY 2020-21 concerned the addition on account of alleged bogus purchases made by the assessee, a corporate entity engaged in the manufacture of cotton yarn and clothes. The Assessing Officer (AO) alleged that purchases aggregating ₹88.07 crore from four suppliers were bogus on the grounds that the suppliers had not filed income tax returns, did not respond to notices under section 133(6), were not found at their given addresses during field enquiries, and that one supplier’s proprietor allegedly denied the transactions. Relying on local enquiries, statements, and perceived inconsistencies in transport documents, the AO treated the entire purchase amount as unexplained expenditure under section 69C and disallowed it in full.
Before the first appellate authority, the assessee furnished extensive documentary evidence, including purchase invoices, e-way bills, transport documents, stock and sales registers, bank statements showing payments through banking channels, GST returns, and affidavits from all four suppliers confirming the transactions. The assessee contended that no sales could take place without corresponding purchases, that the books of account were audited and not rejected, and that full disallowance would lead to an abnormal gross profit rate far exceeding historical trends. The CIT(A) accepted that the purchases were supported by documentation and that no evidence existed of cash being routed back to the assessee, but nevertheless held that the suppliers’ non-traceability and surrender of GST registrations created doubt. Applying the principle of estimating the profit element embedded in such purchases, the CIT(A) restricted the disallowance to 9% of the alleged purchases. Both the assessee and the revenue appealed against this partial relief.
