Case Law Details
ACIT Vs Escon Elevators Pvt. Ltd. (ITAT Chennai)
The ITAT Chennai dismissed the Revenue’s appeal and upheld deletion of a ₹20,588 disallowance u/s 69C, holding that a purchase cannot be branded bogus merely because the supplier’s name appears in a “suspicious dealer / MAHAVAT list”.
The AO had disallowed the purchase from M/s Bhumi Sales Corporation solely on the basis of an affidavit allegedly filed by the seller before Sales-tax authorities and the seller’s inclusion in the MAHAVAT list, without conducting any independent enquiry and without furnishing the adverse material to the assessee.
Before the CIT(A), the assessee produced purchase bills, delivery challans, purchase orders, goods receipt notes, material inspection reports, ledger accounts, etc., thereby discharging the initial onus to prove the genuineness of the expenditure. The CIT(A) deleted the addition.
Affirming the relief, the Tribunal held that once the assessee substantiates the purchase with primary evidence, the onus shifts to the Department. Reliance on third-party information alone, without verification or granting opportunity of cross-examination, renders the disallowance bad in law. The Bench relied on the Supreme Court ruling in Odeon Builders Pvt. Ltd. (SC), which squarely holds that additions based solely on untested third-party material cannot survive.
Accordingly, the ITAT found no infirmity in the CIT(A)’s order and dismissed the Revenue’s appeal, reiterating that lists and affidavits from other authorities are not a substitute for investigation.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)/Addl./JCIT(A)-5 (hereinafter referred to as “the Ld.CIT(A)”), Chennai, dated 19.08.2025 for the Assessment Year (hereinafter referred to as “AY”) 2010-11.
2. At the outset, it is noted from perusal of Form 36 that the tax effect as per Revenue appeal is shown as ₹6,980/- which would be hit by tax effect. But it was pointed out by the Ld.DR that this case comes in the exception and therefore the CBDT Circular in respect of tax effect would not apply.
3. The main grievance of the Revenue is against the action of the Ld.CIT(A) deleting ₹20,588/- made by the AO on account of bogus purchases from M/s.Bhumi Sales Corporation which according to the Revenue has been listed “suspicious in the MAHAVAT List”[External statutory agency].
4. None appeared for the assessee. The brief facts of the case are that the assessee had filed return of income (RoI/ITR) on 08.10.2010 declaring ₹61,24,050/-, which ITR was later selected for scrutiny under CASS; and the AO noted that the assessee company is engaged in the business activity of erection of installation of lifting/elevator, service and maintenance contract of lifting, repairs and modernization of lifts, sale of elevators, spare parts, etc. The AO thereafter has framed the assessment by order dated 05.03.2013 u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) by making, inter-alia, additions of which the AO is noted to have asked the assessee to furnish the details regarding the transaction of ₹20,588/- with M/s.Bhumi Sales Corporation which party had filed affidavit with the Sales Tax Department that no sales has been made by it. On the strength of such information, the AO gave show cause to the assessee ‘as to why’ transaction with the said M/s.Bhumi Sales Corporation should not be treated as bogus. Pursuant to which, according to the AO, assessee didn’t furnish any bills in support of expenses of ₹20,588/- and since, the assessee failed to produce the delivery challan and transport bills, he treated the purchase of goods as claimed by the assessee as unexplained expenditure u/s.69C of the Act to the tune of ₹20,588/- and made addition accordingly. On appeal, the Ld.CIT(A) noted that assessee had produced the copy of purchase bill, delivery challan, purchase order, goods receipt note, material inspection report, ledger account, etc., to prove the claim of incurring expenditure of ₹20,588/- with M/s.Bhumi Sales Corporation and the Ld.CIT(A) also took note of the submissions of the assessee that the AO has made the disallowance merely on the basis of purported statement of seller (M/s.Bhumi Sales Corporation) before Sales Tax Authorities which led to it being placed in the MAHAVAT List as a suspicious dealer, without conducting any independent enquiry by the AO. Considering the evidences filed by the assessee, the Ld.CIT(A) was of the view that the AO failed to show that the expenditure claimed by the assessee to the tune of ₹20,588/- was bogus and he deleted the addition. We concur with the view of the First Appellate Authority by noticing that relevant materials were filed by the assesse to prove the expenditure to the tune of ₹20,588/- with M/s.Bhumi Sales Corporation, thus assessee is noted to have discharged its burden to prove the veracity of its claim. In such a scenario, the onus shifted to the shoulders of Revenue to find fault with the material filed by assessee to prove the claim of expenditure, which the AO failed in this case. Moreover, copy of the adverse information against assessee hasn’t been given to it. So, reliance placed by AO to disallow the expenditure based on information from external sources cannot be accepted, since no independent enquiry was done by AO to find the transaction to be bogus. Thus, the disallowance of expenditure was made solely on the basis of purported admission of seller/M/s Bhumi Sales Corporation [affidavit with the Sales Tax Department] without independent enquiry by AO, and without giving a copy of it to assessee renders the addition/disallowance bad in law. For such a proposition, we rely on the decision of the Hon’ble Supreme Court in the case of CIT v. Odeon Builders Pvt. Ltd. reported in [2019] 418 ITR 315 (SC), wherein, it was held that the addition/disallowance made solely on third party information [like in this case] without applying it to further scrutiny and denying cross-examination of such third party, renders the addition/disallowance bad in law. It would be gainful to refer the decision of the Hon’ble Supreme Court in the case of Odeon Builders Pvt. Ltd., as under:
1. Delay condoned.
2. We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs. 1 crore.
3. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating:
“Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted.”
4. The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.
5. In these circumstances, the Review Petitions are dismissed.
5. Respectfully following the Hon’ble Supreme Court decision in Odeon Builders Pvt. Ltd. (supra), and considering the facts (supra), we confirm the impugned action of the Ld.CIT(A).
6. In the result, appeal filed by the Revenue is dismissed.
Order pronounced on the 04th day of February, 2026, in Chennai.
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