Kanta Devi Jalan Legal Heir of Late Ved Prakash Agarwal Vs Ward 43(8) (ITAT Delhi)
Bogus Purchase Bills, Accepted Sales: Delhi ITAT Restricts Addition to 1% GP
The accommodation-entry allegation
Information from a search on Hitesh Jain led the Income Tax Department to reopen the assessment of Late Ved Prakash Agarwal for assessment year 2012–13. Jain had reportedly admitted that he issued bogus bills through concerns under his control in return for commission, without actual sales or purchases. The Department treated transactions reflected in Agarwal’s books as accommodation entries.
The Assessing Officer (AO) added ₹97,50,663 under Section 68 as unexplained credits. He also estimated commission at 3% of those transactions, adding ₹2,92,520 under Section 69C. The reassessed income rose to ₹1,05,18,690, against ₹5,31,810 determined in the original assessment. The CIT(A) upheld the additions, finding the dealings with the named concerns to be accommodation entries. The appeal before the Delhi ITAT was pursued by Kanta Devi Jalan as legal heir of the deceased assessee.
Accepted sales and disputed purchases
The assessee argued that the AO had not rejected the books of account and that the sales arising from the trading activity had been accepted. The assessee also objected to reliance on third-party statements without an opportunity to cross-examine the persons concerned, and said that the AO should have made further enquiries before treating the transactions as bogus.
A further argument proved decisive: a coordinate Bench of the Delhi ITAT had already considered similar purchase transactions in the assessee’s own cases for assessment years 2013–14 to 2016–17. The assessee asked the present Bench to follow that treatment.
In those earlier appeals, the Tribunal had recognised the difficulty caused when suppliers did not respond to notices under Section 133(6). At the same time, it noted that the assessee was engaged in trading, the declared sales had been accepted, and goods had to be procured to achieve those sales. The transactions had been routed through banking channels, and the assessee had furnished VAT registration and bank details of the parties.
Those circumstances did not conclusively establish that every purchase bill was genuine. The earlier Bench expressly said that an assessee claiming expenditure bears the burden of proving the genuineness of the purchases, including the source of the payments. But accepting the sales while questioning the purchase bills called for a measured examination of the profit element, rather than simply overlooking the commercial reality of the trading activity.
Why the rate became 1%
In the earlier years, the assessee’s declared gross profit margins ranged from 0.67% to 1.52%. The Tribunal had considered 2.88% on the disputed purchases excessive and restricted the gross profit rate to 1%, broadly in line with those margins. It had specifically said that its estimate should not be treated as a precedent for other cases.
In the present appeal, the Bench followed those decisions in the assessee’s own case and again restricted the GP rate from 2.88% to 1%, directing the AO to make the necessary computation. The appeal was partly allowed.
There is a drafting limitation in the present order. Its statement of facts describes the AO’s additions as the full ₹97,50,663 under Section 68 and ₹2,92,520 of estimated commission under Section 69C, while the operative discussion moves directly to restricting a 2.88% GP rate to 1%. The order does not separately explain the computational treatment of each of those two additions. The precise effect on the final assessment will therefore depend on the giving-effect computation made under the Tribunal’s direction.
The cross-examination ground
The legal heir had specifically challenged the use of third-party statements without cross-examination. The Tribunal recorded that contention, but its brief operative reasoning did not give a separate finding on the cross-examination objection. The result rested on following the earlier orders and applying the 1% GP estimate. The decision should therefore be cited principally for that outcome, rather than as a standalone ruling that denial of cross-examination invalidated the reassessment.
Author’s comment
This case illustrates a recurring difficulty in alleged bogus-purchase assessments. Accepted sales do not automatically authenticate the suppliers’ bills, but they are relevant when deciding whether the entire transaction value represents undisclosed income. In a trading business, the question may be whether goods were obtained through another source at a lower cost and whether an embedded profit benefit needs to be estimated.
The 1% figure is fact-specific. It came from the assessee’s own earlier appeals and margins, and the earlier Bench expressly declined to make it a general benchmark. In another case, the proper result will depend on the books, sales, purchase trail, payment source and evidence concerning the suppliers. Practitioners should also check how the AO gives effect to this order, given the gap between the additions described in its facts and the GP-based operative direction.
Cases Discussed
- Late Ved Prakash Agarwal — ITA Nos. 807 to 810/Del/2023, AYs 2013-14 to 2016-17 (ITAT Delhi) — Coordinate Bench decisions in the assessee’s own cases were expressly followed; considering accepted sales, banking-channel transactions and historical margins of 0.67% to 1.52%, GP on disputed purchases was restricted from 2.88% to 1%, with an express rider that the estimate should not be treated as a precedent.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal is preferred by the assessee against the order dated 22.05.2025 of the Commissioner of Income Tax (Appeals) -30 New Delhi [hereinafter referred to as “Ld.CIT(A))”] arising the assessment order dated 25-11-2029 for the assessment year 2012-13 u/s 143(3) /147 of the Income Tax Act 1961[hereinafter referred to as “the Act”]
2. The assessee has raised the following grounds in appeal:
1. That the sworn statement of parties before Dy. Director (Investigation) Panipat on CRIU, Insight portal of Department/authorities, without affording the assessee any opportunity to cross examine those witnesses in regard or the fact that these parties did not respond to notices under section 133(6) of the Act, would not in itself suffice to treat the purchases/sale as bogus and make the addition.
2. If the AO doubted the genuineness of this said purchases, it was incumbent upon him to cause further inquiries in the matter to ascertain the genuineness or otherwise of the transaction.
3. That the AO failed to cause any enquiry to be made to establish his suspicious that the said purchases /sales are bogus and the documentary evidence brought on record to establish the genuineness of the purchases/sale transactions by the assessee is false, wrong and bogus.
4. The appellant craves for leave to add or make alteration in grounds of appeal before the hearing.
3. The brief facts of the case are that the originally assessment under section 143(3) of the Act was completed on 30-03-2015 at taxable income of Rs.5,31,810/-. Information was received from investigation wing that during search action carried out on 23-05-2017 on premises of Sh. Hitesh Jain who admitted that he was involved in providing accommodation entries by issuing bogus bills in lieu of certain commission and no actual sale /purchases took place. During the search incriminating documents were also seized and found that assessee had received credit huge entries from the dummy/paper concerns controlled by Sh. Hitesh Jain. The case of the assessee was re-opened and assessment was completed at total income of Rs.1,05,18,690/-. The Assessing Officer made the addition of Rs.97,50,663/- as unexplained credit in his books of accounts under section 68 of the Act and Rs. 2,92,520/- as unexplained expenditure under section 69C of the Act on account of commission expense @ 3% of the total transaction of Rs.97,50,663/-. Aggrieved the order of the Assessing Officer the assessee filed this appeal before Ld. CIT(A) who vide his order dated 22-05-2025 dismissed the appeal of the assessee. The Ld. CIT(A) has found that the transactions with M/s Raghuvir Singh, Devender Kumar and M/s Gagan Enterprises are accommodation entries, not genuine business dealing, as evidenced by Shri Hitesh Jain’s confession and the lack of corroborative proof. The Ld. CIT(A) confirmed the addition made by the ld. Assessing Officer. Being aggrieved the order the assessee is in appeal before the Tribunal.
4. The Ld. AR of the assessee submitted that the books of account of the assessee were not rejected by the AO. The Assessing Officer accepted the purchases made by assessee. The lower authorities did not provide the opportunity of the cross examination. He also submitted that the Co-ordinate bench of Delhi Benches passed the order in the assessee’s own case and held that the applying of GP 2.8% of the bogus purchases is excessive, and reduced to GP 1%. The Ld. DR of the Revenue relied on the findings of the lower authorities. The Co-ordinate bench in ITA No 807 to 810 /Del/2023 for A. Ys 2013-14 to 2016-17 in the assessee’s own case held as under:
18. Considered the rival submissions and material placed on record. We observed that the assessee has made transactions with five parties, details of which are given above in the table, have not responded to the notices u/s 133(6) of the Act, therefore, the AO could not verify the genuineness of the purchases. We further observed that the assessee is engaged in trading business and sales were accepted against the purchases and without purchases, the assessee could not have achieved the sale. Further we observed that the AO has fully accepted the sales declared by the assessee. We further observed that all the transactions are discharged through banking channels.
19. Further we observed that the assessee has proved the identity and creditworthiness of parties from whom purchase and sale made by assessee by submitting the VAT registration documents as VAT registration is granted by State Government under VAT Act only after verifying the credentials of prospective Dealers in compliance of procedures prescribed under the VAT Act.
20. We further observed that assessee has proved the identity and creditworthiness of parties from whom purchase and sale made by assessee by submitting the Bank Account details as in India, bank account can be opened and operated only when is KYC complied and comply the RBI guidelines.
21. Further we also observed that the assessee is engaged in a trading business and it had declared margin during AYs 2013-14 to 2016-17 in the range of 0.67 % to 1.52% whereas the Assessing Officer had adopted the profit declared in the AY 2019-20. It was submitted before us that the profit declared in that year had different business model, the same cannot be adopted for the year under consideration.
22. However, we observed that the genuineness of the purchases would inter alia also explanation with regard to the sources for paying for such purchases. Explaining the source of purchases would be one of the prime considerations for concluding whether the purchases have been made from accounted or unaccounted sources and to test the veracity of transaction being only accommodation entry. It is well settled and undisputed that the onus of proving any genuineness of the expenditure claimed as deduction is on the assessee. The primary onus is on the assessee to discharge his burden to prove the purchases, which an assessee has claimed as a deduction under the Income Tax Act for arriving at the taxable income.
23. In view of our discussion and detailed submissions of the ld. AR which are reproduced above, we observed that applying of GP 2.88% of the bogus purchases is excessive, thus it is deemed appropriate in the larger interest of justice and in all fairness that we restrict it to GP 1% which is line with the average gross profit declared by the assessee of 0.67% to 1.52% during the period i.e .AYs 2013-14 to AY2016-17 and would be just and proper with a rider that the same shall not be treated as a precedent. Necessary computation shall follow as per law. We order accordingly and the grounds raised by the assessee are partly allowed.
24. In the result, the appeal filed by the assessee for AY 2013-14 is partly allowed.
25. Since the facts in AYs 2014-15, 2015-16 and 2016-17 are exactly similar to Assessment Year 2013-14, our above findings in AY2013-14 are applicable mutatis mutandis in Assessment Years 2014-15, 2015-16 and 2016-17. Accordingly, the appeals filed by the Revenue for AYs 2014-15,2015-16 and 2016-17 are partly allowed,
26. To sum up: all the appeals filed by the assessee are partly allowed.
5. Respectfully following the aforesaid precedents, we, restrict the GP rate from 2.88% to 1% which is line with the average gross profit declared by the assessee. Necessary computation shall follow as per law. We ordered accordingly and ground raised by the assessee are partly allowed.
6. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 28.09.2026.
