Chennai ITAT: Bogus Purchase Addition Cannot Rest on Suspicion; Search Data Must Be Corroborated with Independent Evidence

DCIT Vs Salem Mines and Aggregates (ITAT Chennai)

Chennai ITAT: Bogus Purchase Addition Cannot Rest on Suspicion; Search Data Must Be Corroborated with Independent Evidence

The Chennai ITAT delivered an extensive ruling holding that additions towards alleged bogus purchases and suppressed profits cannot be sustained merely on the basis of incomplete seized Tally data, assumptions, or suspicion. During a search, the Revenue relied upon seized electronic accounting data to allege suppression of profits and treated purchases of aggregates from certain suppliers as bogus. However, the Tribunal noted that the assessee had subsequently furnished a detailed reconciliation explaining that the seized Tally data represented incomplete books, in which several expenditure items had not been transferred to the Profit & Loss Account, thereby artificially inflating profits. The Investigation Wing itself accepted a substantial part of this reconciliation during the post-search proceedings.

The Tribunal upheld the deletion of additions relating to purchases from suppliers whose identity, GST registration, PAN, statutory records, banking transactions, and corresponding sales stood established. It observed that the Revenue had not unearthed any incriminating material during the search to show that the suppliers were fictitious, that the invoices were accommodation entries, or that money had flowed back to the assessee. It also noted that the GST authorities had accepted the transactions, the suppliers themselves had confirmed the sales, and the corresponding sales made by the assessee had never been disputed. In such circumstances, purchases could not be branded as bogus merely because of conjectures regarding mining activity, inward movement of goods, or deficiencies in the suppliers’ records.

The Tribunal further held that electronic data seized during search is only a starting point for investigation and cannot, by itself, constitute conclusive evidence when the assessee furnishes a credible reconciliation supported by books of account and documentary evidence. It emphasised that additions under the Income-tax Act must rest on cogent corroborative material, and not on presumptions or theoretical possibilities. At the same time, where the assessee failed to produce sufficient evidence to substantiate purchases from a particular supplier, the Tribunal sustained the disallowance relating to that supplier. Thus, the appeals were disposed of by granting relief in respect of substantiated purchases while sustaining additions only where the assessee failed to discharge its burden of proof.

Cases Discussed

• PCIT v. Sunil Mittal (HUF)
• DCIT v. Radiance Realty Developers India Ltd.
• CIT v. SPL Infrastructure Pvt. Ltd. (Madras High Court)
• CIT v. Bholanath Polyfab (P.) Ltd. (Gujarat High Court)
• Shri Shanti Swaroop Jain v. CIT (ITAT Agra),
• ITO v. Sri Puspal Kumar Das
• Syed Mubarak Ali v. ACIT (ITAT Chennai)
• PCIT v. SVD Resins & Plastics Pvt. Ltd. (Bombay High Court)
• PCIT v. Nitin Ramdeoji Lohia (Bombay High Court)
• CIT v. Nikunj Eximp Enterprises (P.) Ltd. (Bombay High Court)
• CIT v. Nangalia Fabrics (P.) Ltd. (Gujarat High Court)
• CIT v. M.K. Brothers (Gujarat High Court)
• PCIT v. Vijay Kumar Goel (Allahabad High Court)

FULL TEXT OF THE ORDER OF ITAT CHENNAI

These cross appeals, preferred by the Revenue and the Assessee, are directed against the separate orders, all dated 27.02.2026, passed by the Learned Commissioner of Income Tax (Appeals)-18, Chennai (hereinafter referred to as the “Ld.CIT(A)”). The impugned appellate orders arise out of the separate assessment orders passed on different dates by the Deputy Commissioner of Income Tax, Central Circle-1(4), Chennai (hereinafter referred to as “the AO”), pertaining to the Assessment Years (A.Y.) 2018-19 to 2021-22.

2. The assessments for the A.Y.2018-19, 2019-20 and 2020-21 were framed u/s.147 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), whereas the assessment for the Assessment Year 2021-22 was completed u/s.143(3) of the Act.

3. Since the issues arising for consideration in all the five appeals are substantially identical, emanating from the same search and seizure proceedings, involving common facts, identical evidentiary material and common reasoning by both the lower authorities, the appeals were clubbed, heard together and are being disposed of by this consolidated order. At the time of hearing, both the learned Departmental Representative and the learned Authorized Representative fairly submitted that the issues involved in these appeals are common in nature and arise out of the same search proceedings. Accordingly, with the consent of both the parties, the appeals were heard analogously. In the interest of judicial consistency, to avoid repetition of facts and duplication of discussion, and for the sake of convenience and brevity, we deem it appropriate to dispose of all the five appeals by way of this common and consolidated order. However, wherever the facts or grounds of appeal are distinct or require separate adjudication, the same have been dealt with independently under the relevant assessment year or appeal.

4. For the sake of convenience and ready reference, the particulars of the appeals under consideration before us are set out hereunder:

S. No	AY	ITA No.	Appeal By	Assessment order passed u/s. and date of the order	Date of order of CIT(A)
1	2018-19	2528 / Chny / 2026	Revenue	147 of the Act dated 20.03.2025	27.02.2026
2	2019-20	2527 / Chny / 2026	Revenue	147 of the Act dated 27.03.2024	27.02.2026
3	2020-21	2524 / Chny / 2026	Revenue	147 of the Act dated 27.03.2024	27.02.2026
4	2020-21	2013 / Chny / 2026	Assessee
5	2021-22	2014 / Chny / 2026	Assessee	143(3) of the Act dated 30.12.2022	27.02.2026

5. The brief facts of the case, as borne out from the assessment records, are that the assessee is a partnership firm engaged in the business of manufacturing and sale of aggregates and sand. A search and seizure operation u/s.132 of the Act was conducted in the case of the assessee, its group concerns and its partner, Shri Subramani Perumal, on 02.03.2022.

6. During the course of the search proceedings, various books of account, documents, loose sheets and electronic devices containing incomplete data maintained in the Tally Accounting Software (hereinafter referred to as the “seized Tally data”) were found and seized. On examination of the seized Tally data, the Authorized Officer of the search observed that there existed a difference between the profits reflected therein and the income disclosed by the assessee in the returns of income filed for the assessment years under consideration.

7. It was noticed by the Authorized Officer that, as per the stock summary available in the seized Tally data, purchases of diesel issued for consumption by vehicles had erroneously been accounted for as inward stock entries, resulting in an inflated closing stock of diesel. Accordingly, the Authorized Officer, rectified this anomaly while preparing the profit suppression analysis during the course of the search by treating the closing stock of diesel as reflected in the seized Tally data as having been consumed during the relevant previous years and, consequently, allowing the same as expenditure.

8. The Authorized Officer further observed, on verification of the stock summary and the ledger accounts of M/s.Nayara Energy Limited, M/s.Essar Oil Limited and M/s.Indian Oil Corporation Limited contained in the seized Tally data pertaining to AY(s) 2019-20 and 2020-21, that the diesel purchases recorded therein had not been claimed as expenditure in the seized Tally data. Accordingly, while computing the alleged suppressed profits, the said purchases were also treated as allowable expenditure.

9. On the basis of the aforesaid exercise, the Authorized Officer worked out the alleged suppressed profit of the assessee for AY 2018-19 to 2021-22 at Rs.132,95,51,661/- during the course of the search. The AO, while framing the assessment, reproduced the workings prepared by the Authorized Officer at the time of search, as extracted at page 3 of the assessment order for A.Y.2018-19, which are reproduced hereunder:

10. In connection with the aforesaid allegation of suppression of profits, the statement of Shri Subramani Perumal, partner of the assessee firm, was recorded u/s.132(4) of the Act during the course of the search proceedings. In response to Question No.42, Shri Subramani Perumal stated that the assessee firm had effected both accounted and unaccounted purchases and sales. However, insofar as the quantum of the alleged suppression of profits worked out by the search team was concerned, he did not admit or confirm the said computation. On the contrary, he requested that a period of one week be granted to enable him to verify the relevant books of account and supporting documents so as to ascertain the correct quantum, if any, of such alleged suppression.

11. During the course of the post-search proceedings before the Joint Director of Income Tax (Investigation) (OSD), Unit-2(4), Chennai (hereinafter referred to as “the JDIT(Inv)”), the assessee, vide its reply dated 07.04.2022, furnished a detailed reconciliation of the profits reflected in the seized Tally data vis-à-vis the profits disclosed in the returns of income filed for the assessment years under consideration. The assessee explained that the seized Tally data represented an incomplete set of books wherein several heads of expenditure had not been transferred to the Profit & Loss Account. Consequently, the profits reflected in the seized Tally data stood artificially inflated and did not represent the true financial results of the business.

12. In support of the above explanation, the assessee furnished a reconciliation statement before the JDIT(Inv), reconciling the alleged suppressed profits with the profits disclosed in the returns of income. The said reconciliation statement has been extracted by the AO at page 5 of the assessment order for the A.Y.2018-19, which is as under:

13. From the aforesaid reconciliation, the assessee demonstrated that there was no suppression of profits for the AY(s) 2018-19, 2019-20 and 2020-21. In so far as the A.Y.2021-22 is concerned, the reconciliation disclosed a difference of Rs.70,17,373/-. Against the said difference, the assessee had already offered an additional income of Rs.1,00,00,000/- by filing a revised return of income on 31.03.2022, thereby covering the entire difference arising out of the reconciliation.

14. It is further noticed from page 5 of the assessment order for the A.Y.2018-19 that the reconciliation furnished by the assessee was duly examined by the JDIT(Inv) during the post-search investigation. Upon verification of the supporting books of account and documentary evidences produced by the assessee, the JDIT(Inv) accepted the genuineness of various expenditure claimed in the reconciliation, including Diesel Purchases, Spare Purchases, Explosive Purchases, Sales Non-Tax (SM Roads), Consultant Expenses, Cash Expenses (including Salary and Bonus) and Insurance Expenses. Accordingly, these expenditures were accepted during the course of the post-search investigation. The details of such expenses, as accepted by the Investigation Wing, have been extracted by the AO at page 6 of the assessment order for the A.Y.2018-19, which is as under:

15. However, the issues relating to (i) the alleged difference in closing stock, (ii) purchases of aggregates, and (iii) certain non-allowable items such as income-tax paid, advance tax paid, tax deducted at source and lease rent were left open by the JDIT(Inv) for examination by the AO during the course of the assessment proceedings. In so far as the items relating to income-tax paid, advance tax paid, tax deducted at source and similar inadmissible expenditures are concerned, no dispute survives, since the assessee had already disallowed and added back the same while computing its taxable income in the respective returns of income. Thus, the controversy that survives for adjudication is confined only to the additions made on account of the alleged bogus purchases of aggregates and the alleged difference in closing stock.

16. During the course of the assessment proceedings, the AO proposed (i)to disallow the purchases of aggregates claimed by the assessee by treating the same as non-genuine and bogus, and (ii) to treat the value of the closing stock reflected in the seized Tally data as business income of the assessee for the respective assessment years under consideration.

17. On a perusal of the assessment orders passed for all the assessment years involved in the present batch of appeals, it is noticed that the reasoning adopted by the AO for making the aforesaid additions is identical in substance and materially similar in all respects. Since the facts, the evidence relied upon, the explanation offered by the assessee, and the findings recorded by the AO are common across all the years, both the parties fairly agreed that A.Y.2018-19 may be treated as the lead assessment year. Accordingly, for the sake of convenience and to avoid repetition of facts, the reasoning adopted by the AO in A.Y.2018-19 is examined herein, and the findings rendered thereon shall, wherever applicable, govern the remaining assessment years also.

18. In response to the show cause notice issued by the AO, the assessee submitted a detailed explanation justifying the purchases of aggregates made during the relevant previous year. It was contended that the assessee was engaged in the business of quarrying and supply of blue metal aggregates to various customers pursuant to contractual commitments. According to the assessee, the contracts entered into with its customers stipulated strict delivery schedules and timelines, and any delay in execution of the supply obligations would expose the assessee to contractual penalties and business losses.

19. The assessee further explained that although it owned quarrying operations, the production from its own quarry was not always sufficient to meet the contractual demand within the stipulated time. In such circumstances, as a matter of normal commercial practice, the assessee procured aggregates from third-party suppliers as well as from M/s. P.S. Blue Metals, a proprietary concern belonging to one of the partners of the assessee-firm, so as to honour its delivery commitments. It was submitted that such purchases were dictated by business exigencies and constituted a regular and accepted practice in the trade.

20. The assessee further submitted that all purchases effected from M/s.P.S.Blue Metals were duly recorded in its regular books of account and were supported by tax invoices. The transactions had suffered GST, and the corresponding sales had also been disclosed by M/s.P.S.Blue Metals in its own books of account. It was further pointed out that the purchases recorded in the hands of the assessee correspondingly stood reflected as sales in the books of the proprietary concern of its partner, thereby establishing the identity of the supplier as well as the genuineness of the transactions. On the aforesaid premises, the assessee contended that the purchases could not be characterised as bogus merely on the basis of suspicion or surmises and requested the AO to refrain from making any disallowance.

21. With regard to the proposed addition on account of the closing stock reflected in the seized Tally data, the assessee submitted that the figures appearing therein did not represent the actual value of the closing stock physically held by the assessee. It was explained that owing to an accounting error, substantial purchases of diesel and explosives had inadvertently remained grouped under the head “Closing Stock” instead of being transferred to the respective expenditure accounts.

22. The assessee specifically pointed out that the AO himself, in the show cause notice, had observed that it was commercially and practically impossible for the assessee to maintain such an extraordinarily large quantity of diesel and explosives as closing stock. Relying upon this very observation, the assessee submitted that the abnormal figures appearing in the seized Tally data themselves demonstrated that they could not represent actual stock.

23. To substantiate its explanation, the assessee furnished the relevant ledger extracts from the seized Tally data and demonstrated that the amounts reflected under the closing stock account substantially represented purchases of diesel and explosives which had not been appropriately classified in the accounting software. It was explained that these purchases ought to have been transferred to the respective consumption or expenditure ledgers and that the apparent inflation in closing stock was merely the result of an accounting misclassification rather than the existence of any actual inventory.

24. Accordingly, it was contended that no addition could be made merely on the basis of the figures appearing in the seized electronic records without appreciating the accounting treatment and the corresponding ledger entries. The assessee therefore requested the AO to accept the explanation and to refrain from making any addition towards the alleged difference in closing stock.

25. The AO, however, was not persuaded by the explanations furnished by the assessee. Rejecting the contentions advanced during the assessment proceedings, the AO proceeded to make additions towards the alleged bogus purchases of aggregates as well as the alleged excess closing stock.

26. While dealing with the issue relating to the purchases of aggregates, the AO observed that the assessee had claimed purchases of boulders and blue metal aggregates despite allegedly having unrestricted access to sufficient quantities of boulders through excessive extraction from its own quarry beyond the licensed limits. According to the AO, no evidence indicating inward movement of boulders or aggregates from outside sources was either found during the course of the search or subsequently produced by the assessee during the assessment proceedings. The AO further observed that the customised software application, namely “Modomines”, maintained by the assessee did not contain any inward entries evidencing purchases of aggregates from third parties or from its partner.

27. Although the assessee had claimed that the purchases were made from M/s.P.S.Blue Metals, the proprietary concern of Shri Subramani Perumal, the AO observed that, upon examination, Shri Subramani Perumal stated that he procured the materials from various third-party suppliers before supplying them to the assessee. However, according to the AO, despite repeated opportunities, neither the assessee nor Shri Subramani Perumal furnished the names, Permanent Account Numbers (PAN), addresses, quarry details, invoices or other supporting particulars relating to such primary suppliers. The AO therefore concluded that the assessee had failed to establish the actual source of procurement of the aggregates and held that no genuine purchases had in fact taken place. Proceeding on this premise, the AO treated the expenditure claimed towards purchase of aggregates as bogus expenditure incurred with the intention of suppressing the taxable profits of the assessee.

28. With regard to the issue of closing stock, the AO observed that the financial statements reflected a closing stock. According to the AO, such a claim was inherently improbable, since diesel is a consumable item required for day-to-day quarrying operations and there could be no commercial justification for maintaining stock exceeding even the annual consumption of diesel by the assessee. The AO further observed that similar abnormalities were noticed in the succeeding financial years as well, thereby strengthening the conclusion that the closing stock figures disclosed by the assessee were not genuine.

29. The AO rejected the assessee’s explanation that the figures merely represented purchases of diesel and explosives inadvertently grouped under the closing stock account. According to the AO, the explanation was unsupported by any credible documentary evidence. The assessee had not furnished invoices, bills, vouchers, e-way bills, goods receipt notes, bank statements or confirmations from the alleged suppliers to substantiate the accounting treatment claimed. The AO further observed that the books of account for the relevant previous year had already been subjected to statutory audit and the audit report in Form No.3CD had been furnished prior to the date of search. According to the AO, had the purchases actually remained unposted to the appropriate expenditure ledgers, the statutory audit could not have been completed in the manner claimed by the assessee. The AO therefore characterised the explanation as a mere self-serving statement unsupported by documentary evidence and, consequently, rejected the assessee’s contention. On the aforesaid reasoning, the AO proceeded to add the amount reflected as closing stock in the seized Tally data u/s.37 of the Act for the relevant assessment years.

30. Consequently, the additions made by the AO for the respective assessment years, which are the subject matter of adjudication before us, are set out hereunder:

(Amount in Rs.)

Particulars	AY 2018-19	AY 2019-20	AY 2020-21	AY 2021-22
Disallowance on account of alleged bogus purchases of aggregates u/s.37	2,45,13,346	12,02,27,196	9,43,26,680	income in the return filed u/s.148, the AO disallowed only  the balance amount.)
Addition towards alleged closing stock difference u/s.37	16,62,12,802	6,48,47,396	72,45,116	–
Total Addition made by the AO	19,07,26,148	17,92,74,594 (Sum of the above additions amounts to Rs.18,50,74,592/-. However, the AO has erroneously arrived at a figure of Rs.17,92,74,594/-)	10,15,74,102	1,06,84,717

31. Consequently, the impugned assessment orders came to be passed by the AO, determining the total income of the assessee as under:

(Amount in Rs.)

Particulars	AY 2018-19	AY 2019-20	AY 2020-21	AY 2021-22
Assessment completed u/s.	147	147	147	143(3)
Date of order	20.03.2025	27.03.2024	27.03.2024	30.12.2022
Total income returned by the assessee	3,41,81,690	2,60,07,840	8,87,92,520	1,86,96,770
Total additions made by the AO as detailed supra	19,07,26,148	17,92,74,594	10,15,74,102	1,06,84,717
Assessed Income	22,49,07,838	20,52,82,434	19,03,66,622	2,93,81,487

32. Being aggrieved by the assessment orders passed by the AO, making additions towards the alleged bogus purchases of aggregates and the alleged difference in the valuation of closing stock, the assessee preferred appeals before the Ld.CIT(A). The Ld.CIT(A), vide separate orders dated 27.02.2026, allowed the appeals relating to AY(s) 2018-19 and 2019-20, partly allowed the appeal for A.Y.2020-21, and dismissed the appeal for A.Y.2021-22. Aggrieved by the relief granted by the Ld.CIT(A), the Revenue is in appeal before us, whereas the assessee is in appeal in respect of the issues decided against it.

33. The nature of the additions involved and the identical grounds raised by the Revenue and the Assessee, the issues arising in these appeals issue-wise to be adjudicated as under:

Issue No.1: Disallowance of bogus purchase of aggregates u/s.37 of the  Act:

34. The details of disallowances u/s.37 of the Act made by the AO on account of the alleged bogus purchases of aggregates for the respective assessment years are as under:

Amount in Rs.

Particulars	AY 2018-19	AY 2019-20	AY 2020-21	AY 2021-22
Disallowance on account of alleged bogus purchases of aggregates u/s.37	2,45,13,346	12,02,27,196	9,43,26,680	1,06,84,717

35. In A.Y.2021-22, the total purchases from the concerned supplier amounted to Rs.2,06,84,717/-. Since the assessee had already offered a sum of Rs.1,00,00,000/- as additional income in the return of income filed in response to the notice issued u/s.148 of the Act, the AO restricted the disallowance to the balance amount of Rs.1,06,84,717/-.

36. On perusal of the assessment orders and the order of the Ld.CIT(A) further reveals that the aforesaid disallowances relate to the purchases made from the following suppliers during the respective assessment years:

AY	Supplier	Amount (Rs.
2018-19	M/s. P.S. Blue Metals, a proprietary concern of Shri Subramani Perumal, one of the partners of the assessee-firm	2,45,13,346
2019-20	M/s. P.S. Blue Metals, a proprietary concern of Shri Subramani Perumal, one of the partners of the assessee-firm	12,02,27,196
2020-21	M/s. P.S. Blue Metals	7,77,33,236
	M/s. RKG Earth Movers	1,10,97,410
	M/s. Shri Chennai Mines	17,68,467
	M/s. RKG Earth Movers (being payments reflected in the seized Tally data)	39,02,344
2021-22	M/s. RKG Earth Movers	2,06,84,717

37. Thus, it is evident that the impugned additions have been made by the AO by treating the purchases effected from the above parties as non-genuine and consequently disallowing the corresponding expenditure claimed by the assessee u/s.37 of the Act. The correctness and sustainability of the said disallowances are the subject matter of adjudication before us.

38. The assessee, before the Ld.CIT(A), assailed the impugned additions by contending that the purchases in question were effected from existing and identifiable concerns, viz., M/s.P.S. Blue Metals, M/s.RKG Earth Movers and M/s.Shri Chennai Mines, all of whom were duly registered under the GST Act and possessed valid PAN and GST registrations. It was further submitted that M/s.P.S. Blue Metals and M/s.Shri Chennai Mines were assessed to income-tax by the very same AO. Therefore, according to the assessee, once the identity and existence of the suppliers were never in dispute, there existed no justification for the AO to characterize the purchases as bogus.

39. The assessee further submitted that the purchases were duly supported by cogent documentary evidence comprising GSTR-2A reflecting the impugned transactions, ledger accounts of the suppliers, bank statements evidencing payments through normal banking channels, sales registers maintained by the suppliers, GST assessment orders accepting the transactions as genuine and income-tax assessment orders passed in the cases of the suppliers wherein the corresponding sales effected to the assessee stood accepted. It was contended that once the transactions had been accepted by the GST authorities as well as by the AO while completing the assessments of the suppliers, the very same AO could not, without bringing any contrary material on record, treat the corresponding purchases in the hands of the assessee as non-genuine.

40. It was further contended that no incriminating material whatsoever had been brought on record either during the course of search or in the assessment proceedings to establish that the impugned purchases represented sham transactions or accommodation entries. According to the assessee, no material had been unearthed to suggest that the suppliers were fictitious entities, that the invoices were merely accommodation bills, that any cash had flown back to the assessee or that the payments made through banking channels had been returned in any manner. It was also pointed out that even the statement recorded from Shri P.Subramani during the course of search did not contain any admission indicating that the purchases effected by the assessee were bogus.

41. The assessee further submitted that the AO had neither rejected the books of account maintained by the assessee nor pointed out any discrepancy in the quantitative records, stock records, GST records or the audited financial statements. It was emphasized that the books of account were duly audited u/s.44AB of the Act and had been accepted by the AO except to the extent of the impugned disallowance.

42. The assessee also contended that the corresponding sales arising out of the impugned purchases had been fully accepted by the AO. Such sales were duly reflected in the audited financial statements and reconciled with the GST returns. It was argued that once the sales were accepted as genuine, the corresponding purchases could not simultaneously be held to be bogus in the absence of any material to establish that the sales themselves were fictitious. It was submitted that no business could effect sales without corresponding purchases and, therefore, the disallowance was contrary to the settled principles governing assessment of business income.

43. The assessee further submitted that if the entire purchases were disallowed, the resultant Gross Profit ratio would increase abnormally, which would be commercially unrealistic and wholly inconsistent with the nature of the assessee’s business. It was argued that the AO had not brought on record any comparable industry data or similar cases to justify such an abnormal Gross Profit ratio.

44. The assessee also assailed the observations of the AO regarding alleged excessive mining, absence of inward movement of materials and the failure of the suppliers to furnish details of their vendors, by submitting that such findings were founded merely on assumptions and surmises. It was contended that no technical report, scientific analysis or independent evidence had been brought on record to establish excessive mining. It was further explained that the blue metal aggregates purchased from the suppliers were transported directly from the crushing units to the customers and, therefore, there was no occasion for any inward movement of such materials into the assessee’s quarry premises. It was also submitted that any alleged deficiency in the maintenance of records by the suppliers could not constitute a valid ground for disallowing genuine purchases effected by the assessee.

45. The assessee also placed considerable reliance upon the findings recorded by the GST authorities, who, after conducting detailed verification both in the case of the assessee and the suppliers, had accepted the transactions as genuine and specifically recorded that the transactions were not circular in nature. It was therefore submitted that the AO could not arrive at a contrary conclusion without conducting any independent enquiry or confronting the findings recorded by the GST authorities.

46. The assessee further placed reliance upon various judicial precedents, including the decisions of the Hon’ble Bombay High Court in PCIT v. SVD Resins & Plastics Pvt. Ltd., PCIT v. Nitin Ramdeoji Lohia and CIT v. Nikunj Eximp Enterprises (P.) Ltd., the Hon’ble Gujarat High Court in CIT v. Nangalia Fabrics (P.) Ltd. and CIT v. M.K. Brothers, the Hon’ble Allahabad High Court in PCIT v. Vijay Kumar Goel and various decisions of the Coordinate Benches of the Tribunal, wherein it has consistently been held that where purchases are supported by bills, books of account, banking records and corresponding sales have been accepted, such purchases cannot be treated as bogus merely on suspicion or on account of deficiencies noticed in the case of the suppliers.

47. On the strength of the aforesaid submissions, the assessee contended that the entire addition rested merely upon conjectures and presumptions without any corroborative material. Since the identity of the suppliers stood established, the purchases were duly reflected in the statutory GST records, payments had been made through banking channels, the corresponding sales stood accepted, no incriminating material had been found during the course of search and the trading results remained consistent with earlier years, the disallowance made u/s.37 of the Act on account of alleged bogus purchases was wholly unsustainable. Accordingly, the assessee prayed for deletion of the additions made in respect of purchases from M/s.P.S.Blue Metals, M/s.RKG Earth Movers and M/s. Shri Chennai Mines for the AY(s) 2018-19 to 2020-21.

48. With regard to the addition of Rs.39,02,344/- made for A.Y.2020-21 on the basis of payments reflected in the seized Tally data in favour of M/s.RKG Earth Movers, the assessee submitted that the said amount represented payments made towards aggregate purchases, all of which had been discharged through normal banking channels, thereby ruling out any inference of cash transactions or non-genuine dealings. It was further submitted that the AO had not disputed the genuineness of the payments nor alleged that the expenditure had been incurred for any purpose other than the legitimate business of the assessee. Consequently, the expenditure qualified for deduction u/s.37(1) of the Act.

49. The assessee further submitted that the Gross Profit ratio declared for A.Y.2020-21 was 19.32%, which was substantially in line with the Gross Profit ratio of 19.40% disclosed in the immediately preceding assessment year, thereby indicating consistency in the trading results and negativing any allegation of inflation of expenditure or suppression of income. It was also contended that the AO had not rejected the books of account u/s.145 of the Act and had accepted the sales disclosed by the assessee. Therefore, in the absence of any specific defect, a partial disallowance of business expenditure was legally untenable. It was submitted that even assuming there were certain deficiencies in the supporting vouchers relating to the aforesaid payments, such minor lapses could not justify disallowance when the genuineness of the transactions, the sales and the overall business results remained undisputed. Accordingly, deletion of the addition of Rs.39,02,344/- was sought.

50. Insofar as the addition of Rs.1,06,84,717/- made for A.Y.2021-22 was concerned, the assessee submitted that the Gross Profit ratio for the relevant year stood at 20.38% as against 19.32% in the immediately preceding year, thereby reflecting an improvement in profitability and completely dispelling the allegation of inflation of purchases or suppression of profits. It was contended that if the entire disallowance of Rs.2,06,84,717/- made by the AO were sustained, the resultant Gross Profit would increase to Rs.10,92,69,451/-, translating into an unrealistic Gross Profit ratio of 25.14%, which was commercially impracticable and wholly inconsistent with the nature of the assessee’s business. It was further submitted that the AO had neither produced any comparable industry data nor demonstrated that similarly placed concerns ordinarily earned such an elevated Gross Profit ratio.

51. The assessee further submitted that although the purchases were genuine, having regard to certain deficiencies noticed in the supporting documentation relating to aggregate purchases amounting to Rs.2,06,84,717/, it had, purely with a view to avoid protracted litigation and by way of abundant caution, voluntarily disallowed a sum of Rs.1,00,00,000/- while computing its taxable income. Consequently, it was submitted that the balance addition of Rs.1,06,84,717/- made by the AO u/s.37 of the Act deserved to be deleted.

52. Without prejudice to the above submissions, the assessee alternatively contended that even assuming, without admitting, that certain deficiencies existed in the supporting documentation relating to the impugned purchases, the settled legal position is that the entire purchases cannot be disallowed and, at the highest, only the profit element embedded in such purchases could be brought to tax.

53. On the aforesaid premises, the assessee prayed before the Ld.CIT(A) that the additions made by the AO u/s.37 of the Act towards the alleged bogus purchases of aggregates for the AY(s) 2018-19 to 2021-22 be deleted in their entirety.

54. Upon due consideration of the submissions advanced by the assessee and the material available on record, the Ld.CIT(A) granted relief in varying degrees across the assessment years under consideration. The additions made by the AO were deleted in entirety for AY(s) 2018-19 and 2019-20. In respect of A.Y.2020-21, the Ld.CIT(A) sustained the addition only in part, whereas for A.Y.2021-22, the addition was confirmed in full. The particulars of the relief granted by the Ld.CIT(A) for the respective assessment years are summarized hereinbelow for the sake of ready reference:

AY	Supplier	Amount (Rs.)	Relief given by the CIT(A)
2018-19	M/s.P.S.Blue Metals, a proprietary concern of Shri Subramani Perumal, one of the partners of the assessee-firm	2,45,13,346	Deleted
2019-20	M/s. P.S. Blue Metals, a proprietary concern of Shri Subramani Perumal, one of the partners of the assessee-firm	12,02,27,196	Deleted
2020-21	M/s.P.S. Blue Metals	7,77,33,236	Deleted
	M/s.RKG Earth Movers	1,10,97,410	Sustained
	M/s.Shri Chennai Mines	17,68,467	Deleted
	M/s.RKG Earth Movers (being payments reflected in the seized Tally data)	39,02,344	Deleted
2021-22	M/s.RKG Earth Movers	1,06,84,717	Sustained

55. The findings of the Ld.CIT(A), insofar as they relate to the deletion and the sustenance of the above additions, are extracted hereunder for the sake of ready reference.

56. The Ld.CIT(A), while deleting the additions made by the AO on account of the alleged bogus purchases of aggregates, has recorded substantially identical findings for all the assessment years under consideration. The findings and reasoning recorded by the Ld.CIT(A) for the A.Y.2018-19 are treated as the lead findings and are extracted hereunder:

“5.3.7 I have carefully examined the assessment order and the submissions made by the appellant. Before adverting to the substantive issue regarding the genuineness of the purchases and the contentions raised by the appellant, it is appropriate to record a prima facie observation with regard to the Tally data found during the course of search. As noted in the assessment order, the initial cross-verification of the Tally data impounded during the search proceedings with the financial statements and the return of income filed by the appellant indicated a suppressed profit of Rs.25,25,73,065/-. However, during the post-search proceedings, the appellant reconciled the differences between the two sets of data and arrived at a residual difference of Rs.33,374/-. The tabulated reconciliation statement furnished by the appellant was incorporated in the assessment order at page 5. !t is on the basis of this cross-verification exercise that the Assessing Officer proceeded to disbelieve the purchases claimed from M/s P.S. Blue Metals, amounting in aggregate to Rs.2,45,13,346/- (and the entry of closing stock difference of Rs.16.62 crores appearing in the seized Tally needs no cross-verification at all, and the reasons will be discussed in the relevant paras below / grounds). !n effect, the appellant was able to substantially reconcile and reduce the variance between the two sets of data during the post-search proceedings. Therefore, the unequivocal inference that emerges from this exercise is that the Tally data found during the course of search cannot, by itself and without further corroborative evidence, be treated as conclusively establishing suppression of profit or claim of non-genuine expenses, particularly when the differences have been largely reconciled through documentary explanation at the time of post-search proceedings itself.

5.3.8 Now adverting to the reasons recorded by the Assessing Officer for disbelieving the purchases from M/s P.S. Blue Metals, it is observed that the principal ground taken in the assessment order is that the appellant had access to sufficient boulders through alleged excessive mining from its own quarry, and that such extraction was made without incurring corresponding expenditure. The first limb of this reasoning, in substance, amounts to an allegation that the appellant had carried out mining operations in excess of the licensed or permitted capacity. However, no material whatsoever has been brought on record in the assessment order to substantiate such an allegation. An addition or disallowance cannot be sustained on the basis of presumption that the appellant must have mined beyond permissible limits, particularly when such an allegation carries regulatory and penal implications under the relevant mining laws. In the absence of any seized material evidencing unrecorded production, the very foundation of the Assessing Officer’s reasoning lacks evidentiary support.

5.3.9 In the second limb of the Assessing Officer’s reasoning, namely that the appellant had extracted boulders “without incurring any expenses”, is equally untenable. Mining activity, by its very nature, involves substantial and unavoidable expenditure towards labour, machinery, fuel, blasting materials, transportation, statutory levies, royalty payments, and environmental compliance. The assessment order does not demonstrate, with reference to seized material or third-party evidence, that such expenditure was either not incurred or was incurred outside the books of account. In fact, the books of account of the appellant reflect regular expenditure towards quarry operations, and no specific defect therein has been pointed out to show suppression of production or inflation of purchases. Without rejecting the books of account under the applicable statutory provisions and without establishing that the recorded expenses are fictitious or incomplete, it is not open to the Assessing Officer to presume that raw materials were generated at nil cost and, on that premise, to disbelieve the purchases effected from M/s P.S. Blue Metals. The reasoning adopted, therefore, proceeds on an assumption that the appellant possessed unaccounted stock generated without cost, and that the purchases recorded in the books were merely accommodative. However, such a conclusion must be supported by tangible and corroborative material evidencing either excess production, unaccounted stock, or circulation of funds. In the absence of such material, the disallowance does not meet the threshold of evidentiary standards required to sustain an addition.

5.3.10 The next observation of the Assessing Officer is that no evidence of inward movement of boulders was found during the course of search, and therefore the purchases were treated as non-genuine. In response, the appellant has submitted that, depending upon business exigencies and urgent customer requirements, the materials purchased were, in certain instances, directly delivered by the supplier to the appellant’s customers. In such circumstances, the goods did not physically reach the appellant’s premises and, consequently, no inward entry or transport record reflecting receipt at the appellant’s yard would be available. The explanation offered by the appellant is consistent with accepted commercial practice, particularly in the trade of construction materials and quarry products, where direct dispatch to customers is undertaken to reduce handling costs, avoid double transportation, and meet time-sensitive supply commitments. The absence of inward movement at the appellant’s premises, therefore, cannot, by itself, lead to the conclusion that the purchases are fictitious, unless it is further demonstrated that the corresponding outward supplies, sales realization, or quantitative records are also unverifiable.

5.3.11 As per the assessment order, due inquiries were conducted with the supplier of impugned blue metals, namely the proprietor of M/s P.S. Blue Metals, who is also a partner in the appellant-firm and had been simultaneously searched along with the appellant. The proprietor, Sri Perumal confirmed the sales made through his proprietary concern and, as per the appellant, provided all relevant records in his possession, including GST returns, income tax filings, and other documentary evidence substantiating the transactions. However, despite the supplier’s confirmation and the submission of comprehensive records, the Assessing Officer did not undertake any independent verification of these documents or examine the consistency of the supplied data with statutory filings. No adverse observation was recorded regarding the completeness or authenticity of the documents furnished by the supplier but referred that no quarry details were furnished, including PAN and address of the primary suppliers. For the year under consideration, there is only one supplier of aggregate metals, and that is the partner of the firm, in the capacity of proprietor of M/s P.S. Blue Metals. When the supplier also was searched and assessed with the same AO, the observations of the AO that ‘no details were furnished’ is factually incorrect. In effect, the AO’s observation ignores the undisputed fact that all relevant transactions and statutory filings of the sole supplier were made available and verified to the extent of the documents in his possession. The absence of additional supplier details is immaterial, as no other supplier existed for the year under consideration, and no evidence was produced to suggest that the transactions were not genuine. Consequently, the basis for disbelieving the purchases is wholly unsubstantiated, not based on any objective evidence found during the course of search. In this regard, the contention of the appellant that no incriminating material was found either at its premises or at the premises of the supplier during the course of search, so as to indicate any bogus supply or purchase of goods, assumes considerable significance. In the absence of any seized material evidencing fictitious transactions, accommodation entries, or unaccounted movement of funds, the allegation of non-genuine purchases lacks foundational support.

5.3.12 Added to the above, the appellant has furnished copies of the GST assessment orders in the case of the supplier, M/s P.S. Blue Metals, as well as in its own case, as purchaser. It is an undisputed fact that no adverse view has been taken by the GST Department in respect of the impugned purchases and corresponding sales. The transactions have been duly reported in the statutory returns filed under the GST law, and the tax liability arising therefrom has been accepted by the competent authority. While proceedings under the Income-tax Act and the GST enactments operate independently, the fact that the very same transactions have been scrutinized under a parallel fiscal statute and have not been found to be sham or fictitious / circuitous assumes evidentiary significance. In the absence of any material demonstrating that the GST findings were erroneous or that the transactions were merely accommodation entries, it would be inconsistent to disregard the purchases solely on presumptive grounds. Thus, the acceptance of the transactions by the GST authorities further fortifies the appellant’s contention that the purchases from M/s P.S. Blue Metals are genuine and duly supported by statutory compliance and documentary evidence.

5.3.13 To conclude, in view of the foregoing discussion, when the Tally data found during the course of search has been substantially reconciled; when the allegation of excessive mining is unsupported by any material evidence; when the absence of inward movement stands satisfactorily explained in light of direct dispatch to customers; when the sole supplier has confirmed the transactions and furnished statutory records; when the supplier himself was subjected to search and assessment by the same Assessing Officer; and when the impugned transactions have been accepted by the GST authorities without any adverse finding — the cumulative effect of these facts leaves no room to sustain the disallowance of purchase of blue metal aggregates and accordingly, the AO is directed to delete the addition made at Rs.2,45,13,346/-. As such, ground No.2 is allowed.”

57. On the basis of the aforesaid findings and the reasons recorded therein, the Ld.CIT(A) deleted the additions made by the AO in respect of the purchases effected from M/s.P S Blue Metals for the A.Y.2019-20. Similarly, for the A.Y.2020-21, the Ld.CIT(A) deleted the additions relating to the purchases made from M/s.P.S.Blue Metals as well as M/s.Shri Chennai Mines, holding that the AO was not justified in treating the said purchases as non-genuine.

58. The findings recorded by the Ld.CIT(A) while upholding the addition of Rs.1,10,97,410/- made by the AO on account of purchases effected from M/s.RKG Earth Movers for the A.Y.2020-21 are reproduced hereunder:

“5.3.13 As discussed in para 5.3.5 above, the total purchases disallowed by the Assessing Officer pertain to three parties, namely: (1) M/s PS Blue Metals – Rs.7,77,33,236/-, (2) M/s RKG Earth Movers – Rs.1,10,97,410/-, and (3) M/s Shri Chennai Mines – Rs.17,68,467/-. The evidences furnished in respect of M/s PS Blue Metals and M/s Shri Chennai Mines have already been examined in detail and found to be satisfactory. The purchases from these two parties stand duly substantiated and are accepted as genuine. However, the position is materially different in respect of purchases from M/s RKG Earth Movers. In this case, the appellant has merely furnished copies of GST returns and bank account statements to demonstrate that payments were made through banking channels. No further corroborative evidence has been produced to prove the genuineness of the sales like the GST assessment order, income-tax particulars of the supplier, or any other independent documentary evidence to establish the genuineness of the transactions, as was done in the case of the other two suppliers. The onus to substantiate the genuineness of the purchases squarely rests upon the appellant. The general contention that, since the corresponding sales have not been doubted, no adverse inference can be drawn with regard to the impugned purchases, is untenable. The allowability of purchases cannot be accepted merely on the strength of recorded sales, particularly when the impugned purchases constitute a specific and identifiable portion of the total purchases reported. The ratio of such disputed purchases to the overall purchases, when examined vis-à-vis the sales turnover declared by the appellant, does not ipso facto validate the genuineness of the transactions. Each purchase transaction must independently withstand scrutiny, and failure to substantiate the same with cogent and corroborative evidence cannot be cured merely by the existence of corresponding sales entries.

5.3.14 As regards production of evidences, mere production of GST returns and proof of payment through banking channels, without supporting evidence establishing the identity, creditworthiness, and business activity of the supplier, cannot by itself discharge this burden. The evidentiary deficiency in respect of M/s RKG Earth Movers, therefore, remains unaddressed and cannot be overlooked. In view of the foregoing discussion, it is evident that the appellant has failed to discharge the primary onus cast upon it to substantiate the genuineness of the purchases claimed from M/s RKG Earth Movers. Mere filing of GST returns and proof of payment through banking channels, in the absence of further supporting evidence, is insufficient to conclusively establish the genuineness of the transactions. Accordingly, the disallowance made by the Assessing Officer in respect of purchases amounting to Rs.1,10,97,410/- from M/s RKG Earth Movers is found to be justified and is hereby sustained.

5.3.15 To conclude, in view of the foregoing discussion, when the Tally data found during the course of search has been substantially reconciled in respect of two concerns – M/s PS Blue Metals and M/s Shri Chennai Mines; when the allegation of excessive mining is unsupported by any material evidence; when the absence of inward movement stands satisfactorily explained in light of direct dispatch to customers; when the two supplier has confirmed the transactions and furnished statutory records; when one of the supplier himself was subjected to search and assessment of the two concerns was made by the same Assessing Officer; and when the impugned transactions have been accepted by the GST authorities without any adverse finding — the cumulative effect of these facts leaves no room to sustain the disallowance of purchase of blue metal aggregates from M/s PS Blue Metals and M/s Shri Chennai Mines. As such, the appellant gets relief of Rs.8,32,31,270/- out of the total addition of Rs.9,43,28,680/- made under this head. Accordingly, ground No.2 is partly allowed.”

59. The relevant findings and observations of the Ld.CIT(A), whereby the addition of Rs.39,02,344/- made by the AO, representing the payments pertaining to M/s.RKG Earth Movers as reflected in the seized Tally data for the A.Y.2020-21, came to be deleted, are reproduced hereunder:

“6. The last Ground No.4 is against the disallowance of Rs.39,02,344/-, being payments to M/s RKG Earth Movers, as reflected in the seized Tally. The AO had not made any specific comments on these payments but has broadly analysed the figures appearing in the seized Tally and made the disallowance. Against this disallowance, the appellant submits that the payments to M/s RKG Earth Movers are towards aggregate purchases; that the said payments are made through proper banking channels leaving no scope for any inference of cash transactions / nongenuine transactions; that the AO had not disputed the genuineness of the payments or that the expenditure was incurred for any purpose other than their legitimate business; that the AO had not rejected the books of account and the sales declared are accepted as such and therefore, partial disallowance of business expenditure without identifying the specific discrepancy cannot be sustained.

6.1 I have gone through the assessment order and the submissions of the appellant. As discussed in para 5.3 above, the total purchases from M/s RKG Earth Movers were disallowed in the absence of any corroborative evidences furnished by the appellant, as was done while substantiating the purchases from the other two parties. Since the entire purchases of Rs.1,10,97,410/- from this party for the year have already been held to be unsubstantiated and disallowed, any further disallowance of payments made to the same party would result in duplication of addition. Once the purchases themselves stand disallowed, the corresponding payments cannot again be subjected to separate disallowance. Therefore, the addition, to the extent it pertains to the disallowance of payments made to M/s RKG Earth Movers over and above the purchase disallowance, is not sustainable and is accordingly deleted. As such, Ground No.4 is allowed.”

60. The relevant observations and findings of the Ld.CIT(A), while upholding the addition of Rs.1,06,81,717/- made by the AO for the A.Y.2021-22, are reproduced hereunder:

“5.6 I have carefully examined the assessment order and the submissions made by the appellant. Though the general observations of the AO for disbelieving the purchases that the appellant had access to sufficient boulders through alleged excessive mining from its own quarry without incurring expenses are not so acceptable and does not meet the threshold of evidentiary standards required to sustain an addition, added to the submissions made by the appellant in this regard for earlier years, at the same time the appellant had also not furnished any further evidences in respect of purchases, except invoices, from M/s RKG and submitted that these cash purchases account for only 4.75% and be accepted. !n the absence of further corroborative evidence to prove the genuineness of the sales like the GST assessment order, income-tax particulars of the supplier, or any other independent documentary evidence to establish the genuineness of the transactions, as was done in the case of the other two suppliers for earlier assessment years, the claim of the appellant with regard to purchases cannot be accepted.

5.7 The general contention that, since the corresponding sales have not been doubted, no adverse inference can be drawn with regard to the impugned purchases is untenable. The allowability of purchases cannot be accepted merely on the strength of recorded sales, particularly when the impugned purchases constitute a specific and identifiable portion of the total purchases reported. The ratio of such disputed purchases to the overall purchases, when examined vis-à-vis the sales turnover declared by the appellant, does not ipso facto validate the genuineness of the transactions. Each purchase transaction must independently withstand scrutiny, and failure to substantiate the same with cogent and corroborative evidence cannot be cured merely by the existence of corresponding sales entries.

5.8 As regards production of evidences, mere production of invoices, without supporting evidence establishing the identity, creditworthiness, and business activity of the supplier, cannot by itself discharge this burden. The evidentiary deficiency in respect of M/s RKG Earth Movers, therefore, remains unaddressed and cannot be overlooked. In view of the foregoing discussion, it is evident that the appellant has failed to discharge the primary onus cast upon it to substantiate the genuineness of the purchases claimed from M/s RKG Earth Movers.

5.9 The above discussion leaves for consideration the alternate claim of the appellant that only the profit element embedded in the alleged purchases should be disallowed. However, from the submissions and material placed on record, it is evident that the appellant has admitted that the impugned transactions were cash purchases. The issue in the present case, therefore, is not merely one of possible inflation of purchase price through accommodation entries, but one where the genuineness and verifiability of the transactions themselves remain unsubstantiated. In circumstances where the appellant has failed to furnish supporting documentary evidence such as confirmations, transportation details, delivery challans, or other corroborative material to establish the identity of the supplier and the genuineness of the transactions, the deficiency is not confined to estimation of excess profit. The foundational requirement of proving the authenticity of the purchases has not been discharged.

5.10 Accordingly, this is not a fit case for applying or estimating a profit percentage on the alleged purchases, particularly when the quantum of purchases from M/s RKG accounts for only 4.75% of the total sales, as worked out by the appellant. Given the relatively small proportion of such purchases vis-à-vis the overall turnover, and considering the nature of the business, there exists a reasonable possibility that the appellant might not have procured the material at all and merely recorded payments against such purchases. When there is an admitted cash outflow, but no credible evidence demonstrating the corresponding inflow of goods/boulders—such as transportation details, delivery challans, stock register entries, or confirmation from the supplier—the genuineness of the transactions remains unproved. In such circumstances, the defect goes to the root of the claim and is not amenable to estimation of profit element. Accordingly, the balance addition made by the Assessing Officer (after considering the amount of Rs.1 crore admitted by the appellant in the revised return) in respect of purchases from M/s RKG at Rs.1,06,81,717/- is sustained in full. The ground No 3 to 3.4 are dismissed.”

61. Being aggrieved by the impugned order of the Ld.CIT(A), whereby substantial additions were deleted and the remaining additions were sustained, both the Revenue as well as the assessee have preferred the present cross appeals before this Tribunal.

62. The Ld.DR, Ms.Nayani Swapna, CIT, appearing on behalf of the Revenue, relied upon the assessment order as well as the grounds of appeal raised by the Revenue. The Ld.DR submitted that the Ld.CIT(A) was no justified in deleting the addition made by the AO towards alleged bogus purchases of aggregates.

63. The Ld.DR contended that the Ld.CIT(A) failed to properly appreciate the findings recorded by the AO regarding the lack of genuineness of the impugned purchase transactions. According to the Ld.DR, the AO had categorically recorded that the assessee failed to produce primary evidence, such as transportation documents, inward stock registers, delivery challans or any other evidence establishing the actual movement and receipt of goods. The Ld.DR further submitted that the purchases were claimed to have been made from a related concern, wherein Shri Subramani Perumal, a partner of the assessee-firm, was the proprietor/partner, thereby increasing the possibility of accommodation entries. In such circumstances, mere production of ledger accounts or self-serving confirmations could not discharge the burden cast upon the assessee to establish the genuineness of the purchases.

64. The Ld.DR further submitted that the Ld.CIT(A) accepted the explanation of the assessee primarily on the basis of GST returns and confirmation furnished by the supplier concern, without undertaking any independent verification of the transactions. According to the Ld.DR, the object and scope of proceedings under the GST law are entirely distinct from those under the Income-tax Act. Merely because the transactions were reflected in the GST returns or accepted by the GST authorities would not, by itself, establish the genuineness of the purchases for the purposes of the Income-tax Act. At best, the GST records only demonstrate that the supplier had collected and remitted GST on the alleged supplies, which, according to the Ld.DR, cannot be regarded as conclusive proof of the actual movement and delivery of goods.

65. The Ld.DR further submitted that the findings of the Ld.CIT(A) also overlooked the statements recorded during the course of search proceedings. The Ld.DR pointed out that Shri Perumal Subramani had stated that his proprietary concern, M/s.P.S.Blue Metals, was engaged in trading of blue metal aggregates procured from various third-party suppliers for onward supply to the assessee-firm. However, neither the assessee nor Shri Perumal Subramani had furnished the particulars of such third-party suppliers, including their names, addresses, PAN, purchase invoices or transportation details. According to the Ld.DR, in the absence of these basic evidence, the source of the goods itself remained unverified, thereby casting serious doubt on the genuineness of the purchase transactions.

66. The Ld.DR, therefore, submitted that the failure of the assessee to establish the identity and capacity of the alleged suppliers, coupled with the absence of evidence regarding the actual movement of goods, clearly indicated that the impugned purchases were not supported by credible evidence and could well represent accommodation entries. The Ld.DR contended that reliance merely on ledger accounts, GST returns and confirmations from a related party could not substitute independent corroborative evidence, particularly in the context of search proceedings involving related-party transactions. The Ld.DR, therefore, submitted that the Ld.CIT(A) erred in treating the purchases as genuine without addressing these material deficiencies and prayed that the order of the AO on this issue be restored.

67. In so far as the additions sustained by the Ld.CIT(A) for the AY(s) 2020­21 and 2021-22 are concerned, the Ld.DR placed reliance on the findings recorded in the impugned appellate orders and submitted that the same are well-reasoned and do not call for any interference. The Ld.DR therefore, prayed that the orders of the Ld.CIT(A), to the extent they sustain the additions, be upheld.

68. Per contra, Shri R.Venkata Raman, CA, the Ld.AR appearing on behalf of the assessee, strongly supported the impugned order of the Ld.CIT(A), in so far as it relates to the deletion of the additions made for the AY(s) 2018-19, 2019-20 and 2020-21. The Ld.AR submitted that the findings recorded by the Ld.CIT(A) are based upon a proper appreciation of the facts and material available on record, are supported by cogent reasons, and do not suffer from any legal or factual infirmity warranting interference by this Tribunal.

69. The Ld.AR submitted that the assessee, Shri Subramani Perumal, Proprietor of M/s.P.S. Blue Metals, and M/s.Shri Chennai Mines were all subjected to search proceedings on the same date, namely, 02.03.2022. It was contended that no incriminating material whatsoever was found or seized from any of the searched premises to establish that the purchases of aggregates made by the assessee from M/s.P.S.Blue Metals or M/s.Shri Chennai Mines were either fictitious or represented accommodation entries. It was further submitted that the AO had neither conducted any independent investigation nor brought on record any material to establish that the assessee had indulged in bogus purchases or accommodation transactions. According to the Ld.AR, in the complete absence of any incriminating evidence, the additions made by the AO rest merely upon suspicion and conjectures and, therefore, the Ld.CIT(A) was fully justified in deleting the same.

70. Replying to the submissions advanced by the Ld.DR, the Ld.AR submitted that even before this Tribunal, the Revenue has failed to place any material on record to demonstrate that the purchases treated as bogus by the AO were, in fact, non-genuine. It was submitted that merely because the purchases were made from related concerns, the same could not, by itself, constitute a valid ground to treat the transactions as bogus.

71. Inviting our attention to page 7 of the assessment order for the A.Y.2018-19, the Ld.AR pointed out that the AO himself had examined Shri Subramani Perumal during the course of assessment proceedings, wherein he had categorically confirmed the supply of aggregates to the assessee. It was submitted that it is not even the case of the Revenue that Shri Subramani Perumal had admitted that the transactions were fictitious or represented accommodation entries.

72. The Ld.AR further submitted that the assessee had duly discharged the burden cast upon it under the provisions of the Act by producing overwhelming documentary evidence establishing the genuineness of the purchases. It was submitted that the purchases are duly reflected in the assessee’s GSTR-2A; the corresponding tax invoices containing GST particulars have been furnished; the ledger account of the supplier appearing in the books of the assessee evidences the transactions; the corresponding sales have been duly recorded in the books of M/s.P.S.Blue Metals and offered to tax; payments have been made entirely through normal banking channels; and the supplier has accounted for the receipts in its regular books of account. According to the Ld.AR, each link in the chain of transactions thus stands fully corroborated by contemporaneous documentary evidence.

73. The Ld.AR further invited our attention to the proceedings before the GST authorities and submitted that the very same transactions between the assessee and M/s.P.S.Blue Metals were subjected to scrutiny by the State Tax Department and were accepted as genuine. Likewise, in the assessment proceedings relating to the supplier, the Assistant Commissioner (State Tax) had also accepted the sales effected to the assessee without recording any adverse finding. It was therefore contended that once the competent statutory authority entrusted with examining indirect tax transactions had accepted the genuineness of the purchases, the AO could not have independently characterised the same as bogus without bringing any cogent material on record.

74. In support of the above proposition, the Ld.AR placed reliance upon the decision of the Hon’ble Bombay High Court in PCIT v. SVD Resins & Plastics Pvt. Ltd. and submitted that purchases cannot be disallowed merely on the basis of general information, suspicion or surmises and that due weight ought to be given to the findings recorded by the Sales Tax authorities wherever the transactions have been accepted by them. It was submitted that the ratio laid down therein squarely applies to the facts of the present case.

75. The Ld.AR further submitted that no incriminating material was found during the course of search indicating that the impugned purchases were fictitious or represented accommodation entries. It was argued that no material has been brought on record to establish that the assessee had procured materials from the grey market or that any cash had flown back from the supplier to the assessee. Even the sworn statement of Shri P. Subramani recorded during the course of search does not contain any admission that the purchases were bogus. According to the Ld.AR, the additions are therefore founded entirely upon suspicion and presumptions unsupported by any tangible evidence.

76. Placing reliance upon the judgment of the Hon’ble Gujarat High Court in CIT v. M.K. Brothers, the Ld.AR submitted that in the absence of any material to establish that payments made through banking channels had returned to the assessee in cash, purchases cannot be treated as bogus merely on suspicion. Similar principles, according to the Ld.AR, have also been reiterated by the Hon’ble Bombay High Court in the case of SVD Resins & Plastics Pvt. Ltd. (supra).

77. The Ld.AR further submitted that the AO has accepted the books of account maintained by the assessee as well as the sales disclosed therein. The turnover declared by the assessee has not been disturbed, nor has any adverse finding been recorded with regard to the quantitative details, stock records or sales effected during the relevant years. It was argued that once the corresponding sales have been accepted, the purchases resulting in such sales cannot simultaneously be regarded as non-genuine.

78. In support of the aforesaid contention, the Ld.AR placed reliance upon the decisions of the Hon’ble Bombay High Court in CIT v. Nikunj Eximp Enterprises (P.) Ltd. and PCIT v. Nitin Ramdeoji Lohia, wherein it has been consistently held that where the sales have been accepted and the purchases are duly supported by books of account, invoices and banking transactions, no addition towards alleged bogus purchases can be sustained merely on the basis of doubts entertained by the AO regarding the supplier.

79. The Ld.AR also submitted that the gross profit declared by the assessee during the relevant assessment years is broadly in line with the gross profit disclosed in the preceding years and there is no abnormal suppression of profits. It was contended that if the entire purchases is disallowed, the resultant gross profit would exceed 21%, which is commercially unrealistic and wholly inconsistent with the prevailing standards in the mining industry. Such an artificial enhancement of profitability itself demonstrates the unsustainability of the approach adopted by the AO.

80. Dealing with the specific observations made in the assessment order, the Ld.AR submitted that the allegation regarding excessive mining operations is not supported by any technical report, survey report or any finding recorded by the competent regulatory authorities. Likewise, the observation regarding the absence of inward movement of materials proceeds on an erroneous appreciation of the business model adopted by the parties, since the aggregates were directly dispatched from the crushing unit of M/s.P.S.Blue Metals to the customers of the assessee, and therefore there was no occasion for the goods to physically enter the quarry premises of the assessee. It was further submitted that the inability of the supplier to furnish details relating to its own vendors cannot be held against the assessee, particularly when the supplier is an existing taxable entity whose sales have been accepted by the GST authorities. Summing up his arguments, the Ld.AR submitted that the AO has neither rejected the books of account maintained by the assessee nor disproved any of the documentary evidence produced in support of the purchases. No cash trail has been established, no incriminating material has been unearthed during the course of search, and neither the sales nor the consumption of materials has been disputed. The impugned additions, according to the Ld.AR, are thus based entirely on assumptions, conjectures and suspicion, which cannot legally sustain an addition under the provisions of the Act.

81. In the light of the aforesaid submissions, the Ld.AR prayed that the well-reasoned order passed by the Ld.CIT(A) deleting the additions made towards alleged bogus purchases be upheld and that the grounds raised by the Revenue challenging such deletion be dismissed.

82. In so far as the addition of Rs.1,10,97,410/- pertaining to the purchases made from M/s.R K G Earth Movers for the A.Y.2020-21 is concerned, the Ld.AR submitted that the impugned purchases are duly supported by GST invoices and have been duly accounted for in the books of account. It was further submitted that the goods so purchased have been utilized in the course of business and the corresponding sales arising therefrom have been accepted by the Revenue without any adverse finding. Therefore, according to the Ld.AR, once the sales have been accepted as genuine, the corresponding purchases cannot, in the absence of any cogent material to the contrary, be treated as bogus. In support of the said contention, the Ld.AR placed reliance on various judicial precedents and contended that the Ld.CIT(A) was not justified in sustaining the addition of Rs.1,10,97,410/-. Accordingly, the Ld.AR prayed for deletion of the impugned addition.

83. With regard to the addition of Rs.1,06,84,717/- sustained by the Ld.CIT(A) for the A.Y.2021-22, the Ld.AR submitted that the addition of Rs.1,06,84,717/- towards alleged bogus purchases was wholly unjustified both on facts and in law. It was contended that the assessee had disclosed a GP ratio of 20.38% during the year under consideration as against 19.32% in the immediately preceding assessment year.  ince the GP ratio had improved and there was no abnormal fall in profitability, the allegation of inflation of purchases was devoid of merit. It was further submitted that if the entire disputed purchases were disallowed, the resultant GP ratio would increase to 25.14%, which was commercially unrealistic and unsupported by any industry benchmark.

84. The Ld. AR pointed out that, considering certain deficiencies in the supporting documents relating to aggregate purchases, the appellant had voluntarily disallowed a sum of Rs.1,00,00,000/-, resulting in an enhanced GP ratio of 22.68%, which was substantially higher than that of the earlier year. Therefore, the further disallowance of Rs.1,06,84,717/- was unwarranted. Reliance was placed on the decision of the Coordinate Agra Bench of the Tribunal in Shri Shanti Swaroop Jain v. CIT, wherein it was held that no addition towards bogus purchases could be sustained in the absence of conclusive evidence, particularly when the declared GP ratio was reasonable and the addition resulted in an abnormally high GP ratio.

85. The Ld.AR further submitted that the corresponding sales had been fully accepted by the AO and the books of account, duly audited u/s.44AB of the Act, had not been rejected. It was argued that the impugned purchases had been converted into sales during the relevant previous year and the AO had not disputed the sales disclosed by the appellant. Therefore, once the sales were accepted as genuine, the corresponding purchases could not be treated as bogus, as no business could effect sales without procuring the corresponding goods. Reliance was placed on the decisions of the Hon’ble Bombay High Court in PCIT v. Nitin Ramdeoji Lohia and CIT v. Nikunj Eximp Enterprises (P.) Ltd., as well as the decisions of the Kolkata and Chennai Benches of the Tribunal in ITO v. Sri Puspal Kumar Das and Syed Mubarak Ali v. ACIT, to contend that where sales are accepted and books are not rejected, disallowance of purchases is unsustainable.

86. Without prejudice to the above submissions, the ld.AR contended that even assuming there were deficiencies in the purchase documentation, settled judicial principles permitted only the profit element embedded in such purchases to be brought to tax and not the entire purchase value. Reliance was placed on the judgments of the Hon’ble Gujarat High Court in CIT v. Bholanath Polyfab (P.) Ltd. and PCIT v. Sunil Mittal (HUF), wherein it was held that only the profit element embedded in purchases from non-genuine parties could be assessed. The ld.AR further relied upon the recent decision of the coordinate bench of this Tribunal in DCIT v. Radiance Realty Developers India Ltd., wherein the Tribunal upheld the estimation of only the embedded profit in alleged bogus purchases, and on the judgment of the Hon’ble Madras High Court in CIT v. SPL Infrastructure Pvt. Ltd., wherein the Court held that complete disallowance of expenditure leading to unrealistic profitability was not justified and that only a reasonable estimate of profit could be made based on past results.

87. The Ld.AR submitted that if the GP ratio of 20.38% was applied to the disputed purchases of Rs.2,06,84,717/-, the embedded profit would work out only to Rs.42,15,545/-. Since the appellant had already voluntarily offered a sum of Rs.1,00,00,000/- for taxation, which was substantially higher than the possible profit element, no further disallowance was warranted. It was, therefore, prayed that the addition of Rs.1,06,84,717/- made u/s.37 of the Act be deleted in full.

88. We have duly considered the rival contentions, perused the assessment orders, the impugned orders passed by the Ld.CIT(A), the voluminous paper books filed before us, the documentary evidences placed on record, the written submissions, the judicial precedents relied upon by the respective parties and the entire material available on record.

89. The principal controversy arising for our consideration relates to the disallowance made by the AO u/s.37 of the Act, by treating the purchases of blue metal aggregates effected by the assessee from various suppliers, such as M/s.P.S.Blue Metals, M/s.Shri Chennai Mines and M/s.RKG Earth Movers as non-genuine. While the AO proceeded on the premise that the purchases represented merely accommodation entries unsupported by actual movement of goods, the assessee has consistently maintained that the purchases were genuine business transactions duly supported by statutory records, banking transactions, GST compliances, books of account and corresponding sales. The Ld.CIT(A), after examining the evidence supplier-wise, accepted the explanation of the assessee in respect of purchases made from M/s.P.S.Blue Metals and M/s.Shri Chennai Mines and granted substantial relief, whereas the additions relating to purchases from M/s.RKG Earth Movers were sustained. Consequently, both the Revenue as well as the assessee are in appeal before this Tribunal.

90. Before adverting to the rival contentions, it would be appropriate to notice the settled legal position governing additions on account of alleged bogus purchases. The initial burden undoubtedly lies upon the assessee to establish the genuineness of the expenditure claimed by producing primary evidence demonstrating the identity of the supplier, the genuineness of the transaction and the business nexus of the expenditure. Equally well settled, however, is the principle that once the assessee produces primary documentary evidence in support of the transaction, the burden shifts upon the Revenue to rebut such evidence by bringing on record cogent material establishing that the apparent is not real. Suspicion, however strong, conjectures, surmises or probabilities cannot substitute legal proof. An addition affecting taxable income must necessarily rest upon tangible evidence capable of withstanding judicial scrutiny.

91. Keeping the aforesaid principles in view, we have carefully examined the basis on which the AO proceeded to treat the purchases as bogus. A reading of the assessment orders reveals that the disallowance substantially rests upon four circumstances, namely, firstly, the allegation that the assessee had sufficient availability of boulders through excessive mining operations and therefore had no necessity to purchase aggregates from outside parties; secondly, the alleged absence of evidence regarding inward transportation of materials into the assessee’s premises; thirdly, the alleged failure of the suppliers to furnish complete particulars regarding their own vendors; and lastly, the observations recorded on the basis of the seized Tally data during the course of search proceedings. It is therefore necessary to examine whether these circumstances, individually or cumulatively, are sufficient to justify the conclusion arrived at by the AO.

92. It is an undisputed fact that a search and seizure operation u/s.132 of the Act was conducted simultaneously in the business premises of the assessee, M/s.P.S. Blue Metals, Shri Subramani Perumal, M/s.Shri Chennai Mines and the other connected group concerns. The very object of a search u/s.132 of the Act is to enable the Revenue to unearth concealed income and detect tax evasion through the discovery and seizure of incriminating books of account, documents, electronic records, valuables and other evidence which may not ordinarily be available during the course of a regular assessment. Search proceedings constitute one of the most potent investigative tools available to the Department, and consequently, any addition arising pursuant to such proceedings is expected to have a direct nexus with the incriminating material unearthed during the course of the search.

93. However, upon a careful and independent examination of the assessment orders as well as the records placed before us, we find that the AO has not referred to any seized material whatsoever which establishes that the purchases effected by the assessee from M/s.P.S.Blue Metals, M/s.Shri Chennai Mines or M/s.R.K.G.Earth Movers during the assessment years 2018­19 to 2021-22 were sham, fictitious or accommodation transactions. Even during the course of hearing before us, the Ld.DR was unable to point out any specific seized document or electronic record forming the basis for such conclusion.

94. There is absolutely no material brought on record in the form of seized loose sheets, parallel books of account, unaccounted cash books, diaries, transport registers, delivery challans, weighbridge records, inward registers, electronic correspondence, digital data, WhatsApp messages, e-mails, accommodation bills or any other contemporaneous evidence to suggest that the suppliers had merely issued invoices without actual supply of goods. Likewise, no evidence has been brought on record to establish that the purchase consideration paid by the assessee had been returned in cash or that there existed any circulation of unaccounted money between the assessee and the aforesaid suppliers. Neither has any statement recorded during the course of search been relied upon to demonstrate that the transactions were merely make-believe arrangements. In short, there is a complete absence of any incriminating evidence discovered during the course of the search linking the assessee with the alleged accommodation purchase transactions.

95. On the contrary, we find that the entire foundation of the additions rests only upon certain assumptions and inferences drawn by the AO from surrounding circumstances, without any corroborative evidence emanating from the search proceedings. Suspicion, however strong, cannot take the place of legal proof. Additions under the Act cannot be sustained merely on conjectures, surmises or probabilities, particularly when the Department, despite conducting an extensive search u/s.132 of the Act, has failed to discover any incriminating material supporting the allegation of bogus purchases.

96. It is a well-settled proposition of law that where the Revenue alleges that the purchases claimed by the assessee are bogus, and the assessee has discharged its initial onus by producing the primary evidence in support of such purchases, the burden thereafter shifts upon the Department to establish, by bringing cogent, credible and clinching material on record, that the impugned transactions are not genuine. The said principle assumes greater significance in proceedings arising out of a search under the Act, where the very object of the search is to unearth incriminating material evidencing suppression of income or fictitious transactions.

97. In the present case, the assessee has placed on record the ledger accounts of the suppliers, GST records, bank statements evidencing payment through banking channels and the corresponding sale transactions. These documentary evidence constitute sufficient primary material to discharge the initial burden cast upon the assessee. The AO has neither disproved the authenticity of the said records nor brought any material on record to establish that the documents produced are fabricated or otherwise not genuine.

98. We further note that an extensive search operation was conducted not only in the case of the assessee but also in the cases of the suppliers and other connected group concerns. However, the Revenue has failed to bring on record even a single seized document, statement or any other incriminating material demonstrating that the impugned purchases were fictitious, that no goods were actually supplied, or that the transactions were merely accommodation entries. In the absence of any such incriminating evidence, the impugned addition rests merely upon suspicion, surmises and generalized observations, which cannot substitute legal proof. It is a settled principle that however strong a suspicion may be, it cannot take the place of evidence. Accordingly, the addition made by the AO towards alleged bogus purchases of aggregates is unsustainable in law.

99. Therefore, considering the totality of the facts and circumstances of the case, we are of the considered opinion that, in the absence of any incriminating material unearthed during the course of search establishing that the assessee had indulged in booking bogus purchases from M/s.P.S.Blue Metals, M/s.Shri Chennai Mines or M/s.R.K.G. Earth Movers, the AO was not justified in making the impugned additions. We accordingly find no infirmity in the well-reasoned order of the Ld.CIT(A), who has rightly deleted the additions for the AY(s) 2018­19, 2019-20 and 2020-21. The findings recorded by the Ld.CIT(A) are, therefore, affirmed.

100. One of the principal circumstances relied upon by the AO is the Tally data impounded during the course of search. We find considerable force in the reasoning adopted by the Ld.CIT(A.) while examining the evidentiary value of the said electronic records. The assessment order itself records that upon initial comparison between the seized Tally data and the books of account maintained by the assessee, a substantial difference was noticed. However, during the post-search proceedings, the assessee furnished a detailed reconciliation explaining almost the entire variation and reducing the unreconciled difference to a negligible amount which has been duly accepted by the Revenue. Significantly, the AO has not demonstrated that the reconciliation furnished by the assessee is factually incorrect. Once the electronic data has been substantially reconciled with the regular books of account, it ceases to constitute independent incriminating evidence capable of sustaining additions merely on presumptions. The Ld.CIT(A.), in our considered opinion, has rightly observed that the seized Tally data, by itself, cannot conclusively establish suppression of income or inflation of purchases unless supported by further corroborative material. We therefore find no reason to differ from the conclusion arrived at by the Ld.CIT(A.) on this aspect.

101. The next circumstance relied upon by the AO is the allegation that the assessee had undertaken excessive mining operations and, consequently, possessed sufficient raw material for its production requirements, thereby obviating the necessity of procuring aggregates from outside parties. We are unable to persuade ourselves to accept the said reasoning.

102. At the outset, it is to be noted that an allegation of excessive or illegal mining is not a mere factual assertion but one which carries serious civil and statutory consequences under the applicable mining laws. Such a finding cannot rest upon assumptions or surmises but must necessarily be founded upon cogent and credible evidence in the form of inspection reports, geological surveys, production records maintained under the mining regulations, or findings recorded by the competent statutory authorities administering the mining laws. In the present case, no such material has been brought on record. Neither the assessment order nor the submissions advanced on behalf of the Revenue make any reference to any report of the Department of Geology and Mining, any inspection conducted by the competent authority, or any proceedings initiated alleging illegal or excessive extraction of minerals by the assessee. In the absence of any such objective and independent evidence, the conclusion drawn by the AO that the assessee had sufficient unaccounted boulders to meet its production requirements in lieu of the impugned purchases is nothing more than a conjectural inference unsupported by the record.

103. Even otherwise, the Revenue has failed to establish, by adducing any cogent material, that the quantities allegedly extracted through excessive mining had, in fact, found their way into the books of account by being reflected as purchases from the impugned suppliers. In the absence of any nexus between the alleged excess extraction and the disputed purchase transactions, the entire premise on which the addition has been founded remains wholly speculative. Accordingly, we are of the considered view that the allegation of the AO rests merely on suspicion and conjecture, unsupported by any legally admissible evidence, and therefore cannot be sustained in the eyes of law.

104. Equally untenable is the further assumption that such alleged excess extraction was carried out without incurring any expenditure whatsoever. Quarrying and mining operations inevitably involve substantial expenditure towards drilling, blasting, labour, machinery, diesel, transportation, royalty and statutory levies. The books of account maintained by the assessee disclose expenditure under all these heads and the AO has nowhere held that such expenditure is fictitious or inflated. Without rejecting the books of account u/s.145 of the Act or demonstrating that the expenditure recorded therein is false, the AO could not have proceeded on the assumption that the assessee generated raw materials at nil cost and consequently had no necessity to purchase aggregates from third parties. Such reasoning, in our considered view, is contrary to ordinary commercial realities.

105. Another circumstance strongly relied upon by the AO is the alleged absence of inward movement of goods into the business premises of the assessee. We are unable to accept this contention as a determinative circumstance for holding the purchases to be non-genuine.

106. The consistent explanation of the assessee has been that, depending upon the commercial exigencies and urgency of customer requirements, the aggregates purchased from the suppliers were, in several instances, directly transported from the crushing units of the suppliers to the sites of the customers. Such an arrangement, according to the assessee, was adopted to avoid double transportation, reduce handling costs and ensure timely delivery. In our considered view, such a mode of execution of transactions is neither unusual nor inconsistent with the prevailing commercial practices in the trade of quarry products and construction materials.

107. The AO has not brought on record any material to establish that such direct dispatch was either impossible or inconsistent with the contractual understanding between the assessee, the suppliers and the ultimate customers. In the absence of any such material, the mere non-availability of inward transportation records evidencing movement of goods into the assessee’s premises cannot, by itself, lead to the conclusion that the purchases were fictitious or non-genuine.

108. What assumes significance is whether the goods ultimately reached the customers and whether the corresponding sales have been accepted as genuine. On perusal of the ledger accounts of purchases and sales placed in the paper book for the impugned assessment years, we find that the purchases in question have duly resulted in corresponding sales during the relevant assessment years. Significantly, it is not the case of the Revenue that the corresponding sales effected by the assessee are fictitious or have been rejected. On the contrary, the sales disclosed by the assessee, as well as the corresponding sales recorded by M/s.P.S.Blue Metals, the proprietary concern of Shri Perumal Subramani, and M/s.Shri Chennai Mines, have been accepted by the Revenue without any adverse finding.

109. Once the sales have been accepted as genuine, it would be incongruous to hold that the corresponding purchases are bogus merely because the inward movement of goods into the assessee’s premises was not evidenced in the manner expected by the AO. Acceptance of the sales necessarily presupposes the existence and movement of the goods forming the subject matter of such sales. In the absence of any material establishing that the goods were procured from undisclosed sources or that the purchase transactions were sham, the inference drawn by the AO cannot be sustained. We, therefore, concur with the finding of the Ld.CIT(A) that the absence of inward movement of goods into the assessee’s premises, viewed in isolation, cannot constitute a valid basis for treating the impugned purchases as bogus.

110. The Revenue has also placed considerable reliance upon the circumstance that the suppliers had allegedly failed to furnish complete particulars of their own vendors and, therefore, according to the AO, the source from which the materials supplied to the assessee were procured remained unverifiable. We are unable to persuade ourselves to accept this line of reasoning as furnishing a legally sustainable foundation for disallowing the purchases in the hands of the assessee.

111. It is well settled that an assessee claiming deduction in respect of purchases is required to establish the identity of the immediate supplier, the genuineness of the transaction, the actual receipt of goods, and the factum of payment. The law does not ordinarily cast upon the assessee the burden of proving the source of the source or the procurement chain adopted by its supplier unless exceptional circumstances exist warranting the lifting of the commercial or corporate veil. Such an extended burden cannot be imposed merely on the basis of suspicion or conjecture.

112. In the present case, it is an admitted position that M/s.P.S. Blue Metals was an existing proprietary concern, duly assessed to tax and possessing a valid Permanent Account Number as well as GST registration. The proprietor, Shri Subramani Perumal, was subjected to search proceedings simultaneously with the assessee and his assessments were also completed by the very same Assessing Officer. Likewise, M/s.Shri Chennai Mines and M/s.RKG Earth Movers were identifiable taxable entities carrying on business in their respective capacities. More importantly, the suppliers themselves admitted having effected sales to the assessee. Once the identity and existence of the suppliers stood established and the transactions of sale were acknowledged by them, any omission on their part to furnish particulars of their own vendors could not, by itself, render the purchases effected by the assessee ingenuine. At the highest, such omission may warrant further enquiry in the assessments of the suppliers; however, it cannot, without any independent material, justify the disallowance of the corresponding expenditure in the hands of the purchaser.

113. Our aforesaid view is fortified by the decision of the Hon’ble Calcutta High Court in CIT v. Basant Investment Corporation (238 ITR 680), wherein it has been held that a purchaser cannot be penalised for defects or irregularities found in the books of account maintained by the seller. The ratio laid down therein squarely applies to the facts of the present case. The mere inability of the suppliers to furnish particulars of their own suppliers cannot, in law, lead to the conclusion that the purchases made by the assessee were bogus.

114. We further find from the paper book that the assessments of Shri Subramani Perumal, proprietor of M/s.P.S.Blue Metals, for AY(s) 2019-20 and 2020-21 were completed by the very same AO on 28.03.2024 and 29.03.2024 respectively, wherein the purchases debited in his Profit and Loss Account were accepted without any adverse inference or variation. Having accepted the purchases in the hands of the supplier as genuine, it does not lie in the mouth of the very same AO to contend, while framing the assessment of the purchaser, that the transactions are doubtful merely because the supplier had not produced his own vendors. Such mutually inconsistent stands adopted in respect of the very same set of transactions are self-contradictory and offend the settled principles of consistency and fairness in tax administration. The Revenue cannot be permitted to approbate and reprobate simultaneously. Consequently, the reasoning adopted by the AO in drawing an adverse inference against the assessee on the ground that Shri Subramani Perumal had not produced his principal suppliers is wholly untenable in law and cannot be countenanced.

115. We also find considerable merit in the submission advanced on behalf of the assessee that the AO has accepted the sales disclosed by the assessee in their entirety. The turnover reflected in the audited financial statements has not been disturbed. No addition has been made on account of suppression of sales. It is a matter of common commercial knowledge that sales of quarry products cannot materialise in vacuum. Unless the Revenue establishes that the assessee procured the materials from undisclosed sources outside the books of account, acceptance of sales necessarily lends substantial corroboration to the corresponding purchases. This principle has consistently been recognised by various High Courts while dealing with additions relating to alleged bogus purchases. The rationale underlying the said principle is that where consumption of goods and corresponding sales are accepted, complete disallowance of purchases would artificially inflate the gross profit and produce commercially unrealistic trading results. Therefore, unless the Revenue is able to establish that the purchases were merely accommodation entries and that the goods were procured elsewhere outside the books, the purchases cannot ordinarily be disallowed in toto.

116. Equally significant, in the present case, is the fact that the AO has not rejected the books of account maintained by the assessee u/s.145 of the Act. The books were admittedly subjected to tax audit u/s.44AB of the Act. No defect has been pointed out in the method of accounting regularly employed by the assessee. No discrepancy has been noticed in the audited financial statements except in relation to the purchases now under dispute. It is well settled that when the books of account are accepted as a whole and the trading results are otherwise found to be reliable, isolated disallowance of purchases requires much stronger evidence than mere suspicion. The absence of rejection of books of account assumes greater significance in search assessments where additions are expected to emanate from incriminating material discovered during the course of search. In the present case, as already noticed by us, no such incriminating material has been brought on record.

117. We further notice that the assessee has produced substantial documentary evidence in support of the purchases effected from M/s.P.S.Blue Metals and M/s.Shri Chennai Mines. The purchases are reflected in the GSTR- 2A of the assessee. Tax invoices bearing GST particulars have been produced. Ledger accounts maintained in the regular books of account corroborate the transactions. Payments have admittedly been effected through normal banking channels. The suppliers have accounted for the corresponding sales in their books of account and have discharged the indirect tax liability arising therefrom. Copies of GST assessment orders passed in the cases of the suppliers as well as the assessee have also been placed on record, demonstrating that the statutory authorities administering the GST enactments, after due verification, accepted the genuineness of the transactions. Though it is correct that proceedings under the GST Act and the Income-tax Act operate in distinct fields, it cannot be overlooked that both proceedings relate to the very same commercial transactions. Acceptance of the transactions by another statutory authority, after verification of invoices, returns and tax payments, certainly constitutes a relevant piece of corroborative evidence which cannot be ignored in the absence of any material establishing collusion or fraud.

118. The argument of the Ld.DR that GST proceedings are independent and therefore wholly irrelevant cannot be accepted in the broad manner in which it has been canvassed. There is no quarrel with the proposition that findings recorded under one fiscal enactment are not conclusive under another. However, the evidentiary value of statutory records cannot be altogether discarded. The Tribunal is required to appreciate the entire evidence in a cumulative manner. When GST returns, tax invoices, banking transactions, audited books of account, ledger accounts, assessment orders of suppliers and confirmation of sales all point towards the genuineness of the purchases, it would be wholly unsafe to reject such overwhelming documentary evidence merely because the AO entertains doubts regarding certain surrounding circumstances. Judicial determination must rest upon preponderance of evidence and not upon isolated suspicion.

119. We also find that the Ld.CIT(A.) has independently examined the statement recorded from Shri Subramani Perumal during the course of search proceedings. The Revenue has repeatedly relied upon the said statement before us. However, on careful examination of the statement placed in the paper book, we find that nowhere has Shri Subramani Perumal admitted that the sales effected by M/s.P.S.Blue Metals to the assessee were fictitious. On the contrary, the sales themselves stand admitted. The grievance of the AO is only that complete particulars regarding the suppliers from whom Shri Subramani Perumal himself procured the materials were not furnished. Such an omission cannot be equated with an admission that the sales effected to the assessee were accommodation entries. It is a settled principle that an addition cannot be sustained by reading into a statement something which the deponent has never stated.

120. We also cannot lose sight of another important factual aspect noticed by the Ld.CIT(A.). The supplier M/s.P.S.Blue Metals as well as its proprietor were themselves subjected to search and were assessed by the same AO. If, despite conducting search proceedings, the Revenue was unable to unearth any incriminating material indicating that the concern merely issued accommodation bills without supplying goods, it becomes difficult to uphold the conclusion that the corresponding purchases in the hands of the assessee are bogus. The Revenue cannot simultaneously accept the sales recorded by the supplier in its own assessment and reject the corresponding purchases in the hands of the purchaser without bringing any independent material demonstrating that the transactions were sham. Such contradictory stands are impermissible in the absence of distinguishing circumstances.

121. The AO has also not disputed the fact that payments towards the purchases have been made through regular banking channels. No evidence has been brought on record showing that the amounts so paid returned to the assessee in cash or by any circuitous route. There is no allegation of cash deposits preceding the banking transactions. No investigation has been conducted establishing any cash trail. Though payment through banking channels is not by itself conclusive proof of genuineness, it nevertheless constitutes a relevant circumstance which strengthens the assessee’s explanation when viewed together with the other documentary evidence already discussed. The absence of any evidence indicating circulation of funds substantially weakens the Revenue’s allegation that the purchases merely represented accommodation entries.

122. The Revenue has also attempted to contend that the purchases were effected from related concerns and, therefore, a greater degree of scrutiny is warranted. There can be no dispute regarding this proposition. Transactions between related parties undoubtedly deserve careful examination. However, enhanced scrutiny does not dispense with the requirement of evidence. Merely because the supplier is related to the assessee does not automatically render every transaction sham or fictitious. The law does not prohibit genuine commercial transactions between related parties. The AO must still establish, on the basis of objective material, that the transactions lack commercial substance. In the present case, despite extensive search proceedings, no such material has been produced.

123. The cumulative effect of the aforesaid facts and circumstances leaves us in no manner of doubt in upholding the findings recorded by the Ld. CIT(A.) in respect of the purchases effected from M/s.P.S. Blue Metals and M/s.Shri Chennai Mines. Upon a careful examination of the impugned appellate order, we find that the Ld.CIT(A.) has meticulously dealt with each of the objections raised by the AO and has, on a comprehensive appreciation of the oral and documentary evidence placed on record, assigned cogent and convincing reasons for accepting the explanation furnished by the assessee.

124. The Revenue has failed to point out any material infirmity, perversity, or factual error in the findings so recorded by the Ld.CIT(A.). Equally, no material has been brought on record to establish that the conclusions arrived at by the first appellate authority are either contrary to the evidence available on record or suffer from any misapplication of law. On the contrary, we find that the findings of the Ld.CIT(A.) are founded upon contemporaneous documentary evidence, including the relevant books of account, purchase invoices, GST records and other supporting materials, and therefore warrant no interference at our hands.

125. Accordingly, we find ourselves in complete agreement with the conclusion reached by the Ld.CIT(A.) in directing deletion of the additions made by the AO in respect of the purchases effected from M/s.P.S.Blue Metals amounting to Rs.2,45,13,346/- for A.Y. 2018-19, Rs.12,02,27,196/- for A.Y. 2019-20 and Rs.7,77,33,236/- for A.Y. 2020-21, as well as the purchases effected from M/s.Shri Chennai Mines amounting to Rs.17,68,467/- for A.Y. 2020-21. We, therefore, uphold the order of the Ld.CIT(A). on this issue and dismiss the corresponding grounds raised by the Revenue for the AY(s) 2018­19, 2019-20 and 2020-21.

126. We shall now advert to the grievance raised by the assessee in respect of the addition of Rs.1,10,97,410/- sustained by the Ld.CIT(A) for the A.Y.2020-21 in relation to the purchases alleged to have been made from M/s.RKG Earth Movers. Unlike the purchases effected from M/s.P.S.Blue Metals and M/s.Shri Chennai Mines, the Ld.CIT(A.) declined to grant relief in respect of this supplier principally on the ground that the assessee had produced only the GST returns and bank statements evidencing payment through banking channels, whereas other corroborative evidences such as GST assessment orders, income-tax particulars of the supplier or further documentary evidence establishing the business activities of the supplier had not been produced. Proceeding on that basis, the Ld.CIT(A) held that the assessee had failed to discharge the primary burden cast upon it and consequently sustained the addition.

127. We have given our thoughtful consideration to the reasoning adopted by the Ld.CIT(A). There can be no quarrel with the proposition that the initial burden to establish the genuineness of an expenditure rests upon the assessee. Equally, where the assessee fails to produce any supporting evidence whatsoever, the Revenue would certainly be justified in drawing an adverse inference. However, the controversy before us does not arise in such a factual vacuum. The issue requires examination in the backdrop of the entire evidence available on record and the cumulative findings recorded by us in the preceding paragraphs.

128. It is an undisputed position that the purchases from M/s.RKG Earth Movers are duly reflected in the regular books of account maintained by the assessee. The corresponding invoices have been produced. The payments admittedly stand discharged through normal banking channels. The purchases form part of the audited financial statements. The books of account have not been rejected by the AO. Above all, the sales corresponding to the impugned purchases have been fully accepted by the Revenue. These foundational facts are not in dispute.

129. Significantly, the AO has not recorded any finding that M/s.RKG Earth Movers is a non-existent concern. There is no finding that the GST registration of the supplier is fictitious or cancelled. There is no material to show that the invoices relied upon by the assessee are fabricated. No enquiry appears to have been conducted with the supplier. Equally, no investigation has revealed that the banking transactions were merely accommodation entries or that the monies paid by the assessee eventually found their way back to it through cash or any other circuitous mode. These omissions assume considerable importance because the burden which initially lay upon the assessee gradually shifts once primary evidence is produced. If the Revenue proposes to disregard such evidence, it must necessarily produce some positive material to establish that the apparent transaction is not the real one.

130. The reasoning adopted by the Ld.CIT(A), in our considered opinion, proceeds substantially on the absence of additional corroborative evidence rather than the presence of any incriminating material. The distinction between these two situations is significant. Mere inadequacy of evidence cannot automatically be equated with proof of falsity. An expenditure claimed by an assessee may require closer scrutiny where certain supporting documents are unavailable; however, complete disallowance of the expenditure can be sustained only when the surrounding circumstances unmistakably establish that the transaction itself is sham or fictitious. In the present case, the Revenue has not discharged this burden.

131. We also find considerable force in the submission of the Ld.AR that the AO has accepted the corresponding sales in their entirety. The Revenue has nowhere suggested that the sales disclosed by the assessee were fictitious or inflated. The trading account has been accepted except to the extent of the impugned purchases. The consumption of aggregates in the course of business has also not been disputed. It is difficult to comprehend how the assessee could have effected the accepted sales without procurement of the corresponding material. The assessment order does not identify any alternate source from which the assessee allegedly procured the aggregates. Nor has the AO established that the assessee procured the goods from the grey market while merely obtaining accommodation invoices from M/s. RKG Earth Movers. Such a finding would have required some evidence of unaccounted purchases, transport records, cash payments or statements from third parties. No such material is forthcoming.

132. The settled judicial position in cases relating to alleged bogus purchases has consistently recognised that where the sales are accepted, the books of account are not rejected and the Revenue is unable to establish procurement of goods from undisclosed sources, complete disallowance of purchases ordinarily becomes unsustainable. The Hon’ble Bombay High Court in CIT v. Nikunj Eximp Enterprises (P.) Ltd) (372 ITR 619) has held that purchases cannot be disallowed merely because the suppliers failed to appear before the AO when the purchases were supported by documentary evidence and the corresponding sales stood accepted. Similar principles have been reiterated in PCIT v. Nitin Ramdeoji Lohia (457 ITR 446) and several other decisions cited before us. Likewise, the Hon’ble Gujarat High Court in CIT v. M.K. Brothers (163 ITR 249) held that suspicion cannot replace evidence and that in the absence of proof that the payments had returned to the assessee in cash, purchases could not be disallowed merely on conjectures. These judicial pronouncements, though rendered in different factual settings, embody the broader principle that taxation must ultimately rest upon evidence and not upon probabilities alone.

133. The Revenue has sought to distinguish the present case by contending that the assessee failed to furnish GST assessment orders and income-tax particulars of M/s.RKG Earth Movers. In our opinion, while production of such additional evidence would undoubtedly have strengthened the assessee’s case, the absence thereof cannot, by itself, justify complete rejection of the purchases when several other contemporaneous evidences continue to support the transaction. The Tribunal is required to appreciate evidence in its totality and not in isolation. Once invoices, books of account, banking transactions and accepted sales are available on record and there is no contrary material demonstrating falsity of the transactions, the omission to produce some additional corroborative documents cannot elevate suspicion into proof.

134. Another important aspect which persuades us to take a different view from that of the Ld.CIT(A) is the complete absence of any incriminating material unearthed during the course of search in relation to the purchases from M/s.RKG Earth Movers. Search assessments are expected to be found upon evidence discovered during search operations. However, neither the assessment order nor the arguments advanced by the Revenue point towards any seized material suggesting that the invoices issued by M/s.RKG Earth Movers were accommodation bills or that no actual supply of aggregates had taken place. The assessment is founded essentially upon the perceived inadequacy of documentation and not upon any positive evidence discovered during search. In our considered opinion, such deficiencies, though relevant for appreciation of evidence, cannot by themselves sustain a disallowance of the entire purchase value.

135. We are equally unable to subscribe to the proposition advanced on behalf of the Revenue that the purchases deserve to be disallowed merely because the supplier did not furnish complete details regarding its business affairs. The liability of the assessee cannot be determined on the basis of omissions committed by an independent supplier unless it is shown that the assessee was a participant in the alleged irregularities. No such material has been brought on record.

136. Viewed cumulatively, therefore, we find that the assessee has discharged the primary burden resting upon it by producing the purchase invoices, books of account, GST records and banking transactions and by demonstrating that the corresponding sales have been accepted by the Department. The Revenue, on the other hand, has failed to rebut the said evidence by producing any incriminating material indicating that the transactions were sham or that the consideration paid had flown back to the assessee. In such circumstances, sustaining the addition merely because certain additional corroborative documents were not furnished would, in our considered opinion, amount to sustaining an addition on the basis of suspicion rather than legal evidence.

137. We are, therefore, unable to concur with the conclusion reached by the Ld.CIT(A) insofar as it relates to the addition of Rs.1,10,97,410/- pertaining to M/s.RKG Earth Movers for the A.Y.2020-21. The cumulative evidentiary circumstances discussed hereinabove clearly tilt the balance in favour of the assessee. Accordingly, we set aside the finding recorded by the Ld.CIT(A) on this issue and direct the AO to delete the addition of Rs.1,10,97,410/-. The corresponding ground raised by the assessee for the A.Y.2020-21 is, therefore, allowed.

138. With regard to the addition of Rs.39,02,344/- made by the AO for the A.Y.2020-21 on account of payments allegedly made to M/s.RKG Earth Movers, as reflected in the seized Tally data, we find that the Ld.CIT(A) has deleted the said addition by adopting a line of reasoning different from the one which has weighed with us while adjudicating the issue. Nevertheless, it is a settled principle that an appellate order can be sustained on any legally tenable ground emerging from the material available on record, notwithstanding that the reasoning adopted by the lower appellate authority may not be entirely acceptable.

139. In the preceding paragraphs of this order, we have, upon an elaborate appreciation of the documentary evidence, held that the purchases aggregating to Rs.1,10,97,410/- effected by the assessee from M/s.RKG Earth Movers during the relevant previous year are genuine and represent bona fide business transactions. Having reached such a categorical finding, it necessarily follows that the payments made by the assessee to the said supplier towards discharge of the consideration for such genuine purchases cannot, by any stretch of reasoning, constitute an independent item of undisclosed expenditure or unexplained payment warranting a separate addition. Acceptance of the Revenue’s stand would inevitably result in taxing the very same transaction twice once by doubting the purchases and again by treating the payments made towards such purchases as unexplained which is impermissible in law and contrary to the settled principles governing assessment proceedings.

140. We further find considerable force in the contention of the assessee that the impugned addition has been founded solely on certain entries appearing in the seized Tally data. As already discussed while dealing with the other grounds, the seized Tally data, by itself, has been demonstrated to be incomplete, inaccurate and requiring substantial reconciliation with the regular books of account maintained by the assessee. We have already recorded a finding that the said electronic data cannot be treated as an infallible or conclusive record of the assessee’s financial affairs and that several entries therein stood duly reconciled with the regular books and supporting documentary evidence. Once the very foundation of the addition, namely the correctness and reliability of the seized Tally data, is found to be untenable, no independent addition can be sustained merely on the basis of isolated entries extracted therefrom without any corroborative material.

141. In these circumstances, although we are not in agreement with the precise reasoning adopted by the Ld.CIT(A) while deleting the impugned addition, we are of the considered view that the ultimate conclusion reached by the appellate authority does not call for any interference. The deletion of the addition of Rs.39,02,344/- is liable to be sustained, albeit for the reasons recorded hereinabove. We accordingly uphold the relief granted to the assessee on this issue.

142. In the result, the grounds raised by the Revenue challenging the deletion of the addition of Rs.39,02,344/- are devoid of merit, fail accordingly, and stand dismissed.

143. Having held so, we shall now proceed to examine the only surviving controversy relating to the A.Y.2021-22, namely the addition of Rs.1,06,84,717/- sustained by the Ld.CIT(A.), wherein the assessee has alternatively pleaded that, even assuming deficiencies exist in the supporting documentation, only the profit element embedded in the disputed purchases could legally be brought to tax.

144. We shall now deal with the last surviving issue arising in the assessee’s appeal for the A.Y.2021-22 relating to the addition of Rs.1,06,84,717/-sustained by the Ld. CIT(A.) towards purchases alleged to have been made from M/s.RKG Earth Movers. Unlike the A.Y.2020-21, where the assessee sought complete deletion of the addition, the assessee has, without prejudice to its principal contention regarding the genuineness of the purchases, alternatively pleaded that even assuming there existed deficiencies in the documentary evidence, the settled legal position permits taxation only of the profit element embedded in the disputed purchases and not the entire purchase value. It is this alternative contention which now falls for our consideration.

145. The facts relevant to the controversy are largely undisputed. During the relevant previous year, the assessee had recorded purchases aggregating to Rs.2,06,84,717/- from M/s.RKG Earth Movers. While filing the return of income in response to the notice issued u/s.148 of the Act, the assessee, taking note of certain deficiencies in the supporting documentation relating to the said purchases and with a view to buy peace and avoid prolonged litigation, voluntarily offered a sum of Rs.1,00,00,000/- for taxation. The AO, however, proceeded to disallow the balance amount of Rs.1,06,84,717/- u/s.37 of the Act, treating the purchases as non-genuine. The Ld.CIT(A) affirmed the said disallowance by holding that the assessee had failed to establish the genuineness of the purchases by producing confirmations, transportation details, delivery challans and other corroborative evidence.

146. We have carefully considered the reasoning adopted by the Ld.CIT(A). We are in agreement with the appellate authority to the extent that the evidentiary support produced by the assessee in respect of M/s.RKG Earth Movers for the A.Y.2021-22 is comparatively weaker than that available in the earlier assessment years. Consequently, some adverse inference cannot altogether be ruled out. However, the question that still survives is whether such deficiency necessarily warrants confirmation of the entire disallowance of Rs.1,06,84,717/-. In our considered opinion, the answer must necessarily be in the negative. At the outset, it deserves to be noticed that the AO has accepted the sales declared by the assessee even for the A.Y.2021-22. The turnover disclosed in the audited financial statements has not been disturbed. The books of account maintained by the assessee have not been rejected u/s.145(3) of the Act. The quantitative records have also not been found to be unreliable. There is no finding that the sales disclosed by the assessee were fictitious or inflated. Equally, no material has been brought on record to establish that the assessee procured the corresponding goods from some unidentified source outside the books of account. Thus, notwithstanding the deficiencies noticed in the documentation relating to M/s.RKG Earth Movers, the commercial reality that the assessee carried on business, consumed materials and effected corresponding sales remains undisputed.

147. It is a well-settled principle of income-tax jurisprudence that the provisions of the Act seek to tax real income and not hypothetical income. Equally, assessment proceedings are intended to determine the true profits arising from business and not to impose artificial trading results divorced from commercial realities. Therefore, where purchases are doubted but sales are accepted, the normal course adopted by judicial authorities has been to estimate the profit element embedded in such purchases rather than to disallow the entire purchase value. The rationale is simple. Even assuming that purchases are not fully verifiable, the goods required for effecting the accepted sales must necessarily have been procured from some source. The entire purchase cost therefore cannot constitute income. At the highest, the benefit derived by the assessee by purchasing goods from unverifiable sources, if any, or the inflation embedded in such purchases can legitimately be brought to tax.

148. The Ld.CIT(A), while rejecting the alternative plea of the assessee, has observed that this is not a fit case for estimation of profit because the assessee itself admitted that the purchases represented cash transactions and failed to establish the genuineness of the supplier. We are unable to subscribe to this reasoning in its entirety. The ultimate objective of an assessment under the Act is determination of taxable profits. Even where deficiencies exist in the evidence supporting purchases, the Tribunal is required to arrive at a fair and reasonable estimate of income having regard to the surrounding circumstances. Complete disallowance of purchases is justified only where the Revenue establishes that no goods whatsoever were procured or where the expenditure itself proves to be fictitious. In the present case, neither of these foundational facts has been established.

149. An equally important circumstance which persuades us to adopt the embedded profit approach is the gross profit disclosed by the assessee during the year under consideration. It is an admitted position that the assessee declared a gross profit ratio of 20.38%, as against 19.32% in the immediately preceding Assessment Year. Thus, even before considering the voluntary disclosure made by the assessee, the profitability of the business had improved. If the entire disallowance of Rs.2,06,84,717/- originally made by the AO were to be sustained, the resultant gross profit would increase to approximately 25.14%, a figure which is not only substantially higher than the historical gross profit of the assessee but also unsupported by any comparable industry data brought on record by the Revenue. The AO has neither cited any comparable quarrying concern nor demonstrated that similarly placed concerns ordinarily earn such elevated gross profit margins. Acceptance of such an artificial gross profit ratio would, therefore, result in assessment of hypothetical income rather than real income.

150. We also cannot overlook the fact that the assessee had, on its own volition, already offered a sum of Rs.1,00,00,000/- while filing the return in response to notice u/s.148 of the Act. Though such voluntary disclosure does not by itself determine the legality of the remaining addition, it nevertheless constitutes a relevant circumstance indicating that the assessee had itself accounted for possible deficiencies in the supporting records. The Revenue has not demonstrated that the said disclosure was inadequate by analysing the actual profit embedded in the disputed purchases. Instead, the AO proceeded to disallow the balance purchase value in its entirety. Such an approach, in our considered opinion, overlooks the settled distinction between unverifiable expenditure and fictitious expenditure.

151. Having regard to the totality of the facts and circumstances, we are of the considered view that the ends of justice would be adequately met by bringing to tax only the profit element embedded in the disputed purchases. The question then arises regarding the appropriate rate to be adopted.

152. The assessee has consistently declared a gross profit ratio of around 20% over the years. For the year under consideration, the disclosed gross profit ratio stands at 20.38%. Neither the Revenue nor the AO has suggested any other reasonable benchmark. In our considered opinion, adoption of the assessee’s own gross profit ratio represents the most rational and equitable method of estimating the embedded profit. Such an approach also finds support from the decision of the Hon’ble Madras High Court in SPL Infrastructure Pvt. Ltd., wherein estimation was directed to be made having regard to the past trading results of the assessee rather than by adopting arbitrary percentages.

153. Accordingly, while we are unable to sustain the confirmation of the entire addition of Rs.1,06,84,717/- made by the Ld.CIT(A), we are equally of the opinion that complete deletion would not be justified having regard to the deficiencies noticed in the supporting evidence. Balancing the equities and applying the settled principles governing estimation of business income, we direct the AO to restrict the addition to 20.38% of Rs.1,06,84,717/-, being the gross profit ratio declared by the assessee during the relevant previous year. The balance addition shall stand deleted. The order of the Ld. CIT(A) is, therefore, modified to the above extent.

154. Accordingly, in the light of the foregoing discussion, the issue relating to the additions made by the AO u/s.37 of the Act on account of alleged bogus purchases for the assessment years under consideration are adjudicated by us as under:

i. For the A.Y. 2018-19, the order of the Ld.CIT(A) deleting the addition of Rs.2,45,13,346/- towards alleged bogus purchases from M/s.P.S.Blue Metals is upheld. Consequently, the corresponding grounds raised by the Revenue are dismissed.

ii. For the A.Y. 2019-20, the order of the Ld.CIT(A) deleting the addition of Rs.12,02,27,196/- towards alleged bogus purchases from M/s.P.S.Blue Metals is upheld. Accordingly, the grounds raised by the Revenue are dismissed.

iii. For the A.Y. 2020-21, the order of the Ld.CIT(A) deleting the addition aggregating to Rs.8,32,31,270/- towards alleged bogus purchases from M/s.P.S.Blue Metals and M/s.Shri Chennai Mines, as well as the addition based on payments to M/s.RKG Earth Movers reflected in the seized Tally data, is upheld. The corresponding grounds raised by the Revenue are, therefore, dismissed.

iv. For the A.Y. 2020-21, the order of the Ld.CIT(A) sustaining the addition of Rs.1,10,97,410/- towards alleged bogus purchases from M/s.RKG Earth Movers is set aside. The AO is directed to delete the entire addition. Consequently, the grounds raised by the assessee are allowed.

v. For the A.Y. 2021-22, the order of the Ld.CIT(A) sustaining the addition of Rs.1,06,84,717/- towards alleged bogus purchases from M/s.RKG Earth Movers is modified. The AO is directed to restrict the disallowance to 20.38% of the said amount, i.e., Rs.21,77,545/-, and delete the balance addition of Rs.85,07,172/-. Accordingly, the corresponding grounds raised by the assessee are partly allowed.

Issue No.2: Addition towards closing stock difference u/s.37 of the Act:

155. The AO made the following additions u/s.37 of the Act, on account of the alleged discrepancy in the closing stock of the assessee:

Amount in Rs.

Particulars	AY 2018-19	AY 2019-20	AY 2020-21	AY 2021-22
Addition towards alleged closing stock difference u/s.37	16,62,12,802	6,48,47,396	72,45,116	–

156. The AO has made the impugned additions for the assessment years under consideration and the reasons assigned by the Ld.CIT(A) while deleting the same are substantially identical and arise out of a common set of facts and issues. Since the controversy involved is common across all the impugned assessment years, and with the consent of both the parties, the appeal relating to the A.Y.2018-19 is taken as the lead case. Accordingly, our findings, reasoning and conclusion recorded herein for the A.Y. 2018-19 shall, mutatis mutandis, apply to the AY(s) 2019-20 and 2020-21, as the issues involved therein are identical in all material respects.

157. On examination of the seized Tally data, the AO noticed that the closing stock reflected therein amounted to Rs.16,62,12,802/-, of which a sum of Rs.16,61,03,331/- was shown as closing stock of diesel. According to the AO, diesel being a consumable item utilized in the day-to-day operations of the assessee’s crusher plant and heavy machinery, there was no commercial justification for maintaining such an extraordinarily large quantity of diesel as closing stock. The AO further observed that the value of diesel shown as closing stock was substantially higher than the assessee’s annual diesel consumption and that, during the course of search proceedings, no such quantity of diesel was found physically available. The AO also noted that similar discrepancies were noticed in the seized Tally data pertaining to the subsequent assessment years. On the aforesaid basis, the AO proposed to reject the assessee’s claim regarding the closing stock.

158. In response to the show cause notice, the assessee submitted that the apparent discrepancy was attributable to incomplete accounting entries in the seized Tally data. It was explained that purchases of diesel and explosives had been recorded in the inventory module; however, the corresponding transfer entries debiting the relevant expenditure ledger accounts had not been passed. Consequently, such purchases continued to remain reflected as part of the closing stock. It was further contended that, having regard to the nature of its business, neither diesel nor explosives could practically be stored in such huge quantities and that the seized Tally data itself demonstrated that only inward entries had been recorded without posting the corresponding consumption entries. The assessee further submitted that purchases relating to diesel, explosives, plant and machinery, JCBs, vehicles, gensets, crusher units and other operational equipment had not been transferred to the respective expenditure heads in the ledger accounts, thereby resulting in an inflated closing stock. It was also emphasized that no such quantity of diesel or explosives was found during the course of search, which itself established that the figures reflected in the seized Tally data represented only accounting anomalies arising on account of non-posting of transfer entries.

159. The AO, however, was not persuaded by the explanation furnished by the assessee. According to the AO, the assessee had merely advanced a general explanation without substantiating the same by any credible documentary evidence. It was observed that the assessee failed to produce supporting documents such as purchase invoices, bills, vouchers, e-way bills, Goods Receipt Notes (GRNs), bank statements or details of the suppliers from whom the purchases were allegedly made. The AO further noted that no confirmations from the concerned parties were furnished and no material was produced to establish that the corresponding expenditure had ultimately been accounted for in the regular books of account.

160. The AO further observed that the books of account for the relevant previous year had already been subjected to statutory audit and that the tax audit report in Form No.3CD had been furnished on 12.10.2018, much prior to the date of search. According to the AO, the corresponding expenditure entries in fact remained unposted, it was inconceivable as to how the statutory audit could have been completed and the audited financial statements finalized. The explanation tendered by the assessee was, therefore, treated as a self-serving assertion unsupported by any contemporaneous documentary evidence. Accordingly, the AO rejected the explanation of the assessee and held that the claim of closing stock to the extent of Rs.16,61,03,331/- was not acceptable. Consequently, the AO made an addition of the said amount u/s.37 of the Act for the A.Y.2018-19. On identical reasoning, the AO also made additions of Rs.6,48,47,396/- and Rs.72,45,116/- u/s.37 of the Act for the AY(s) 2019-20 and 2020-21, respectively.

161. Aggrieved by the aforesaid addition made by the AO on account of the alleged difference in closing stock, the assessee carried the matter in appeal before the Ld.CIT(A).

162. The assessee contended before the Ld.CIT(A) that the closing stock reflected in the seized Tally data did not represent any physical stock but was merely the result of accounting/posting errors, wherein purchases of diesel and explosives aggregating to Rs.16,62,12,802/- were wrongly classified under “Stock-in-Hand” instead of being debited to the purchases/consumption account. It was submitted that no physical stock of diesel or explosives was found during the course of search and even the AO had acknowledged that diesel is consumed on a day-to-day basis and cannot ordinarily remain as closing stock.

163. The assessee further submitted before the Ld.CIT(A) that the accounting error stood rectified in the regular books and the return of income filed prior to the search, wherein the purchases of diesel and explosives were correctly treated as consumption. It was argued that, after such rectification, there was no variation in the value of closing stock between the seized Tally data and the returned income.

164. It was further contended that the Authorized Officer, during the course of search, had himself recognized that the closing stock reflected in the seized Tally arose on account of erroneous accounting of diesel issued for consumption as inward stock and had accordingly allowed deduction while computing the alleged suppressed profit. Therefore, an item already examined and accepted during the search proceedings could not again be made the subject matter of addition by the AO.

165. The assessee also submitted that the purchases of diesel and explosives were genuine business purchases made from reputed suppliers such as Essar Oil Ltd., Indian Oil Corporation, Reliance Industries Ltd., Udayam Explosive and Sunpenta Mining Services, duly recorded in the seized Tally data, supported by supplier ledgers and effected through verifiable banking channels. It was argued that neither the search authorities nor the AO had brought any material on record to establish that the purchases were fictitious, that any cash had been received back, or that the materials had been diverted for non-business purposes. Hence, the disallowance u/s.37 of the Act was based merely on surmises and conjectures.

166. The assessee contended that the addition resulted in an abnormal and commercially unrealistic Gross Profit ratio of 44.86% as against the disclosed GP ratio of 17.09%, which itself demonstrated the incorrectness of the addition. It was also submitted that the AO’s observations regarding absence of stock and lack of supporting evidence were contrary to the seized Tally records, supplier ledgers and bank statements, and ignored the fact that no closing stock of diesel and explosives had been claimed in the return of income.

167. Accordingly, the assessee submitted before the Ld.CIT(A) that, since the impugned closing stock represented only consumed purchases wrongly classified due to posting errors, there being no physical stock or unexplained purchases and the transactions being fully supported by contemporaneous records and banking evidence, the addition of Rs.16,62,12,802/- made by the AO be deleted in full. Similar submissions were made by the assessee before the Ld.CIT(A) for AY(s) 2019-20 and 2020-21 as well.

168. Upon consideration of the submissions of the assessee, the Ld.CIT(A) deleted the addition made by the AO on account of alleged difference in closing stock by observing as under:

“5.4.3 Before proceeding to consider the submissions of the appellant, it is necessary to examine, from an independent analytical standpoint, the basis and sustainability of the disallowance made by the Assessing Officer on account of the alleged difference in closing stock. The AO has referred to an entry of closing stock amounting to Rs.16.62 crores as reflected in the Tally data. At the outset, it requires to be noted that closing stock, in accounting parlance, is not an independent or isolated entry in the books of account. It is a derived or resultant figure, worked out by adding purchases to the opening stock and reducing therefrom the sales effected (or, in the case on hand, for consumables such as diesel/explosives, the quantity consumed) during the relevant previous year. In other words, closing stock represents the balancing figure emerging from the trading account and is necessarily dependent upon the correctness of the quantitative and financial entries relating to opening stock, purchases, and sales/consumption. Therefore, any alleged variation in closing stock cannot be viewed in isolation as a standalone discrepancy, but must be examined in conjunction with the underlying components that give rise to such figure. Without first establishing specific defects in the recorded purchases, sales (consumption of diesel), or quantitative reconciliation, a mere difference in the derived figure of closing stock would not, by itself, justify an independent addition.

5.4.4 Coupled with the above accounting discussion, the Assessing Officer, at the threshold, has doubted the closing stock figure by observing that there was no rationale for the appellant to maintain such a substantial quantity of diesel. It was further observed that the stock of diesel reflected in the Tally data was disproportionately high when compared to the annual diesel consumption of the appellant. However, having himself observed that the closing stock figure appearing in the Tally data was substantially higher than the debit entries of purchases recorded in the regular books of account, it is not understood as to how such an inherently illogical and arithmetically inconsistent figure, appearing in a separate Tally data set, was accepted at face value without first examining the correctness of the underlying entries. If the reflected stock exceeds the recorded purchases, the very premise of such figure becomes questionable, as stock cannot ordinarily exceed the aggregate of opening stock and purchases. In the absence of reconciling this basic accounting incongruity, reliance on such anomalous figure, without deeper verification of its source or computational basis, renders the foundation of the disallowance unsustainable.

5.4.5 Having elaborately dealt with the theoretical position; it is now imperative to examine the actual figures as reflected in the books of account and the audited financial statements for the year under consideration. The Trading Account clearly discloses total purchases at Rs.25,48,74,052/-, and the corresponding schedule specifically reflects purchase of consumable HSD (diesel) at Rs.15,57,05,284/-. In such circumstances, it defies logic and settled accounting principles to suggest that the appellant could simultaneously hold a closing stock of diesel valued at Rs.16.61 crores, when the total purchase of diesel during the entire year itself is only Rs.15.57 crores (excluding explosives). The closing stock cannot exceed the total purchases unless there is an opening stock of such magnitude — a fact which has neither been alleged nor established by the Assessing Officer. The impugned addition has thus been made without appreciating the fundamental arithmetical and accounting inconsistency apparent on the face of the record. The Assessing Officer has failed to reconcile these basic figures before drawing adverse conclusions. Such an addition, made in disregard of the primary financial data and without proper verification, is arbitrary, unsustainable, and liable to be deleted.

5.4.6 Further, if the allegation is that the recorded stock figure represents an inflated or unexplained entry, the AO was required to demonstrate how such excess quantity, allegedly exceeding recorded purchases, came to be reflected in the books and what corresponding debit or expenditure gave rise to such figure. In the absence of identifying any specific claim of expenditure that is not laid out wholly and exclusively for the purposes of business, the question of its disallowability under section 37 does not automatically arise. Thus, without establishing the foundational facts through proper quantitative verification and without identifying the precise accounting distortion, the mere observation that the stock appears excessive cannot, by itself, sustain a disallowance. It is precisely for this very reason that an observation was made in paragraph 5.3.7 above that the Tally data found during the course of search cannot, by itself and in the absence of independent corroborative evidence, be treated as conclusively establishing suppression of profit or the claim of non-genuine expenditure. A derived or isolated figure reflected in electronic data, without proper reconciliation of its underlying components and without supporting material demonstrating actual inflation of expenditure or undisclosed income, cannot form the sole basis for an adverse inference.

5.4.7 The appellant, during appeal hearings, had furnished common additional submissions on the issue of disallowance of difference in closing stock, for all the three assessment years involved, and the same is reproduced hereunder:

1. It is most respectfully submitted that the appellant firm has already placed on record its revised grounds of appeal along with detailed written submissions dealing with all disputed issues. Without prejudice to the same, the appellant humbly tenders the present additional written submission for the kind consideration of this respected authority. It is therefore most humbly prayed. that the submissions herein may kindly be taken into account while adjudicating the impugned appeals for the Assessment Years 2018-19 to 2020-21.

2. At the outset, it is submitted that in the impugned assessment years, the Assessing Officer has made addition on account of an alleged difference in the value of closing stock. The said addition has been made notwithstanding the undisputed fact that the GST authorities, in their investigation orders, have duly accepted both the purchases and the closing stock declared by the appellant firm.

3. In this regard, kind attention of this respected authority is invited to the judgment of the Hon’ble Madras High Court in CIT v. Smt. Sakuntala Devi Khetan [2013] 33 com 98 (Mad), wherein it has been categorically held that unless and until the competent authority under the Sales Tax Act disputes or varies the closing stock declared by the assessee, the return as accepted by the Commercial Tax Department is binding on the Income-tax Authorities. The Hon’ble Court further observed that, in such circumstances, the Assessing Officer has no jurisdiction to go beyond the value of closing stock declared by the assessee and accepted by the Commercial Tax Department, nor does he possess the authority to independently scrutinize or re-determine the same.

4. It is most respectfully submitted that the ratio laid down in the aforesaid judgment squarely applies to the facts of the present case, inasmuch as the GST authorities have neither disputed nor varied the purchases or the closing stock declared by the appellant firm. In spite of this settled legal position, the Assessing Officer proceeded to make additions on account of an alleged difference in the value of closing stock during the impugned assessment years, which action is contrary to law and in clear violation of the binding precedent laid down by the Hon’ble Madras High Court.

5. Accordingly, it is submitted that the impugned additions are wholly unsustainable in law and on facts and deserve to be deleted.

6. In view of the foregoing, it is most humbly prayed that this respected authority, following the judgment of the Hon’ble Madras High Court in CIT v. Smt. Sakuntala Devi Khetan (supra), may kindly be pleased to delete the additions made by the Assessing Officer on account of the alleged difference in the value of closing stock for the Assessment Years under appeal, and pass such further orders as deemed fit in the interests of justice.

5.4.8 As was discussed earlier, the appellant had furnished GST returns and GST assessment orders in their case, wherein no difference with respect to purchases or sales was made out and the admitted figures therein were accepted by GST authorities. In this regard, referring to the decision of the jurisdictional High Court in the case of CIT v Smt Sakuntala Devi Khetan (33 taxmann.com 98), the appellant submitted that that it is only when the competent authority under the Sales Tax Act (presently GST authorities) disputes the closing stock declared, the return as accepted by the GST authorities is binding on the Income Tax authorities.

5.4.9 In view of the foregoing discussion, the addition made on account of alleged difference in closing stock is unsustainable both on facts and in principle. The figure of Rs.16.62 crores relied upon by the Assessing Officer emanates from a separate Tally data set and represents, at best, a derived or system-generated balance, without independent verification of its underlying components. Closing stock, being a resultant accounting figure dependent upon opening stock, purchases, and consumption/sales, cannot be examined in isolation. The Assessing Officer has neither demonstrated defects in the quantitative records nor reconciled the basic accounting incongruity that the alleged stock exceeded the recorded purchases. Further, no excess physical stock of diesel or explosives was found during the course of search, and the appellant has furnished a plausible explanation that the apparent figure arose due to erroneous ledger classification rather than actual existence of stock. The purchase of diesel / explosives is supported by documentary evidence, statutory records, and banking channels, and have not been shown to be fictitious. In such circumstances, reliance on entries in seized tally, without corroborative material or quantitative verification, falls short of the evidentiary standard required to sustain an addition. Accordingly, the disallowance made on account of alleged difference in closing stock cannot be upheld and the AO is directed to delete this disallowance. Accordingly, ground No.3 is allowed.”

169. On identical facts and findings, the Ld.CIT(A) deleted the corresponding additions for the AY(s) 2019-20 and 2020-21 as well.

170. Aggrieved by the order of the Ld.CIT(A) deleting the additions made by the AO on account of the alleged difference in closing stock for the AY(s) 2018­19, 2019-20 and 2020-21, the Revenue has preferred the present appeals before us.

171. The Ld.DR submitted that the order of the Ld.CIT(A) deleting the addition made by the AO towards unexplained closing stock difference is contrary to the facts available on record and the evidence unearthed during the course of search proceedings. The Ld.DR submitted that the AO had made the addition on the basis of the seized Tally data, which constituted incriminating electronic evidence found during the search. The Ld.CIT(A), without properly appreciating the evidentiary value of the seized material, has accepted the explanation of the assessee on mere assumptions and surmises.

172. The Ld.DR submitted that the seized Tally data clearly reflected an unusually high closing stock, particularly in respect of diesel and explosives, which was wholly disproportionate to the assessee’s scale of operations and consumption pattern. Such abnormal stock position could not have arisen in the ordinary course of business and was sufficient to cast a serious doubt on the correctness of the books of account maintained by the assessee. The AO, therefore, was justified in treating the discrepancy as unexplained and making the corresponding addition.

173. The Ld.DR further submitted that the Ld.CIT(A) has accepted the assessee’s plea that the discrepancy arose on account of wrong ledger classification without insisting upon any independent or contemporaneous evidence. The assessee failed to produce stock registers, quantitative inventory records, consumption statements, reconciliation of stock movement or any other primary evidence to substantiate its explanation. The explanation remained a mere assertion unsupported by documentary evidence and, therefore, ought not to have been accepted.

174. The Ld.DR further contended that the reasoning adopted by the Ld.CIT(A) is internally inconsistent. Having observed that the closing stock could not exceed the aggregate of purchases unless supported by opening stock, the Ld.CIT(A) failed to examine whether the purchases themselves were correctly recorded or whether the entries appearing in the seized books had been manipulated. Instead of examining the correctness of the underlying transactions, the Ld.CIT(A) accepted the explanation solely on theoretical accounting principles, which is contrary to the settled principles governing appreciation of evidence in search assessments.

175. The Ld.DR submitted that the seized Tally data represented the books of account as maintained by the assessee on the date of search. The search was conducted on 02.03.2022, by which time the assessee had already finalized its accounts, completed the statutory audit and filed the return of income u/s.139(1) of the Act for the relevant assessment year. Therefore, the contention that the seized data contained incomplete postings or temporary ledger classifications is wholly unacceptable. Once the books had attained finality, there was no occasion for such substantial discrepancies to exist.

176. It was further argued that the Ld.CIT(A) has erroneously proceeded on the premise that since no excess physical stock was found during the course of search, the entries reflected in the seized Tally data stood automatically explained. The absence of excess physical stock cannot by itself negate the evidentiary value of the books of accounts or the electronic records seized during search. The search took place much after the close of the financial year, and the physical stock available on the date of search could not conclusively establish the correctness of the closing stock recorded as on the balance sheet date.

177. The Ld.DR submitted that valuation of closing stock directly affects the computation of taxable profits. Any abnormal variation in the closing stock reflected in the books, particularly when discovered from seized electronic records, casts serious doubt on the correctness of the accounts and necessarily calls for satisfactory explanation supported by verifiable evidence. In the present case, no such satisfactory reconciliation was produced either before the AO or before the Ld.CIT(A).

178. It was, therefore, argued that the Ld.CIT(A) has committed a serious error in deleting the addition solely on the basis of an unsubstantiated explanation while completely ignoring the incriminating nature of the seized Tally data and the findings recorded by the AO. The Ld.DR submitted that the order of the Ld.CIT(A) is thus contrary to the facts on record and settled principles governing appreciation of evidence in search cases. The Ld.DR thus prayed that the addition made by the AO deserves to be restored and the order of the Ld.CIT(A) is liable to be reversed.

179. Per contra, the Ld.AR submitted that the addition of Rs.16,62,12,802/-made by the AO on account of the alleged excess closing stock is devoid of merit, both on facts and in law. It was contended that the closing stock of Rs.16,62,12,802/- reflected in the seized Tally data did not represent the actual physical stock available with the assessee as on the relevant date, but was merely the result of accounting and posting errors committed while recording purchases of diesel and explosives.

180. Inviting our attention to the ledger accounts of M/s.Essar Oil Limited (pages 270 to 275 of the paper book), M/s.Indian Oil Corporation Limited (pages 276 to 277 of the paper book), M/s.Reliance Industries Limited (page 278 of the paper book) and M/s.Udaya Explosives (pages 282 to 285 of the paper book), the Ld.AR explained that, due to an inadvertent posting error, the purchases of diesel and explosives were debited to the account styled as ‘Stock in Hand – Diesel (Pump)’ instead of being charged to the respective expenditure accounts. Consequently, such purchases stood accumulated under the closing stock account in the seized Tally data, thereby inflating the value of closing stock without there being any corresponding physical availability of stock.

181. The Ld.AR submitted that the aforesaid ledger accounts clearly substantiate the assessee’s explanation that the figure appearing as closing stock in the seized Tally data was merely an accounting anomaly arising out of erroneous postings and did not reflect the actual stock position. It was, therefore, contended that the AO was not justified in treating the said figure as unexplained excess closing stock and making the impugned addition of Rs.16,62,12,802/-. Accordingly, the Ld.AR submitted that the Ld.CIT(A), after appreciating the documentary evidence placed on record, had rightly deleted the addition and the order of the Ld.CIT(A) does not call for any interference.

182. The Ld.AR submitted that the reconciliation of the stock summary as per the seized Tally data, placed at page 269 of the Paper Book, clearly establishes that the entire amount of Rs.16,62,12,802/- comprises only purchases of diesel amounting to Rs.15,57,05,284/- and purchases of explosives amounting to Rs.1,05,07,518/-, which were inadvertently posted the ledger account under group head “Stock-in-Hand” instead of being debited to the ledger Purchases/Consumption Account.

183. It was submitted that, under the accepted principles of accounting, purchases are initially debited to the Purchases Account and credited to the respective supplier’s accounts. At the close of the financial year, only the value of stock physically available is transferred to the Stock-in-Hand account after physical verification. In the assessee’s case, due to an accounting mistake in the seized Tally data, purchases of diesel and explosives, which were actually consumed during the course of business, were directly reflected under Stock-in-Hand account, thereby creating an artificial and notional closing stock.

184. The Ld.AR submitted that the impugned figure does not represent any actual inventory. Significantly, no physical stock of diesel or explosives was found during the course of search. On the contrary, the AO himself has recorded in the assessment order that ‘diesel is a consumable item used on a day-to-day basis and it is not commercially feasible to maintain such a huge quantity as closing stock’. This factual finding itself demolishes the very foundation of the addition.

185. The Ld.AR further submitted that the appellant had rectified the accounting error in the regular books of account and in the return of income filed much prior to the date of search. In the return of income, diesel and explosives were correctly treated as consumption and no closing stock of these items was reflected. Consequently, after correcting the posting error, there remains no difference whatsoever between the seized records and the books maintained by the appellant. Therefore, the addition made merely on the basis of an erroneous accounting presentation in the seized Tally data is wholly unsustainable.

186. The Ld.AR further invited attention to the findings recorded by the Authorised Officer during the course of search as extracted by the AO at page 3 of the assessment order. It was submitted that the Authorised Officer had himself noticed that diesel issued to vehicles had been wrongly recorded as inward stock, thereby inflating the closing stock reflected in the seized Tally data. These findings have also been reproduced by the AO in the assessment order. Thus, even the Investigation Wing had accepted that the so-called closing stock represented only purchases consumed during the year but wrongly classified as stock.

187. The Ld.AR submitted that while computing the alleged suppressed profit, the Authorised Officer had consciously allowed deduction of the value representing such erroneous closing stock, treating the same as consumption during the year. Therefore, once the Investigation Wing itself had accepted the accounting anomaly and neutralised its effect, the AO was not justified in once again treating the very same figure as unexplained closing stock and making an independent addition. Such an approach amounts to ignoring the findings of the search authorities themselves and results in double taxation of the same item.

188. The Ld.AR submitted that the AO, during the course of assessment proceedings, was fully apprised that the figure appearing as closing stock in the seized Tally represented only consumed purchases of diesel and explosives. Instead of disputing this factual explanation or demonstrating any actual difference in stock, the AO shifted the basis of addition and proceeded to treat the purchases themselves as unverifiable. Such a course adopted by the AO is factually incorrect and legally untenable.

189. It was submitted that the entire amount representing the impugned closing stock consists of genuine purchases made from reputed suppliers, namely Essar Oil Limited, Indian Oil Corporation, Reliance Industries Limited, Udayam Explosive and Sunpenta Mining Services. The ledger accounts extracted from the seized Tally data evidencing these purchases have been placed in the Paper Book at pages 270 to 289. The purchases are duly reflected in the seized books of account, payments have been made through regular banking channels and there is no allegation that any cash has flown back to the appellant.

190. The Ld.AR submitted that there is absolutely no finding either in the assessment order or in the search proceedings that the suppliers are non­existent, that the invoices are fictitious or that the purchases are bogus. Likewise, there is no material suggesting diversion or misuse of diesel or explosives for any purpose other than the appellant’s mining business. In the absence of any adverse material, the AO could not have brushed aside duly recorded purchases merely on conjectures.

191. It was further contended that once the seized books of account themselves record the purchases and the corresponding payments stand corroborated through banking transactions, the initial burden cast upon the appellant stands fully discharged. Thereafter, the burden shifts upon the Revenue to establish by cogent evidence that the purchases are sham or fictitious. No such evidence has been brought on record by the AO. Therefore, the disallowance made u/s.37 of the Act lacks both factual and legal foundation.

192. The Ld.AR further submitted that the addition also fails the test of commercial prudence. It was pointed out that the assessee had disclosed a Gross Profit ratio of 17.09%, which is consistent with the nature of its business and industry standards. However, by making the impugned addition of Rs.16,62,12,802/-, the Gross Profit ratio gets artificially enhanced to 44.86%, an impossible and commercially unrealistic figure for a mining concern. Such an absurd financial result itself demonstrates that the addition has been made without appreciating the true accounting position and business realities.

193. Replying to the specific observations recorded by the AO, the Ld.AR submitted that the observation that no diesel was physically kept in stock actually supports the assessee’s case, as the assessee has throughout maintained that no such closing stock existed. The assessee has never claimed any closing stock of diesel or explosives in the return of income. Therefore, the AO’s observation completely defeats the basis of the addition.

194. As regards the allegation that supporting documentary evidence was not furnished, the Ld.AR submitted that the observation is contrary to the material available on record. The seized Tally data itself contains the ledger accounts of the suppliers, and the corresponding payments are fully supported by bank statements. Hence, the allegation that purchases were not substantiated is factually incorrect.

195. With regard to the observation that expenditure was not proved, the Ld.AR submitted that the very fact that the return of income correctly treated the purchases as consumption and not as closing stock establishes that the expenditure had been duly recognised in accordance with accepted accounting principles. The seized Tally merely contained a posting mistake which stood corrected in the regular books maintained prior to the search.

196. In conclusion, the Ld.AR submitted that the entire addition rests solely upon an accounting classification error contained in the seized Tally data, which has already been recognised and corrected. There is neither any unaccounted physical stock nor any finding of bogus purchases. The purchases are genuine, duly supported by contemporaneous records, supplier ledgers and banking transactions, and were fully consumed in the appellant’s business. Even the Authorised Officer had accepted the accounting error while determining the alleged suppressed profit. Consequently, the AO was wholly unjustified in making the impugned addition. The Ld.AR, therefore, submitted that the Ld.CIT(A) has rightly deleted the addition made by the AO towards alleged variation in closing stock for the AY(s) 2018-19, 2019-20 and 2020-21.

197. We have heard the rival submissions carefully perused the assessment order, the impugned order of the Ld.CIT(A), the paper book filed by the assessee, the seized material forming part of the record, and the various documentary evidences placed before the lower authorities. We have also considered the reasoning adopted by the AO for making the impugned addition as well as the elaborate findings recorded by the Ld.CIT(A).

198. The controversy before us relates to the addition of Rs.16,62,12,802/-made by the AO towards alleged excess closing stock reflected in the seized Tally data. The basis of the addition, as could be gathered from the assessment order, is that the seized Tally data reflected closing stock of Rs.16.62 crores, out of which diesel alone constituted Rs.16.61 crores. According to the AO, since diesel is a consumable item used on a day-to-day basis, there was no commercial rationale for maintaining such a huge quantity of diesel in stock. The AO further observed that the alleged closing stock of diesel exceeded the annual consumption and concluded that the claim of closing stock was false. Proceeding on this premise, the AO ultimately disallowed the entire amount by treating the purchases as unsubstantiated and invoking the provisions of section 37 of the Act.

199. At the outset, we find that the very foundation adopted by the AO suffers from an inherent contradiction. On one hand, the AO himself records a categorical finding that it is commercially impossible for the assessee to maintain such an enormous quantity of diesel and further records that no such stock was physically available. On the other hand, the very same figure is treated as representing actual closing stock and made the basis of the impugned addition. Such mutually destructive findings cannot coexist. Once the AO himself accepts that no such physical stock existed, the inevitable consequence would be that the figure reflected in the seized electronic records requires reconciliation and examination rather than blind acceptance. The assessment order, however, proceeds on an assumption that the figure reflected in the seized Tally data represents actual closing stock without undertaking any exercise to ascertain the true nature of the accounting entries which generated such figure.

200. We find that the explanation offered by the assessee has remained consistent from the very beginning. Immediately after the search, in the reconciliation statement furnished before the Investigation Wing, during the assessment proceedings, and subsequently before the first appellate authority, the assessee consistently explained that the purchases of diesel and explosives had been wrongly reflected as stock inward entries in the seized Tally data without the corresponding transfer entries to the respective expenditure and consumption ledgers. According to the assessee, since the transfer entries relating to consumption by the crusher unit, vehicles, JCBs, gensets, plant and machinery had not been posted in the seized Tally data, the purchases continued to remain under the head “Stock in Hand”, thereby resulting in an artificial closing stock. The screenshots extracted from the seized Tally records, copies whereof have been placed in the paper book, clearly support this explanation. A perusal of those entries shows that the inward entries relating to diesel and explosives had been recorded, whereas the corresponding transfer entries to the concerned consumption accounts had not been passed. Thus, the seized Tally data itself contains the explanation for the apparent discrepancy.

201. It is significant to note that the AO has not disputed the existence of these entries in the seized records. Nor has he demonstrated that the screenshots produced by the assessee are fabricated or inconsistent with the seized data. Once the explanation emanates from the very seized material relied upon by the Revenue, the burden shifted upon the AO to dislodge the explanation by bringing positive material on record. However, except making general observations that supporting evidence had not been produced, no independent investigation has been conducted to establish that the explanation is false.

202. We also find considerable force in the elaborate reasoning adopted by the Ld.CIT(A) regarding the accounting treatment of closing stock. Closing stock is not an independent entry capable of being examined in isolation. It is merely a resultant figure emerging from the accounting process after taking into consideration opening stock, purchases and consumption or sales during the year. Consequently, unless the AO first establishes defects in the underlying purchases, quantitative records, consumption or sales, a mere difference appearing in a derived figure of closing stock cannot, by itself, justify an addition. In the present case, the AO has not rejected the books of account. Neither has he pointed out any discrepancy in the quantitative records maintained by the assessee. No exercise has been undertaken to reconcile purchases, consumption and stock movement. Instead, the addition has been made merely by relying upon a figure appearing in an incomplete electronic data set without examining the accounting process which generated that figure.

203. The Ld.CIT(A) has also rightly observed that the AO himself noticed that the closing stock reflected in the seized Tally exceeded the total purchases recorded during the year. This finding itself renders the impugned figure inherently improbable. The audited financial statements disclose total diesel purchases of Rs.15.57 crores whereas the seized Tally reflected diesel stock of Rs.16.61 crores. Unless there existed an opening stock of comparable magnitude, which is admittedly not the case of the Revenue, the closing stock could never exceed the total purchases made during the year. This basic accounting inconsistency goes to the root of the matter. Surprisingly, instead of investigating how such an impossible figure emerged in the seized Tally, the AO proceeded to treat it as representing actual closing stock. We entirely agree with the Ld.CIT(A) that such an approach is contrary to fundamental accounting principles.

204. Another important circumstance supporting the assessee is that admittedly no excess physical stock of diesel or explosives was found during the course of search. This factual aspect has not been disputed by the Revenue. In fact, the AO himself records that such a quantity of diesel could not have been physically stored by the assessee. If the seized Tally truly represented actual closing stock, the search team would have necessarily discovered corresponding physical inventory. The complete absence of such physical stock lends substantial corroboration to the assessee’s explanation that the impugned figure represented only an accounting anomaly arising from incomplete ledger postings. Search assessments are fundamentally evidence-based proceedings. When the very search has failed to discover any corresponding physical stock, it would be unsafe to sustain a huge addition merely on the basis of isolated electronic entries.

205. We also find that the assessee has produced complete particulars of the purchases which formed part of the impugned figure. The purchases were made from reputed suppliers including Essar Oil Limited, Indian Oil Corporation, Reliance Industries Limited, Udayam Explosive and Sunpenta Mining Services. The assessee furnished supplier-wise ledger accounts extracted from the seized Tally data, copies of bank statements evidencing payment through banking channels and statutory records supporting these purchases. These evidence have been extensively referred to by the Ld.CIT(A). The Revenue has not disputed the identity of these suppliers. There is no allegation that the suppliers are non-existent or accommodation entry providers. There is equally no allegation that the payments were routed back to the assessee in cash. The AO has also not disputed that these purchases are reflected in the statutory records maintained by the assessee.

206. In our opinion, once the assessee has established the identity of the suppliers, the genuineness of the transactions through banking channels and the recording of the purchases in the books of account, the onus shifts upon the Revenue to establish, by cogent evidence, that the transactions are sham or fictitious. No such evidence has been brought on record. Mere disbelief or suspicion cannot substitute legal proof. The addition has thus been made entirely on assumptions without any corroborative material.

207. We also find merit in the observation of the Ld.CIT(A) that the AO has sought to invoke section 37 of the Act in a wholly misconceived manner. Section 37 of the Act contemplates disallowance of expenditure which is not incurred wholly and exclusively for the purposes of business or which is otherwise prohibited under law. In the present case, the AO has not identified any specific expenditure which fails to satisfy the conditions prescribed u/s.37 of the Act. There is no finding that the diesel or explosives were not consumed for business purposes. Nor is there any finding that the purchases were fictitious or bogus. In fact, the Revenue has accepted that diesel is a consumable item required for the assessee’s mining operations. Therefore, invocation of section 37 of the Act merely because the seized Tally reflected an abnormal closing stock is legally unsustainable.

208. Another aspect which cannot be overlooked is that the return of income had been filed much prior to the date of search. In the regular books of account accompanying the return, the purchases of diesel and explosives had already been recognised as consumption and no closing stock of such magnitude had been claimed. Therefore, the seized Tally data cannot override the regularly maintained books unless supported by independent corroborative evidence. The Ld.CIT(A) has rightly appreciated this distinction while holding that the seized Tally represented only an incomplete accounting record and not the final books of account.

209. We also find considerable substance in the submissions of the Ld.AR that acceptance of the AO’s addition would produce commercially absurd results. The assessee demonstrated that its gross profit ratio without the impugned addition stood at approximately 17.09%, whereas the addition artificially inflates the gross profit to approximately 44.86%, which is wholly inconsistent with the nature of the mining business carried on by the assessee. Though abnormal profit alone may not invalidate an addition, it certainly constitutes a relevant circumstance while testing the reasonableness of the assessment. The Revenue has not brought any comparable case or industry data to justify such extraordinary profitability.

210. The Ld.CIT(A) has further noticed that the purchases and sales declared by the assessee were duly accepted by the GST authorities and no discrepancy regarding the purchases or closing stock was pointed out in the GST assessments. Though proceedings under the Income-tax Act are independent, acceptance of the very same transactions by another statutory authority administering an allied fiscal legislation constitutes a relevant corroborative circumstance. The Revenue has not produced any material to show that the GST authorities disputed the purchases or alleged inflation of closing stock.

211. The Revenue has not been able to point out any factual error or perversity in the detailed findings recorded by the Ld.CIT(A). The order of the first appellate authority demonstrates a thorough examination of the seized Tally data, audited financial statements, supplier-wise ledgers, banking transactions, reconciliation statements and the accounting methodology followed by the assessee. The findings recorded are findings of fact based upon appreciation of evidence and cannot be displaced merely on suspicion.

212. It is now a settled proposition that additions in search assessments cannot be sustained merely on the basis of isolated electronic entries unless such entries are corroborated by independent material demonstrating undisclosed income. Electronic records constitute only one piece of evidence and have to be read in conjunction with surrounding circumstances and supporting material. In the present case, the seized Tally data, when read along with the screenshots, ledger extracts, supplier details, banking records, audited financial statements and the admitted absence of physical stock, clearly supports the explanation offered by the assessee rather than the inference drawn by the AO.

213. We further note that the records of the search proceedings themselves reveal that the Authorized Officer, after a detailed verification of the seized Tally data, stock summaries and ledger accounts, had categorically recorded a finding that the closing stock of diesel reflected therein was not an actual physical closing stock but had arisen due to an accounting error whereby purchases of diesel issued for consumption by vehicles had inadvertently been posted as inward stock entries. The Authorized Officer, having identified the accounting anomaly, rectified the same while preparing the profit suppression analysis by treating such quantities as consumed during the relevant previous years and allowing the corresponding expenditure. The Authorized Officer further verified the ledger accounts of M/s.Nayara Energy Limited, M/s.Essar Oil Limited and M/s.Indian Oil Corporation Limited contained in the seized Tally data for the relevant assessment years and specifically found that the diesel purchases recorded therein had not been claimed as expenditure in the seized Tally data. Accordingly, while computing the alleged suppressed profits, such purchases were also treated as allowable expenditure.

214. Once the very officer who conducted the search and examined the seized electronic records had arrived at a categorical factual finding that the closing stock reflected in the seized Tally data was merely the consequence of an accounting error and did not represent the actual closing stock, such finding constituted an integral part of the seized material itself. In the absence of any material brought on record to demonstrate that the factual conclusions recorded by the Authorized Officer were erroneous or unsupported by evidence, the AO could not selectively rely upon one part of the seized Tally data while completely ignoring the explanatory findings recorded by the Authorized Officer in respect of the very same data. The AO has neither pointed out any defect in the verification carried out by the Authorized Officer nor brought any independent evidence to establish that the closing stock represented actual unconsumed diesel physically available with the assessee at the close of the year. An addition cannot be sustained by relying only upon the apparent entries in the seized records while disregarding the contemporaneous findings explaining the true nature of those entries.

215. It is a settled principle that seized material has to be appreciated as a whole and cannot be read in a fragmented or selective manner. Where the seized records themselves contain an explanation, duly verified by the Authorized Officer during the course of the search, demonstrating that a particular figure is the result of an accounting mistake, the AO is not justified in ignoring such explanation and proceeding to make an addition solely on the basis of the erroneous accounting entry. Acceptance of the AO’s approach would amount to treating an acknowledged accounting error as a real asset, which is impermissible in law.

216. In the present case, the impugned addition has been made without rebutting the factual findings recorded by the Authorized Officer and without bringing any corroborative evidence to establish the existence of actual excess closing stock. The addition is therefore founded only on an erroneous accounting entry, the nature of which stood explained and accepted by the Authorized Officer himself during the search proceedings. In these circumstances, the action of the AO in disregarding the findings of the Authorized Officer and treating the alleged closing stock as unexplained or suppressed stock cannot be sustained.

217. Having regard to the totality of the facts and circumstances of the case, we are of the considered view that the Ld.CIT(A) was fully justified in holding that the figure of Rs.16,62,12,802/- reflected in the seized Tally data represented only a notional balance arising on account of incomplete and erroneous ledger postings and did not correspond to any actual physical closing stock available with the assessee. The Revenue has not brought on record any cogent material to establish either the existence of any undisclosed inventory or that the purchases recorded by the assessee were fictitious or non-genuine. In the absence of any corroborative evidence to substantiate the inference drawn by the AO, the addition made towards the alleged variation in closing stock cannot be sustained.

218. We, therefore, concur with the findings recorded by the Ld.CIT(A) in deleting the addition made by the AO for the A.Y.2018-19. We find no infirmity or perversity in the impugned order warranting our interference. Accordingly, the order of the Ld.CIT(A) on this issue is upheld and the corresponding ground raised by the Revenue for the A.Y.2018-19 stands dismissed.

219. The facts and circumstances giving rise to the addition towards the alleged difference in closing stock for the AY(s) 2019-20 and 2020-21 are identical in all material respects. Since the issue involved, the nature of evidence relied upon and the reasoning adopted by the AO are pari materia with those considered by us for the A.Y.2018-19, our findings and conclusions recorded hereinabove shall apply mutatis mutandis to these assessment years as well. Consequently, we hold that the Ld.CIT(A) was justified in deleting the additions of Rs.6,48,47,396/- and Rs.72,45,116/- made by the AO towards the alleged difference in closing stock for the AY(s) 2019-20 and 2020-21, respectively. Accordingly, the grounds raised by the Revenue on this issue for the said assessment years are also dismissed.

220. In the result, the grounds of appeal raised by the Revenue for the AY(s) 2018-19, 2019-20 and 2020-21 challenging the deletion of the additions made by the AO on account of the alleged difference in closing stock are dismissed.

221. Accordingly, in the result:

i. the appeal filed by the Revenue in ITA No.2528/Chny/2026 for the A.Y.2018-19, ITA No.2527/Chny/2026 for the A.Y. 2019-20 and ITA No.2524/Chny/2026 for the A.Y.2020-21 are dismissed;

ii. the appeal filed by the Assessee in ITA No.2013/Chny/2026 for the A.Y.2020-21 is allowed and ITA No.2014/Chny/2026 for the A.Y.2021-22 is partly allowed.

Order pronounced in the court on 14^th July, 2026 at Chennai.