Shankar Lal Vs ITO (ITAT Delhi)
Delhi ITAT: Entire Bogus Purchase/Sales Amount Cannot Be Taxed When Books & Sales Are Not Rejected; Only 0.5% Commission Income Taxable
The Delhi ITAT granted substantial relief to an assessee engaged as a kachha aadti/commission agent in food grains, holding that where the regular books, audited accounts, stock records and corresponding sales have not been rejected, the entire amount of allegedly bogus transactions cannot be treated as unexplained income.
For AY 2018-19, the AO had made an addition of ₹14,86,489, treating sales made to a particular party as bogus. The assessee contended that he earned only a small commission of about 0.5% on the turnover and, therefore, at the highest, only such commission/profit element could be brought to tax.
The Tribunal noted that the assessee had furnished the return, balance sheet, trading account, Form 3CB, stock registers, sales bills, ledger accounts and bank statements, and these records, including quantitative details and corresponding receipts, had not been doubted. The assessee had turnover exceeding ₹9 crore, of which only a small portion was questioned.
The ITAT also noticed that the AO had substantially relied upon the Investigation Wing findings and statements of third parties without giving the assessee an opportunity to cross-examine the vital witnesses. At the same time, the CIT(A) had not properly dealt with the evidence furnished by the assessee.
The Tribunal held that even if the transactions were regarded as bogus/unsubstantiated, only the profit embedded therein could be subjected to tax and not the entire transaction value. It relied upon the Bombay High Court decision in PCIT v. S.V. Jiwani and the recent Delhi High Court ruling in PCIT v. Jotinder Steels and Tubes Ltd., dated 23.07.2026.
Accordingly, the ITAT modified the additions for both assessment years and directed the AO to restrict the addition to commission income at 0.5% of the impugned purchases. The assessee’s appeals were allowed.
Cases Discussed
- PCIT Versus Jotinder Steels and Tubes Ltd. (Delhi High Court), ITA 504/2025, order dated 23/07/2026
- Pr. CIT v. S.V. Jiwani (Bombay High Court), [2022] 145 taxmann.com 230 / [2023] 290 Taxman 178
FULL TEXT OF THE ORDER OF ITAT DELHI
