ACIT Vs Kuldeep Chhabra (ITAT Delhi)
Bogus Purchases: Suspicion Warrants 3%, but an Unproved Transaction Warrants Nothing
The controversy
Information identifying an accommodation-entry provider does not necessarily establish that every alleged beneficiary entered into a bogus transaction. Equally, bank payments and GST registration may not settle the issue when other facts cast doubt on the purchases.
The Delhi ITAT applied these distinctions while deciding two Revenue appeals concerning the same assessee. For AY 2018-19, it sustained 3% of the disputed purchases, while deleting the separate estimated commission addition. For AY 2019-20, it upheld complete deletion because the Department had failed to establish that the alleged transaction had occurred at all.
The result was a partly allowed Revenue appeal for the first year and a dismissed Revenue appeal for the second.
The background: Investigation information leads to reassessment
The reassessments arose from information concerning alleged accommodation-entry providers.
For AY 2018-19, the dispute involved purchases from M/s Dugong Enterprises and M/s Big Marketing, linked to investigations into the K.K. Spun group. The Assessing Officer added ₹46,65,000 under section 68 on account of alleged accommodation entries or bogus purchases, together with ₹46,650 under section 69C as commission allegedly paid for obtaining those entries.
For AY 2019-20, the Assessing Officer added ₹32,73,010 under section 69C for an alleged accommodation transaction linked to Shri Daya Shankar, along with estimated commission of ₹81,825.
The CIT(A), through separate orders dated 24 March 2026, deleted the additions for both years. The Revenue challenged that relief before the Tribunal.
AY 2018-19: Documents did not remove every doubt
The Revenue relied on the assessment findings that the supplier concerns were dummy entities controlled by Shri Aditya Jain, who had admitted providing accommodation entries against cash and commission.
It also pointed out that summons issued to the principal officers of the concerns had returned unserved. Further, although the assessee claimed to have furnished purchase bills, ledgers and other records, the Assessing Officer recorded that these documents had not actually been uploaded for examination.
The assessee relied on the CIT(A)’s order and submitted that payments were made through banking channels and that the suppliers were registered with the GST authorities. It also objected to reliance on third-party statements obtained behind its back.
The Tribunal considered both sides. While banking transactions and GST registration supported the assessee’s explanation, it could not ignore that the suppliers were non-filers, summons were unserved, and the claimed supporting records had not been uploaded.
The Tribunal sustains 3% and deletes commission
Considering the totality of the circumstances, the Tribunal adopted what it described as a middle course. It sustained 3% of the allegedly dubious purchases and directed relief for the balance.
On disputed purchases of ₹46,65,000, this translates into a sustained addition of ₹1,39,950.
However, the separate commission addition was deleted. The Tribunal found that it rested on surmises and conjectures, rather than evidence demonstrating that commission had actually been paid.
Accordingly, the Revenue’s appeal for AY 2018-19 was partly allowed.
AY 2019-20: First establish that a transaction occurred
The second year presented a materially different situation.
Shri Daya Shankar had been searched on 10 October 2021 and had admitted providing bogus accommodation entries. The Assessing Officer relied on that general statement and departmental information to attribute a transaction of ₹32,73,010 to the assessee.
The assessee consistently denied having transacted with him or any concern controlled by him. It produced its purchase register, GSTR-2A and audited financial statements to support that denial.
The CIT(A) found no corresponding purchase invoices, payments, transportation records, delivery challans or stock entries establishing the alleged purchases. Nor had the Assessing Officer demonstrated any flow of funds linking the assessee with the alleged entry operator.
The assessee’s books had not been rejected, and the Department had not identified specific defects in the records furnished.
Section 69C requires proof of expenditure
The Tribunal endorsed the CIT(A)’s factual findings. The foundational requirement for section 69C was evidence that the assessee had actually incurred expenditure.
A general admission by an entry operator, or unilateral reporting by a third party, could not by itself establish that expenditure in the assessee’s hands.
The Tribunal also observed that the assessee could not be expected to prove a negative when the alleged transaction itself remained unsubstantiated.
It therefore upheld deletion of both ₹32,73,010 and the assumed commission of ₹81,825. The Revenue’s appeal for AY 2019-20 was dismissed.
Author’s comments
The decision makes the factual distinction decisive: a disputed purchase and a transaction whose existence is unproved require different treatment.
The 3% estimate is fact-specific, not a standard rate for every bogus-purchase case. Equally, bank payments and GST registration cannot substitute for a complete evidentiary record.
For section 69C, the Department must first establish expenditure before questioning its source. A general investigation report cannot relieve it of that foundational burden.
Before asking the assessee to explain a transaction, the Department must establish that the transaction belongs to him.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. These two appeals pertain to the same assessee for assessment years 2018-19 (ITA 6506) and AY 2019-20 (ITA 6507). Since these two appeals pertain to the same assessee, hence, we deem it fit to dispose of the two cases through a single order.
2. ITA 6506 arises from order dated 24.03.2026, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by NFAC. ITA 6507 arises from order dated 24.03.2026, passed u/s 250 of the Act, by NFAC.
2.1 It is seen from the record that there was a search operation on an alleged accommodation entry provider in the name and style of M/s K.K. Spun India Ltd. Also, there was information pertaining to one Shri Daya Shankar who was an alleged entry provider, who had apparently provided a transaction entry to the assessee. The assessee was seen to have entered into a transaction with this group of accommodation entry providers and, therefore, the cases were picked up for reassessment u/s 147/148 of the Act, based on the information received from the Investigation Wing. For AY 2018-19 an addition of Rs.46,65,000/- was made u/s 68 of the Act and Rs.466,00,000/- was made u/s 69C of the Act, respectively on account of bogus purchases and unexplained expenditure of commission for arranging the bogus purchases. For AY 2019-20 an addition of Rs.32,73,010/- was made on account of alleged bogus accommodation entry and a further addition of Rs.81,825/- was made on account of estimated commission paid for arranging the said bogus accommodation entry.
2.2 The assessee approached the CIT(A) for both the years and was successful in obtaining relief on the entire quantum of additions made in both the years.
2.3 The Revenue is aggrieved and has approached the ITAT with grounds challenging the deletion of the amounts added by the Ld. AO for both the years. Since there is some variation in the facts of the two cases, we may deal with the two appeals individually.
3. ITA 6506: The Revenue has put forth its grievances as per the following grounds of appeal:
1. “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.46,65,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on account of accommodation entries/bogus purchases, ignoring the incriminating material gathered during search and post-search investigations.
2. The Ld. CIT(A) has failed to appreciate that the entities M/s Dugong Enterprises and M/s Big Marketing were found to be dummy concerns controlled by Shri Aaditya Jain, who categorically admitted on oath that accommodation entries were provided to beneficiary parties in lieu of cash and commission.
3. The Ld. CIT(A) has erred in holding the impugned transactions as genuine merely on the basis of invoices, ledger accounts and payments made through banking channels, without appreciating that such documentary evidence, by itself, does not establish genuineness of transactions in accommodation entry cases.
4. The Ld. CIT(A) has erred in deleting the addition of Rs.46,650/- made under section 69C of the Act on account of commission paid for obtaining accommodation entries, despite the material brought on record by the Assessing Officer.
5. The appellant craves leave to add, amend, alter, vary or withdraw any of the above grounds of appeal at or before the time of hearing.”
3.1 The Ld. DR took us through the facts of the case and relied on the findings given in the assessment order. It was pointed out that the assessee purportedly entered into transactions with one M/s Dugong Enterprises and M/s Big Marketing, and from his side apparently uploaded before the AO copies of ledger, purchase bills, etc. which were actually not found to have been uploaded at all (page 2 para 5.1 of the Ld. AO’s order). The Ld. AO has given a finding that one Shri Aditya Jain had given a statement with respect to the search on M/s K.K. Spun Group, stating that accommodation entries were provided in lieu of cash. The Ld. DR further pointed out para 6.4 at page 4 of the Ld. AO’s order that the two entities with whom transactions were recorded by the assessee were dummy concerns. It was also pointed out that as per para 6.7 on page 4 of the Ld. AO’s order, the summons issued to the Principal Officers of these entities were returned back unserved. It was averred by the Ld. DR that on the basis of such enquiries the impugned additions were made.
3.2 Per contra, the Ld. AR relied on the order of the Ld. CIT(A) and read out from various portions of this order on pages 43 to 45 of the impugned order. It was pointed out by the Ld. AR that the assessee had transacted through banking channels and the entities with whom the said transaction had been entered into were registered with GST Authorities. It was also pointed out that an addition could not merely be sustained on the basis of third-party statements, that too obtained at the back of the assessee.
3.3 We have considered the rival submissions and have gone through the records before us. We find that while the transactions may have taken place through banking channels and the two entities with whom such transactions were purportedly undertaken with, be registered with GST Authorities, but we cannot ignore the fact that these entities are non-filers; the summons issued to them were returned back unserved; and finally the so-called ledgers and other account details purportedly presented before the Ld. AO were never uploaded for his perusal (para 5.1 at page 2 of the Ld. AO’s order). However, contrary to these findings the claim of the Ld. AR that the transactions happened through banking channels etc. would also persuade us to subscribe to a middle path with respect to the additions under consideration. Considering the totality of facts and circumstances of the case, we deem it fit to confirm 3% of the allegedly dubious purchases and direct the granting of relief on the remaining amount. Regarding the estimated commission paid for arranging such entry, we find that the same has been estimated on the basis of surmises and conjectures and hence, the addition on that account is directed to be deleted.
3.4 In the result, this appeal of the Revenue is partly allowed.
4. ITA 6507: For this year the facts are slightly on a different footing and we find that there is a recording of fact in the assessment order that Shri Daya Shankar used to issue bogus bills through entities managed and controlled by him. It is seen that Shri Daya Shankar was subjected to a search and seizure operation on 10.10.2021. During such operation he admitted to providing bogus accommodation entries and it is from this generic statement the Ld. AO inferred that a bogus transaction of Rs.32,73,010/- was entered into with the assessee. The Ld. AO added this amount and also an amount of Rs.81,825/- by way of estimated commission paid by the assessee for arranging the said bogus entry.
4.1 The assessee approached the Ld. CIT(A) where he could succeed on the basis of detailed finding in the impugned order.
4.2 The Revenue is aggrieved and has approached the ITAT with several grounds challenging the action of Ld. CIT(A).
4.3 Before us the Ld. DR took us through the findings in the Ld. AO’s order and pointed out that during the course of search action on Shri Daya Shankar he admitted that he was routinely providing accommodation entries to various persons in lieu of cash. Since the assessee was also seen to have transacted with the said Shri Daya Shankar, hence, the impugned transaction was considered to be a bogus accommodation entry. It was the submission that there was a clear trail of evidence to show that the assessee had entered into a transaction with Shri Daya Shankar. The Ld. DR rejected the claim of the assessee that the assessee had absolutely not entered into any transaction with the said Shri Daya Shankar or entities controlled by him.
4.4 The Ld. AR, on the other hand, relied on the findings given in the impugned order and stated that there was absolutely no transaction with any organization controlled by the said Shri Daya Shankar. It was the submission that the assessee had all along protested this so-called relationship but the Ld. AO insisted on relying on the information available through “insight portal” of the I.T. Department and simply declined to entertain any idea that there was absolutely no transaction as alleged.
4.5 We have considered the rival submissions and have gone through the records. We find there is a very clear finding of fact in the impugned order, which for the sake of reference deserves to be extracted suitably:
“7.7 On the other hand, the appellant has consistently denied having entered into any transaction with the said party. It has been contended that no such purchases were made during the relevant financial year and that the alleged transactions are not reflected in the books of account. The appellant has placed reliance on the purchase register, GSTR-2A, and audited financial statements to demonstrate that no such purchases have been recorded. It need to examine that whether the addition made by the Assessing Officer is supported by cogent evidence establishing that the appellant had actually incurred expenditure towards such purchases.
7.8 It is observed that the addition has been made solely on the basis of third-party information and statement of the alleged entry operator. No independent enquiry appears to have been conducted by the AO to verify whether the appellant had in fact entered into such transactions. There is no material on record to show that any purchase invoices corresponding to the alleged transactions were found in the books of the appellant. There is also no evidence of payment having been made by the appellant to the said party. Further, there is no material indicating movement of goods, such as transportation records, delivery challans or stock entries, which could substantiate the allegation of purchases.
7.9 The appellant has categorically demonstrated that no such purchases are reflected in its books of account or in the GSTR-2A, which is an auto-populated statement reflecting inward supplies. In the absence of any entry in the books, the very foundation for invoking section 69C, which presupposes incurrence of expenditure, becomes questionable. It is also pertinent to note that the AO has not rejected the books of account of the appellant under section 145 of the Act. The sales declared by the appellant have been accepted and no adverse inference has been drawn with regard to the gross profit or net profit declared. In such circumstances, making an addition of entire purchases, without disturbing the corresponding sales or trading results, results in an inconsistent and legally untenable approach.
————
7.11 Section 69C contemplates a situation where an assessee has incurred any expenditure and fails to offer a satisfactory explanation about the source of such expenditure. Thus, the foundational requirement for invoking the said provision is the existence of actual expenditure incurred by the assessee. Unless it is first established that unexplained does not arise. In the present case, as discussed hereinabove, the AO has not brought any material on record to demonstrate that the appellant had actually incurred any expenditure towards the alleged purchases. The entire addition has been made on the basis of information that certain sales have been reported by a third party in its GST returns. However, such unilateral reporting by a third party cannot, in itself, lead to a presumption that corresponding purchases were made by the appellant, particularly when the appellant has categorically denied such transactions and the same are not reflected in its books of account.
7.12 The Assessing Officer has also not established any flow of funds from the appellant to the alleged entry operator. There is no evidence of payment, either through banking channels or otherwise, nor is there any evidence of cash withdrawal or circulation of funds linking the appellant with the alleged accommodation entry provider. In the absence of such foundational evidence, the assumption that expenditure has been incurred remains unsubstantiated.
———-
7.14 The appellant has placed on record its purchase register, GSTR-2A, and financial statements to demonstrate that no purchases were made from the alleged entries. These documents constitute primary evidence maintained in the normal course of business and cannot be disregarded without pointing out specific defects or inconsistencies therein. The Assessing Officer has not pointed out any discrepancy in the books of account nor has any adverse finding been recorded with respect to the correctness or completeness of the accounts. In such circumstances, the rejection of the appellant’s explanation without any cogent reasoning reflects non-application of mind and renders the addition unsustainable.
7.15 Having carefully considered the entire material on record, it becomes evident that the appellant has furnished documentary evidences demonstrating that no purchases were made from the alleged entities. The Assessing Officer has neither disproved these documents nor brought any independent material evidence. The additions have thus been made primarily on the basis of generalized investigation reports and untested third-party statements without conducting independent verification or providing opportunity of cross-examination. In the absence of corroborative evidence establishing that the impugned transactions were accommodation entries, the additions made under section 69C cannot be sustained in law. Accordingly, the addition of Rs.32,73,010/- made under section 69C in the reassessment order is hereby deleted. The grounds of appeal raised by the appellant are therefore allowed.
7.16 The Assessing Officer has further made an addition of Rs.81,825/- on account of alleged commission, on the presumption that the appellant must have paid commission for obtaining accommodation entries. However, it is observed that this addition is purely based on assumption and estimation, without any supporting evidence. There is no material on record to show that any commission has actually been paid by the appellant. No statement, document or financial trail has been brought on record to substantiate such allegation.
———-”
Considering the finding of fact in the impugned order and the fact that the assessee cannot be expected to prove the negative, in as much as there is no way that he can prove that there was no transaction as alleged, we accordingly uphold the finding of fact in the impugned order and direct that the addition of Rs.32,73,010/- must be deleted. We also find that the addition of Rs.81,825/- has been made on surmises and conjectures, accordingly, the same also cannot be sustained.
4.6 Accordingly, the appeal of Revenue is dismissed.
5. In light of findings given above, ITA 6506 is partly allowed and ITA 6507 is dismissed.
Order pronounced in the open court on 07.10.2026
