Case Law Details
Paras Khurana Vs ITO (ITAT Delhi)
The Delhi ITAT held that mere cancellation of GST registration of suppliers or their non-compliance before the department cannot automatically render purchases bogus. In the case of the assessee, the AO had treated purchases of ₹8.77 crore as suspicious because several suppliers were GST non-filers, their GST registrations stood cancelled and notices issued by the department remained unanswered. However, instead of disallowing the entire purchases, the AO estimated profit element at 10% and made an addition of ₹87.75 lakh.
Before the Tribunal, the assessee argued that books of account were never rejected, sales were accepted and purchases were backed by invoices and banking transactions. The ITAT observed that although the non-compliance by suppliers and GST irregularities created suspicion and indicated possible delinquent transactions, these factors alone were insufficient to conclude that the entire purchases were bogus. The Tribunal further clarified that the CIT(A)’s observation treating the entire purchases of ₹8.77 crore as unexplained was merely a typographical mistake and not a valid enhancement of income. Balancing the surrounding circumstances, the ITAT reduced the estimated addition from 10% to 5% of the purchases and sustained disallowance only to the extent of ₹43.87 lakh as probable embedded profit element.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is against order dated 05.08.2025 of the National Faceless Appeal Centre/Learned Commissioner of Income Tax(Appeals), New Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order dated 17.12.2022 passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 pertaining to Assessment Year 2021-22. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
2. The Assessee has raised the following grounds of appeal:
1) That on the facts and in law, the order dated 05.08.2025 passed by the CIT(A), NFAC is bad in law and liable to be quashed being passed without providing effective opportunity of hearing.
2) That the CIT(A) erred in dismissing the appeal ex-parte without adjudicating on merits, violating section 250(6) and principles of natural justice.
3) That the CIT(A) erred in upholding addition of Rs.87,75,839 on account of alleged unverified purchases, without any finding of bogusness OR falsity.
4) That the disallowance of 10 percent of purchases is arbitrary and ad hoc, despite books of account, sales, and stock records having been accepted by the AO.
5) That the authorities below failed to appreciate that all purchases were duly supported by invoices, payment through banking channels, and reflected in audited books.
6) (i). That the authorities below failed to appreciate that the majority of the suppliers were GST-registered and compliant entities, and the corresponding input tax credits were duly reflected in the GST returns, thereby confirming the genuineness of purchases. (ii) WHARE there is no mismatch on Portal in between supply/sales made by supplier and purchase shown by the appellant.
7) That the CIT(A) and AO failed to appreciate that subsequent cancellation of GST registration of any dealer cannot render the past genuine purchases as bogus, especially when such transactions are duly available on the GST portal and tax has been duly paid to the exchequer.
8) That no independent inquiry OR adverse material was brought on record by the AO to disprove the genuineness of purchases.
9) That the CIT(A) mechanically confirmed the AOs order without independent application of mind, rendering the order non speaking and unsustainable.
3. The assessee has raised following additional grounds of appeal:
1. The Ld CIT (Appeal) has lawfully erred in determining the entire purchase of Rs.8,77,58,388.80 as taxable income by treating it as “Bogus Purchase”. whereas the Id. A.O. has determined the taxable income as its embedded profit @ 10% on total purchase or to say an addition of Rs.87,75,839/-.
2. That since it is a case of enhancement the Ld. CIT (Appeals) had made it without issuing the notice u/s 251, thus such order ceases its validity.
4. A perusal of the grounds of appeal enumerated hereinabove indicates that the Ld. AO had originally made an addition of Rs.87,57,839/- being 10% of alleged bogus purchases of Rs.8,77,58,388/- but the Ld. CIT(A) enhanced the addition to Rs. 8,77,58,388/-. As per brief factual matrix of the case Return of Income was filed by the assessee on 10.01.2022 declaring income of Rs.9,69,460/-. The ld. AO selected the case for scrutiny apropos to the information that substantial numbers of assessee’s suppliers were non-filers and thus presumption of there being bogus parties was taken. This presumption of the parties being bogus parties was strengthened in view of information available qua GST authorities of the parties being non-filers in GST ecology as well. Before the AO, the response of the assessee was lukewarm and found inadequate. Information due from the alleged parties was also not forthcoming. The Ld. AO also noted that the GSTIN nos. of several of the said alleged suppliers of assessee was cancelled by the competent authority. The ld. AO attempted to do independent verification from the alleged delinquent suppliers which largely remained un-compiled. Considering the non-compliance of the assessee, the ld. AO proceeded to make an addition of Rs.87,75,839/- being 10% of the total purchase of Rs.8,77,58,388/-. In appeal before the Ld. First Appellate Authority, the response of the assessee was again inadequate and far from satisfactory. Considering the said conduct of the assessee, the Ld. CIT(A) concluded that the assessee had no interest in pursuing its case and he proceeded to dismiss the appeal holding those entire purchases of Rs.8,77,58,388/- as bogus purchases.
5. The ld. Counsel for the assessee argued qua its additional grounds that the action of the Ld. CIT(A) in confirming addition of Rs.8,77,58,388/- as against addition of Rs.87,75,838/- made by the ld. AO constitutes an act of enhancement and that since the due process of law has not been followed by Ld. CIT(A) before enhancement, the appellate order deserves to be quashed.
6. Heard rival parties in the light of material available on records. We have noted that para-9.7 of the appellate order reads as under:-
“…9.7 In view of the above discussion, it is held that the purchases amounting to Rs.8,77,58,388.80/- by the appellant remain unexplained and needs to be taxed in the hands of appellant. Therefore, the undersigned sees no reason to interfere with the orders of the Assessing Officer.”
7. Thus, we have noted that it’s a clear case of typographical error since the Ld. CIT(A) has in reality stated that he “…sees no reason to interfere with the orders of the Assessing Officer…”which means that he was in agreement with the addition of Rs.87,75,838/- made by the ld. AO. Thus, wrongly as against amount of Rs.87,75,838/- the amount of Rs.8,77,58,388.80/-was mentioned. Consequently, no case of any enhancement is made out. The additional ground raised by the assessee is therefore dismissed.
8. Coming to the merits of the addition of Rs.87,75,838/-, the Ld. Counsel vehemently argued that merely because certain parties were suspended or cancelled by GST authorities or had not responded to the notices of the AO would not make purchases of Rs.87,75,838/-, as bogus. It was contended that whereas the Ld. AO has treated the impugned purchases as bogus, he has not reduced the same from the sales. It was also argued that the books of accounts of the appellants were not rejected.
9. The ld. DR on his part vehemently argued in favour of the orders of the lower authorities. The truancy of assessee before the lower authorities was also cited as a ground for justifying the orders from the lower authorities. The Ld. DR held the view that cancellation of GST Registrations, non-compliance by the parties was sufficient proof to allude that the parties were bogus.
10. We have heard the rival submission in the light of material available on records. Upon consideration of the whole matter, we are of the view that cancellation of GST Registrations, non-compliance by the parties cannot be the only parameter to hold that the alleged suppliers were bogus. No doubt the ld. AO attempted to conduct his enquiries which were stone walled by the parties through their non-compliance. Therefore, there exist elements in this case alluding towards indulgence in delinquent transactions. Be that as it may be in the interest of justice, we are of the considered view that a profit element of 5% of the total purchases amounting to Rs.8,77,58,388.80/- i.e. Rs.43,87,919/- would suffice. We, therefore, set-aside the order of the Ld. CIT(A) and confirm the addition made by the Ld. AO to the extent of Rs.43,87,919/-. The grounds of appeal raised by the assessee are partly allowed.
11. In the result, the appeal of the assessee is partly allowed
Order pronounced in the open court on 15th May, 2026
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