ITAT Delhi Deletes Bogus Purchase Addition as Sales Were Recorded

SNT Agro Industries Pvt. Ltd. Vs ITO (ITAT Delhi)

ITAT deleted addition under Section 68 towards alleged bogus purchases, noting that sales had already been undertaken and reflected from the same purchases

Facts:

• The assessee, SNT Agro Industries Pvt. Ltd., filed its return of income for Assessment Year 2012–13 electronically on 19.09.2012 declaring total income of Rs. 6,76,120/-. The return was accordingly processed under Section 143(1) of the Income-tax Act, 1961 on 21.02.2013, accepting the returned income. Thereafter, in this case, very vital and credible information was received from DDIT (Investigation), Karnal vide letter dated 05.02.2019 informing that during post-search proceedings it was noticed that Mr. Hitesh Jain was engaged in the activity of providing accommodation entries to various beneficiaries with the help of approximately 40 shell/paper concerns. Summons issued under Section 131(1A) to such concerns had returned back and inspectors deputed for verification reported that none of such concerns existed at their Income-tax addresses.
• It was further informed that bank statements along with account opening forms and KYC documents of the said 40 shell/paper concerns were called from the respective banks and furnished to the office of the Investigation Wing. Upon perusal of those bank statements, it was noted that huge entries were credited as well as debited in the bank accounts during FY 2011–12. Thereafter, letters were issued to banks with UTR numbers/instruction IDs/RTGS details to identify IFSC codes and source banks of such transactions. Based upon information furnished by the banks, further letters were issued to obtain PAN details and jurisdictional particulars. Since jurisdiction of M/s SNT Agro Industries Pvt. Ltd. (PAN: AABCS8002L) was stated to lie with the concerned Assessing Officer, information relating to the assessee was forwarded for taking action under the provisions of the Act and, if jurisdiction did not pertain to that office, the same was directed to be transferred to the concerned Assessing Officer.
• The information further recorded details of amounts allegedly credited in bank accounts of concerns stated to be controlled by Mr. Hitesh Jain for providing accommodation entries to the assessee. The details reflected transactions with M/s Raghuveer Singh Davinder Kumar, having account no. 03302560004498 maintained with HDFC Bank, Kunjpura Road, Karnal, where amount credited during FY 2011–12 was stated to be Rs. 48,50,400/-, and M/s Gagan Enterprises, having account no. 02172320017643 maintained with HDFC Bank, Delhi, where amount credited was stated to be Rs. 65,37,270/-, aggregating to Rs. 1,13,87,670/-. It was requested that appropriate action be taken in respect of the above transactions and further verification be undertaken if any additional transactions were found with the said concerns.
• As recorded in paragraph 2.1 of the order, the information alleged that the assessee had taken accommodation entries from dummy companies controlled by Mr. Hitesh Jain, namely M/s Raghuveer Singh Davinder Kumar and M/s Gagan Enterprises, for an amount of Rs. 1,13,87,670/-.
• On the basis of the aforesaid information, the case of the assessee was reopened under Section 147 after recording reasons and obtaining necessary approvals under Section 151 of the Act and notice under Section 148 was issued on 28.03.2019. In response thereto, the assessee furnished return of income for AY 2012–13 on 25.04.2019 declaring income of Rs. 6,76,120/-. Thereafter, notices under Sections 143(2) and 142(1) along with questionnaire were issued. In compliance with notice under Section 142(1), the assessee furnished details through ITBA on 25.10.2019 and relevant information was submitted before the Assessing Officer.
• After examining the submissions, the Assessing Officer issued show-cause notice dated 14.11.2019 proposing addition under the head of unexplained bogus purchases of Rs. 1,13,87,670/-, unsecured loan taken during the year of Rs. 7,91,670/-, increase in sundry creditors of Rs. 7,40,462/-, and increase in security premium account of Rs. 8,10,300/-. In response, the assessee filed reply to the show-cause notice on 16.11.2019 and requested supply of reasons recorded for formation of belief regarding escapement of income. After receiving such reasons, the assessee filed objections to reopening and those objections were disposed of by a speaking order dated 28.11.2019, following which the assessee furnished remaining information sought by the department.
• During assessment proceedings, notices under Section 133(6) were issued to M/s Gagan Enterprises and M/s Raghuveer Singh Davinder Kumar requiring production of relevant documents relating to transactions with the assessee; however, both notices returned unserved. Summons under Section 131 were also issued to those entities but none attended the proceedings. Accordingly, the Assessing Officer formed the view that transactions entered into with M/s Gagan Enterprises and M/s Raghuveer Singh Davinder Kumar were not genuine and constituted bogus purchase transactions.
• The Assessing Officer further observed that there was substantial increase in share capital issued, security premium and purchases during the year and that information received regarding accommodation entries allegedly taken by the assessee from companies controlled by Shri Hitesh Jain supported the finding that such transactions/financials were bogus during AY 2012–13. It was further observed that during search proceedings statement of Shri Hitesh Jain had been recorded wherein he allegedly admitted involvement in providing accommodation entries by issuing bogus bills in lieu of commission and that no actual sale/purchase took place. Accordingly, the Assessing Officer came to the conclusion that Shri Hitesh Jain was engaged in the business of providing entries of bogus sale/purchase.
• The Assessing Officer further observed that several documents seized from the premises of Shri Hitesh Jain revealed that bogus sale/purchases amounting to Rs. 1,13,87,670/- had been taken/made by the assessee company from M/s Raghuveer Singh Davinder Kumar and M/s Gagan Enterprises, stated to be controlled by Shri Hitesh Jain. Accordingly, the Assessing Officer held that the amount represented unexplained credit under Section 68 in the books of account of the assessee and treated Rs. 1,13,87,270/- as unexplained transaction and added the same to the income of the assessee under Section 68 of the Act.
• Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A)/NFAC and filed detailed submissions. The CIT(A), vide order dated 03.12.2025, sustained the additions. Aggrieved thereby, the assessee preferred the present appeal before the Tribunal.

Issues:

• Whether the proceedings initiated under Section 147/148 of the Income-tax Act were valid in the absence of valid reasons leading to the belief of escapement of income?
• Whether the order passed under Section 143(3) read with Section 147 of the Act determining taxable income at Rs. 1,20,63,390/- as against the returned income of Rs. 6,76,120/- was sustainable in law?
• Whether the addition of Rs. 1,13,87,270/- on account of alleged bogus purchases under Section 68 of the Act was justified?

Observations:

• The Tribunal observed that the Assessing Officer had received information from DDIT-INV that Mr. Hitesh Jain was providing accommodation entries to various beneficiaries with the help of 40 shell companies. The Tribunal recorded that, based on the report and post-search statements of Mr. Hitesh Jain, the Investigation Wing treated those entities as shell companies and advised the Assessing Officer to verify the case of the assessee, who was found to have taken benefit from the said entry provider. On the basis of such information, the Assessing Officer formed an opinion that the assessee had taken bogus accommodation entries and obtained approval to proceed with reopening. However, the Tribunal specifically observed that the Assessing Officer had no material apart from the information and statement recorded from Mr. Hitesh Jain. The Tribunal further observed that the assessee was never confronted with any material except forwarding of the investigation report in the case of Hitesh Jain and connected entities alleged to be providing accommodation entries. It was further noted that the Assessing Officer only had information that Raghuveer Singh Davinder Kumar and Gagan Enterprises had credit entries in their bank accounts from the assessee during the relevant year amounting to Rs. 48,50,400/- and Rs. 65,37,270/- respectively. The Tribunal also noted that the Assessing Officer reopened the assessment to verify the transactions and that the Investigation Wing had advised verification of any other transactions as well. It was further observed that the assessee had submitted relevant information and details relating to increase in creditors and security premium which were already recorded in the books.
• The Tribunal further noticed that the Assessing Officer had issued notices to the above entities, who were already alleged as entry providers by the Investigation Wing, and observed that when the Assessing Officer himself was satisfied on the basis of the investigation report that these were entry providers, the question arose as to what he was attempting to establish. The Tribunal observed that the Assessing Officer was only creating documentation rather than making actual investigations. According to the Tribunal, the Assessing Officer ought to have supplied relevant information establishing that the assessee had in fact taken accommodation entries from Hitesh Jain. Instead of gathering information against the assessee, the Assessing Officer simply relied on the detailed findings of investigation and statement recorded in the case of Hitesh Jain.
• From the record, the Tribunal observed that the Assessing Officer had only focused on the allegation that the assessee had taken accommodation entries in the form of purchases and had not bothered about how the assessee had carried on the business. The Tribunal noticed that the assessee is a wholesaler and sells the goods purchased by them and retains the gross margin. Looking at the financial statements, the Tribunal observed that it was a fact on record that the assessee is only a whole sale trader.
• Coming to the issue raised by the assessee, the Tribunal observed that the Assessing Officer had made addition which was already declared by the assessee in their books of account, both the purchases and sales. The Tribunal recorded that the coordinate bench in Kishore Jerom Bhai Khaniya (ITA no 1220/Del/2011 dtd. 13.05.2014.) had clearly held that once the assessee declared the sales in the books, the same cannot be added under Section 68 of the Act, and reproduced the ratio from that decision.
• The Tribunal observed that the Assessing Officer cannot reopen the case without properly establishing himself that income had actually escaped assessment even though relevant and credible information was received from internal or external sources. In the present case, the Tribunal recorded that there was absolutely no material in possession of the Assessing Officer except information from the Investigation Wing and statement of Mr. Hitesh Jain and therefore proceedings were initiated without credible evidence or material in possession of the Assessing Officer. While dealing with case laws relied upon by the Revenue, the Tribunal observed that Amit Polyprints was distinguishable because in that case the Assessing Officer had credible and definite material, whereas in the present case the Assessing Officer never had any material except information forwarded by DDIT Investigation. Similarly, Pr.CIT-7 vs. Paramount Communications (P.) Ltd. (2017)392 ITR 444 (Del.) and Raymond Woollen Mills vs. ITO [1999] 236 ITR 34 (SC). were held distinguishable on facts. The Tribunal further observed that the assessee had already declared sales out of the same purchases and therefore addition under Section 68 could not be sustained where purchases and corresponding sales had already been recorded in the books of account. Following Kishore Jerum Bhai Khaniya (supra), the Tribunal allowed the grounds raised by the assessee.
• Accordingly, the Tribunal allowed the appeal for AY 2012–13 and held that since the facts in AY 2013–14 were exactly similar, the findings for AY 2012–13 would apply mutatis mutandis, and both appeals were allowed.

FULL TEXT OF THE ORDER OF ITAT DELHI