Pune ITAT: 25% Addition Limited to ₹16.54 Crore Unproved Purchases, Not to Entire Purchases

Akashkumar Shah Vs ITO (ITAT Pune)

Pune ITAT Restricts Bogus Purchase Addition to 25% of ₹16.54 Crore Actually Found Unproved – Cannot Apply Disallowance to Entire ₹25.01 Crore Purchases

The Pune ITAT partly allowed the assessee’s appeal against an addition arising from alleged non-genuine purchases. The assessee had declared total purchases of ₹25.01 crore. The AO treated the entire purchases as non-genuine but, following Vijay Proteins Ltd., added 25% thereof, i.e. ₹6.25 crore, representing the alleged profit embedded in such purchases.

The assessee contended that the purchases were supported by party-wise details, GSTR-2A statements, invoices, transport/lorry receipts and payments through banking channels, and further pointed out that the corresponding sales had not been doubted.

The Tribunal, however, noticed several serious deficiencies. Many suppliers had their GST registrations cancelled within a short period, several were non-filers of income-tax returns and none had responded to the AO’s Section 133(6) notices. Particularly, one supplier, Madan Lal of Saini Enterprises, from whom purchases of ₹4.21 crore were claimed, had himself stated during his assessment that he had never carried on any business and that somebody might have used his identity.

The Tribunal also held that E-way bills by themselves do not prove actual movement of goods, since they are generated electronically before transportation. Though lorry receipts were produced, the assessee could not demonstrate GST payment under reverse charge on GTA services. Similarly, invoices were regarded as self-generated documents which, standing alone, could not establish genuineness.

Another significant factor was the tax audit report. Despite the assessee claiming substantial trading purchases, the report did not furnish quantitative details of traded goods, and there was no closing stock. The Tribunal observed that the auditor had also not recorded any qualification in this regard.

The Tribunal further noticed that the capital account placed on record contained another person’s name despite bearing a CA’s stamp. Moreover, while the return disclosed only one bank account, payments to the alleged suppliers were claimed to have been made from a Kotak Mahindra Bank account which had not been disclosed in the return.

On an overall consideration, the ITAT agreed that the assessee had failed to establish the genuineness of purchases of ₹16,53,88,121 from the suppliers specifically examined by the AO. However, it found that the AO had wrongly applied the 25% profit addition to the entire purchases of ₹25,00,93,128, even though only ₹16.54 crore of purchases had been identified and examined as non-genuine.

Accordingly, following the Bombay High Court decision in PCIT v. Mohommad Haji Adam & Co., the Tribunal restricted the addition to 25% of ₹16,53,88,121, i.e. approximately ₹4.13 crore, instead of ₹6.25 crore. The ITAT treated this 25% as the profit likely embedded in the unproved purchases, rather than disallowing the entire purchase amount. The appeal was partly allowed.

Key takeaway: Even where purchases are held non-genuine, an estimated profit addition cannot mechanically be applied to the assessee’s entire purchases. It must be confined to those purchases whose genuineness has actually been found unproved. At the same time, banking payments, invoices and E-way bills may not by themselves establish genuineness where surrounding evidence-including supplier verification, GST status, transport evidence and books/audit records-points otherwise.

FULL TEXT OF THE ORDER OF ITAT PUNE

This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (the Act’) for AY 2020-21 on 20.03.2025, emanating from the Assessment Order u/s 143(3) r.w.s. 144B of the Act, dated 13.09.2022.

2. The brief facts of the case are that the assessee Mr. Akash Suresh Shah filed return of income for AY 2020-21 on 13.01.2021 declaring total income of Rs.18,86,250/-. The assessee’s case was selected for complete scrutiny. During the scrutiny proceedings, the Assessing Officer (AO) noted that the assessee has claimed purchases of Rs.25,00,93,128/- (net of refunds and duty or tax if any). The AO issued notice to the assessee calling for details of the purchases. In the assessment order at para 3.1.5, the AO noted that the assessee failed to furnish any supporting documents for purchases. The AO has observed that the assessee has made purchases from following parties which were either non-filers of the return of income or shown substantially lower turnover in ITR.

2.1 The AO issued notice u/s 133(6) to the above referred persons. There was no reply to the notices issuedu/s 133(6) of the Act. The AO after giving opportunity to the assessee arrived at a conclusion that the purchases of Rs.25,00,93,128/- were not genuine. Therefore, the AO following the decision of the Hon’ble Gujarat High Court in the case of Vijay Proteins Ltd., held that entire purchases cannot be added but deeming hidden profit of 25% needs to be added. Accordingly, the AO made addition of Rs.6,25,23,282/-.

2.2 Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee filed additional evidence. The Ld. CIT(A) called for a report from the AO which was filed by the AO. After considering the submission the Ld. CIT(A) upheld the addition. Aggrieved by the order the Ld. CIT(A), the assessee filed an appeal before the ITAT.

Submission of Ld. AR :

3. The Ld. AR submitted that the assessee had filed party wise details of purchases made, party wise GSTR 2A statement to prove purchases, sample copies of invoices, transport receipts and weigh bill. The Ld. AR submitted that the assessee had proved that the purchases were genuine. The Ld. AR also submitted that the AO has not doubted genuineness of the sales.

3.1 In reply to the submission filed by the Ld. Departmental Representative (DR), the Ld.AR submitted that non-filing of the income tax return by the supplier is beyond the assessee’s control. The Ld. DR had in his submission stated that in the case of four suppliers, Chartered Accountant Contact Numbers and email id are same. The Ld. AR has merely noted these facts. Ld.AR submitted that the email id is secondary email id. The Ld. AR invited our attention to confirmation filed by these persons which are at pages 649-658 of the paper book. The Ld. AR also invited our attention to sample invoices and lorry receipts which are in the paper book. Ld. AR submitted that all the purchases were paid through banking channels. The Ld. AR therefore submitted that purchases are genuine and no addition should be made.

Submission of Ld. DR :

4. The Ld. Departmental Representative (DR) read the relevant part of the assessment order and the Ld. CIT(A)’s order. Ld. DR Mr. Amol Khairnar, IRS Commissioner of Income Tax (DR) filed paper book. The Ld. DR invited our attention to the paper book wherein he has filed a chart as Annexure A explaining the position of return of income filed by suppliers. The chart filed by the Ld. DR is reproduced as under:

4.1 The Ld. DR filed Annexure E containing GST details of the suppliers. The Ld. DR submitted that in most of these cases the GST registration has been cancelled. The chart filed by the Ld. DR is reproduced as under:

4.2 The Ld. DR submitted that the purchases made by the assessee were not genuine and therefore the AO has rightly disallowed 25% of the total purchases. The Ld. DR submitted that the AO had actually disallowed the profit imbibed in the said purchases. The Ld. DR submitted that the AO has relied on the decision of the Hon’ble Gujarat High Court. The Ld. DR also invited our attention to Annexure F which are the Vehicle Number alleged to be used by the assessee for transportation wherein the Ld. DR submitted some of the vehicles are not found on the RTO website. One of the vehicles was small tempo. Thus, the Ld. DR requested to confirm the addition.

Findings and Analysis :

5. We have heard both the parties and perused the records. In this case as per the Assessment Order and as per the submission of the Assessee, the assessee has shown purchases from following persons:

5.1 During the proceedings the Ld.Departmental

Representative Mr.Amol Khairnar filed an elaborate submission, copy of the same was provided to the Assessee and Ld.AR filed his rebuttal.

5.2 On perusal of the submission of Ld.DR it is observed that GST Registration of the persons from whom Assessee has claimed to have made purchases was cancelled. The details are as under :

5.3 Thus it can be observed that the above supplier’s GST Registration was cancelled within a short period.

5.4 Mr.Madan Lal Prop of Saini Enterprises during his own assessment submitted that he had never done any business and his identity may have been used by someone. Copy of the said Assessment Order for AY 2020-21 of Mr.Madan Lal (AYNPL6928K) was filed by the Ld.DR in his submission . In the assessment order, submission of Mr.Madan Lal has been reproduced. The Ld.AR has not specifically commented on the Assessment Order of Mr.Madan Lal(copy was provided to Ld.AR).The Assessee has claimed Purchases of Rs.4,20,75,444/-from Mr.Madan Lal.

5.5 Transportation: Ld.AR has filed copies of E-Way bills in the paper book to claim that Purchases were Genuine. But one needs to understand the procedure of E-Way Bills. The E-Way Bills are generated electronically before the Goods are actually transported. Therefore, the E-way bills are not proof for actual transportation of goods.Ld.AR submitted that Assessee has paid the transporters of goods. Ld.AR filed copies of some Lorry receipt. Ld.AR also filed copies of Ledger Extracts. In this context we specifically asked Ld.AR regarding “Reverse Charge” under GST.Ld.AR in the written submission dated 21/05/2026 submitted that No “Reverse Charge” paid by the assessee. Relevant Provisions of GST are reproduced here under:

Section 9. Levy and collection.-

(1) …

(2)…………..

(3) …….

(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.

Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road is covered under Reverse Charge.

5.6 We have perused the Lorry receipts filed by the assessee in the paper book, however, no where details of GST paid under Reverse Charge has been provided .

5.7 Similarly, the assessee filed copies of some invoices. The invoices are self generated documents hence invoices only cannot be the sole proof for genuineness of purchases. We need to analyze these documents in totality of facts of the case discussed in various paragraphs. GST Registration of suppliers mentioned in the chart above has been cancelled, many of them have not filed the Return of Income as mentioned in the chart. Ld.AR in his written submission dated 19/03/2025 submitted that Assessee cannot ensure filling of Return of Income by suppliers. However, it is also a fact that Suppliers mentioned above have not filed any reply to notices u/s 133(6) issued by the AO. The onus was on the assessee to prove the genuineness of the purchases claimed by him.

5.8 It is important to mention here that there was No Closing Stock of goods for the year as per Assessee’s submission. In the Audit report the Assessee’s Auditor has not provided the Quantitative Details of traded Goods. Relevant part is scanned and reproduced as under :

5.9 The Audit report has been duly signed by Assessee Akashkumar Shah and his CA Mr. Surendra V. Waikar having Membership number 040590 on 12/01/2021.

5.10 It can be observed that Assessee has consciously not provided Quantitative Details of Traded Goods in the Audit Report and the CA has not given any qualifying Remark. Rather the Audit Report proves that there was no Traded Goods during the year, it means the Assessee has not made any purchases.

5.11 The capital Account filed by the Assessee before AO/CIT(A) has been filed in the Paper Book, the same is scanned and reproduced as under :

The Capital Account filed by the assessee have some other name and ironically it contains stamp of a CA.

5.12 Details of bank Accounts shown by the Assessee in the Return of Income are scanned and reproduced as under :

5.12.1 Thus, Assessee in the Return of Income has shown only one Bank Account whereas the Column specifically asked for ALL BANK Accounts , the Assessee has not disclosed his Bank Account in Kotak Mahindra Bank NIBM Road Kondwa Branch Pune. The payments to alleged suppliers were said to have been made from Kotak Mahindra Bank account which was not disclosed in the Return of Income.

5.13 In the written submission dated 21/05/2026 filed by Ld.AR in response to specific query from the Bench, the Ld.AR submitted that the assessee has closed his business in January 2020 and started working as Employee in Jenisha Steel. Ld.AR filed copies of subsequent returns of Income to prove the same. Thus, admittedly assessee closed the business in January 2020. As per the Balance Sheet of the Assessee for AY 2020-21 there were sundry creditors and debtors. No details regarding Outstanding Sundry Creditors as on 31/03/2020 available in the subsequent returns of Income.

5.14 For all the reasons discussed in earlier paragraphs, we agree with the Ld.AO and Ld.CIT(A) that assessee failed to prove genuineness of the purchases made from the persons mentioned in the list. We have already reproduced the List and the Total Purchases as per the said List are Rs.16,53,88,121/-. The Total Purchases by the Assessee during the year were Rs.25,00,93,128/-. Out of the Total Purchases of Rs.25,00,93,128/- the AO has verified purchases amounting to only Rs. 16,53,88,121/-. Therefore, genuineness of Purchase of Rs. 16,53,88,121/- has not been proved by the Assessee. In the case of the Assessee in the Assessment Order the AO has disallowed 25% of Total Purchases as hidden profit earned from the non-genuine purchases. Therefore, we are of the considered opinion that addition of 25% of 16,53,88,121/- shall be sustained as Genuineness of Purchases of Rs. 16,53,88,121/-has not been proved. Once the AO has made addition of 25% of the impugned purchases, it obviously means that the AO has added only the Profit likely to be earned from the impugned purchases.

5.15 In this context we find support from the decision of Hon’ble Bombay High Court in the case of Principal Commissioner of Income-tax-17 v. Mohommad Haji Adam &Co., [2019] 103 taxmann.com 459 (Bombay) [11-02-2019] .The Ld.AR has also relied on the above decision.

6. In the result, Appeal of the assessee is partly allowed in above terms.

Order pronounced in the open Court on 14th August, 2026