Goyal Edibles Pvt. Ltd. Vs ACIT (ITAT Varanasi)
Summary: ITAT Varanasi allowed the appeal of M/s Goyal Edibles Pvt. Ltd. for AY 2018-19 and quashed the reassessment proceedings as bad in law and void ab initio, while also holding that the additions made on account of alleged bogus purchases could not survive on merits. The proceedings originated from information gathered during a search on Shri Sumit Jindal, who was alleged to be a hawala operator providing accommodation entries through dummy concerns. Based on that information, the assessee’s case was reopened and the Assessing Officer ultimately made additions aggregating to ₹48,95,06,820 under section 69C of the Income Tax Act in respect of purchases from M/s Mool Chand Shivam Kumar, M/s Shiv Poojan Vipin Kumar and M/s Pushpant Trading Co. The NFAC sustained the additions.
The Tribunal found that the entire foundation of the reopening was information received pursuant to the third-party search and that the AO had not independently verified that information or established any live nexus between the alleged entry providers and the assessee. The notice under section 148A(b) merely reproduced generalized information, while even the amounts and parties appearing in the reassessment material did not correspond with the additions eventually made. The Tribunal held that the AO’s belief had been formed mechanically on vague, unreliable and unverified material without establishing a live, rational or proximate connection with the alleged escapement of income. Consequently, the initiation of reassessment itself was held to be void ab initio.
The Tribunal also accepted the assessee’s objections regarding serious procedural defects. The relied-upon material had not been supplied to the assessee, its response to the show-cause notice had not been considered and there was an unexplained variance between the show-cause notice and the final assessment order. The assessee had additionally contended that, since the information arose from a third-party search, the AO ought to have proceeded under section 153C instead of invoking the general reassessment provisions. The Tribunal agreed that these defects also rendered the assessment unsustainable.
On merits, the Tribunal noted that the AO had treated purchases of Maida as bogus while accepting the corresponding sales and had not rejected the assessee’s books of account. It held that the AO could not accept the audited books and sales for one purpose while selectively rejecting the corresponding purchases. Further, section 69C could not be applied without first establishing that expenditure had been incurred for which the assessee was unable to explain the source. The assessee had furnished audited financial statements, party ledgers, bank statements, stock/inventory records, invoices, GP/NP charts and trading accounts, but the AO had recorded no adverse finding explaining why those documents should be rejected. The AO had also accepted the sales of Maida, closing stock incorporating the purchases, bank payments to the suppliers and receipts from sales used for making those payments. The Tribunal termed this a “flip-flop approach” which failed the test of reasonableness and logic. Accordingly, the additions were deleted on merits as well and the assessee’s appeal was allowed.
Cases Discussed
1. N.K. Industries Ltd. Vs DCIT [2016] 72 taxmann.com 289 (Gujarat High Court) — Relied upon by the Assessing Officer for treating the alleged purchases as fictitious and making additions under section 69C. The Tribunal ultimately held the additions unsustainable both jurisdictionally and on merits.
2. Union of India & Ors. Vs Rajeev Bansal (Supreme Court), Civil Appeal No. 8629 of 2024, order dated 03/10/2024 — Cited by the assessee concerning the statutory framework of section 148A and the requirement of supplying the underlying information. The assessee also cited the decision in support of its section 153C contention.
3. ITO Vs Vikram Sujitkumar Bhatia (Supreme Court), 2023 SCC OnLine SC 370 — Cited by the assessee while advancing the contention regarding the scope of section 153C following the Finance Act, 2015 amendment.
4. PCIT Vs Tejua Rohitkumar Kapadia (Gujarat High Court), Tax Appeal No. 691/2017, order dated 18/09/2017; SLP dismissed by Supreme Court on 04/05/2018 — Cited by the assessee on the treatment of alleged bogus purchases where sales and supporting documentary evidence were accepted.
5. PCIT Vs Agson Global Pvt. Ltd. (Delhi High Court), ITA No. 68/2021, order dated 19/01/2022 — Cited by the assessee in support of its challenge to the bogus-purchase addition.
Appellant Was Represented By: Shri Sandeep Goel, Advocate and Shri Ashish Bansal, Advocate
FULL TEXT OF THE ORDER OF ITAT VARANASI
This appeal has been preferred by the Assessee against the order dated 01.03.2025, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2018-19.
2.0 The brief facts of the case are that the assessee was engaged in purchase and sale of Kirana items. The assessee filed its return of income for the year under consideration on 03.10.2018 declaring a total income of Rs.1,69,97,720/-.
2.1 During the course of search conducted at the premises of Shri. Sumit Jindal on 31.10.2018 at Room No. 212, 2605, 2nd Floor, Naya Bazar, Delhi, it was found that he was one of the eight Hawala Operators and was found to be operating various bank accounts for providing accommodation entries by issuing non-genuine sales bills of goods and non-genuine purchase bills of goods as per needs of various beneficiaries and Shri. Sumit Jindal admitted on oath in statement recorded during the post-search examination that he was providing non-genuine sales and purchase bills through multiple dummy firms and dummy proprietors. During the course of search, it was also found that the assessee was one of the beneficiaries of these bogus entities. The transactions allegedly entered into by the assessee were as below:
| Type of transaction undergone | Value |
|---|---|
| Bogus purchases from Mool Chand Shivam Kumar (PAN.FYEPS1391P) | 1000000/- |
| Unaccounted credits from Mool Chand Shivam Kumar (PAN:FYEPS1391P) | 104840824/- |
| Unaccounted credits from M/s Khanak International (PAN:ATEPJ2761A) | 229145020/- |
| Unaccounted credits from M/s Shiv Poojan Vipin Kumar (PAN:CDEPS4855A) | 58836550/- |
| Unaccounted credits from M/s Pushpant Trading Co. (PAN:BYCPR1215F) | 5512250/- |
| Bogus Purchases from M/s Khanak International (PAN:ATEPJ2761 A) | 3483929/- |
2.2 On the basis of above information, the case of the assessee was reopened under section 147 of the Income Tax Act, 1961 (hereinafter called ‘the Act’) after issuing notice under section 148 of the Act. In response to notice under section 148 of the Act, the assessee filed its return of income. Subsequently, the AO issued statutory notices to the assessee, requiring the assessee to provide specific details pertaining to transactions entered with the above mentioned parties and also to furnish the details like Profit and Loss Account, Balance Sheet, Audit Report, etc. After considering the submissions of the assessee and the material placed on record, the AO treated the aforementioned purchases made by the assessee as fictitious. Placing reliance on the Judgment of the Hon’ble Gujarat High Court in the case of N.K. Industries Ltd. vs. DCIT [2016] 72 taxmann.com 289 (Gujarat), the following alleged purchases made by the assessee were disallowed and added to the income of the assessee under section 69C of the Act:
i. Rs. 11,40,47,083/- : Purchases made from M/s Mool Chand Shivam Kumar.
ii. Rs. 5,88,36,550/- : Purchases made from Poojan Vipin Kumar.
iii. Rs. 31,66,23,187/- : Purchases made from Pushpant Trading Co.
2.3 The AO completed the assessment under section 143(3) read with sections 147/144B of the Act, computing the income of the assessee as under:
| Sl. No. | Description | Amount (in INR) |
|---|---|---|
| 1 | Income as per Return of Income filed | 1,69,97,720/- |
| 2 | Income as computed u/s143(1) of the Act | 1,70,35,150/- |
| 3 | Addition : Disallowance of Purchases from M/s Mool Chand Shivam Kumar u/s. 69C of the Act | 11,40,47,083/- |
| 4 | Addition : Disallowance of Purchases from M/s Shiv Poojan Vipin Kumar u/s. 69C of the Act | 5,88,36,550/- |
| 5 | Addition : Disallowance of Purchases from M/s Pushpant Trading Co. u/s. 69C of the Act | 31,66,23,187/- |
| Total Income | 50,65,41,970/- |
2.4 The AO also initiated penalty proceedings under section 271AAC of the Act, separately.
2.5 Aggrieved, the Assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee and confirmed the order of the AO.
2.6 Now the assessee has approached this Tribunal challenging the order of the NFAC, by raising the following grounds of appeal:
10.1 That impugned order passed u/s 250 by NFAC/Ld. CIT(A) dismissing appeal of assessee and sustaining impugned assessment order of Ld. AO, are totally illegal, unlawful and contrary to mandate of 1961 Act as assessment order passed by NFAC/Ld. AO is without valid show cause notice u/s 144B of the Act being which is in variance with final assessment order passed u/s 147 of the Act and thus assessment were framed directly without giving prior show cause on correct final reasons;
10.2 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing appeal of assessee and sustaining impugned assessment order of Ld. AO, are totally illegal, unlawful and contrary to mandate of 1961 Act as foundation of proceedings were itself based upon factually incorrect reasons;
10.3 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing appeal of assessee and sustaining impugned assessment order of Ld. AO, are totally illegal, unlawful and contrary to mandate of 1961 Act as proceedings based upon information/material gathered from search operation on Sumit Jindal on 31.10.2018 ought to have been initiated under section 153C only and favorable view out of conflicting decisions of non-jurisdictional high court are to be followed only;
10.4 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing appeal of assesse and sustaining impugned assessment order of Ld. AO (NFAC), are unlawful, for sustaining application of section 69C on recorded purchases in books on allegation of bogus purchases to the tune of Rs.48,95,06,820/- without doubting recorded source of payments in books of accounts.
10.5 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing appeal of assesse and sustaining impugned assessment order of Ld. AO (NFAC) are unlawful, for making addition of Rs.48,95,06,820/- u/s 69C of recorded trading purchases without examining and rejecting books of accounts under section 145 of Income Tax Act without which entire addition made are without authority of law.
10.6 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing appeal of assesse and sustaining impugned assessment order of Ld. AO (NFAC) are unlawful as entire alleged purchases of the basic essential commodity i.e Maida from three concerns are added as income without discarding and doubting the corresponding sales of the same item by making approbate and reprobate and making addition in pick and choose manner without following principle of real income.
10.7 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing appeal of assesse and sustaining impugned assessment order of Ld. AO (NFAC) are unlawful as the CIT Appeals have dismissed the appeal of the appellant by merely relying upon non-compliance of notice u/s 133(6) and ignoring other positive facts and thus order passed by the CIT-A and AO deserves to be set aside.
10.8 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing the appeal of the assesse is unlawful as various grounds from 1 to 15 raised before CIT Appeals has not been decided by the CIT Appeals and order has been passed in Incomplete and arbitrary manner without authority of law.
10.9 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing the appeal of the assesse and sustaining impugned assessment order of Ld. AO (NFAC) is unlawful as in violation of principles of natural justice :-
i. That there is no reference to verification unit made by the assessing officer (Assessment Unit) for examination of audited books of accounts of appellant
ii. That there is no ILDP and draft assessment order confronted to the assesse before passing final assessment order.
iii. That there is no complete relied upon material confronted to the assesse in violation of section 142 before passing final assessment order.
10.10 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing the appeal of the assesse and sustaining impugned assessment order of Ld. AO (NFAC) is unlawful as no opportunity for cross-examination of the key witness Mr.Sumit Jindal is given and without the same addition made on basis of reliance on statement of third party recorded at the back of assesse is invalid in law.
10.11 That impugned order passed u/s 250 by NFAC/Ld. CIT(A), dismissing appeal of the assesse and sustaining impugned assessment order of Ld. AO (NFAC) is unlawful as no judicial decision of apex court and jurisdictional high courts relied by the appellant has been discussed in the order and entire order has been passed in arbitrary and whimsical manner without authority of law.
That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal.
3.0 The Ld. Authorized Representative for the assessee )Ld. A.R.), at the outset, challenging the validity of reopening proceedings initiated under section 148 of the Act, submitted that it is a settled position of law that the assumption of correct primary facts in the reasons recorded and the resultant satisfaction derived thereunder is a sine qua non for initiating proceedings under section 148 of the Act. It was submitted that this constitutes an absolute jurisdictional requirement for the valid commencement of reassessment proceedings and sans the same, no proceedings can be held valid in the eyes of law. The Ld. A.R. further submitted that the issuance of a valid notice under section 148 of the Act is not a mere procedural formality, rather, it is a mandatory foundational requirement and any reopening based on an invalid, defective, or legally weak notice is void ab initio and illegal. The Ld. A.R. submitted that initiation of proceedings under section 148 lacked proper legal foundation, violated mandatory jurisdictional prerequisites, and, therefore, deserved to be quashed as null and void.Reliance was placed on the following decisions of the Hon’ble Supreme Court and various High Courts in support of his contentions:
(1) Hon’ble Supreme Court in the case of Channamallappa Chennareddy v. ITO [1959] 35 ITR 388 (SC).
(2) Hon’ble Supreme Court in the case of Raza Textiles Ltd. v. ITO [1973] 87 ITR 539 (SC).
(3) Hon’ble Supreme Court in the case of Karan Singh v. Chaman Singh Paswan AIR 1954 SC 340.
(4) Hon’ble Jurisdictional High Court in the case of Md. Rizwan Case (Appeal No. 100/2015, Order dated 30.03.2017).
(5) Hon’ble Jurisdictional High Court in the case of CIT v. Dalipur Construction Pvt. Ltd. (ITA No. 43/2015, Order dated 13.01.2017).
(6) Hon’ble Madras High Court in the case of Dr. Mathew Cherian v. ACIT [2023] 450 ITR 568 (Mad).
(7) Hon’ble Karnataka High Court in the case of Smt. Vasanthi Ramdas Pai v. ITO & Dr. Madhava Pai v. ITO (W.P. Nos. 8797 & 8815 of 2022, Judgment dated 12.02.2024, reported in [2024] 470 ITR 536).
3.1.0 The Ld. A.R. further submitted that the information received from the Investigation Wing consequent to a search operation on Mr. Sumit Jindal (tabulated at pages 52–53 of the paper book) is fundamentally flawed. It is premised entirely on an incorrect assumption of facts alleging unaccounted credits to the tune of Rs.39,33,34,644/- and fictitious purchases from two parties amounting to Rs.44,83,929/-. It was further submitted that this very information has been accepted by the Assessing Officer to be wholly incorrect and flawed at the inception. The Ld. A.R. submitted that as reflected in the assessment order subsequently passed, each and every fact alleged in the table is admittedly incorrect, as there are neither any unaccounted credits from the said parties nor any bogus purchases of the amounts alleged. The Ld. A.R. also submitted that the reassessment action was initiated based on incorrect factual information without any independent verification by the Assessing Officer prior to simply rubber-stamping and forwarding the same via a show-cause notice under Section 148A(b) of the Act. The Ld. A.R. submitted that it is settled law that a reopening initiated on the basis of fundamentally flawed, unverified, and incorrect information is non-est and invalid in the eyes of the law. In this regard, the assessee placed reliance upon the following decisions/case laws on the subject:
1. Hon’ble Bombay High Court in the case of Narender Kumar Shah v. ACIT (Circle-42(2)(1)) [Writ Petition No. 2558 of 2023, Order dated 10/10/2023].
2. Hon’ble Madaras High Court in the case of IDFC Ltd. vs. DCIT (2023) 459 ITR 169.
3. Honorable Madras High Court in the case of Dr. Mathew Cherian vs ACIT 450 ITR 568.
4. ITAT Delhi Bench in the case of JHS Svendgaard No.3454/Del/2025 order dated 07.01.2026.
5. ITAT Delhi in the case of Ram Chandra vs ITO Moradabad in ITA No.3415/Del/2024 order dated 25.03.2026.
6. Honorable Delhi High Court in the case Usha Rani Girdhar vs ITO in WPC No. 16090/2022 order dated 25.11.2022.
7. Hon’ble Allahabad high court in case of SR COLD STORAGE VS UOI 448 ITR 37.
8. Hon’ble Allahabad High Court in the case of Uphill Farms (P) Ltd v. UOI (2022) 288 Taxman 144/213 DTR 410/326 CTR 671 (All).
3.1.1 The Ld. A.R. submitted that in view of the legal principles and judicial precedents cited above, the reopening proceedings cannot be sustained when the foundational information or material relied upon by the Revenue is demonstrated to be factually incorrect or non-existent.
3.2.0 The Ld. A.R. also submitted that the Assessing Officer acted in complete haste and urgency, relying entirely on “borrowed satisfaction.” It was submitted that the AO merely forwarded and acted upon information received from an external agency, regardless of how grossly incorrect, flawed, or self-contradictory it was on the face of it, without conducting any basic groundwork or primary verification at the threshold and, therefore, there was absence of independent application of mind on the part of the AO in this case. The Ld. A.R. submitted that under the Income Tax Act, the power to initiate reassessment is a quasi-judicial function that must be exercised independently by the Assessing Officer after applying their own mind to verify the material. In this regard, the Ld. A.R. relied upon the judgement of the Hon’ble Supreme Court in the case of Dr. Premachandran Keezhoth and Another vs. Chancellor, Kannur University and Others, 2023 SCC Online SC 1592.
3.3.0 The Ld. A.R. further submitted that no relevant material indicating escapement of income qua allegation as per table in notice is supplied with the notice dated 21.03.2022 under section 148a(b) of the Act. The Ld. A.R. averred that as per paragraphs 2 and 3 of the show-cause notice under section 148A(b) of the Act, the Assessing Officer placed heavy reliance on third-party statements recorded behind the back of the assessee, as well as digital data retrieved from search premises belonging to third parties. The Ld. A.R. submitted that crucially, the material so referred to and relied upon in the notice was not supplied to the assessee and that the Revenue failed to provide even the relevant portions of these statements or digital extracts. The Ld. A.R. submitted that total non-sharing and withholding of the foundational material directly vitiates the show-cause notice issued under section 148A(b) of the Act, as it stands in gross contravention of the judgments of the jurisdictional High Court and mandatory CBDT Instructions. On this issue, the Ld. A.R. drew our attention to the judgment of the Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal in Civil Appeal No. 8629 of 2024, vide order dated 03.10.2024, wherein the Apex Court analyzed the statutory framework of section 148A of the Act and reiterated the mandatory nature of supplying underlying information.
3.3.1 In this regard, the Ld. A.R. also placed reliance on the following judgments/orders:
i. Hon’ble Bombay High Court in the case of Anurag Gupta vs ITO in writ Petition No. 10184/2022 order dated 13.03.2023.
ii. Hon’ble Rajasthan High Court in the case of Micro Marbles Pvt. Ltd vs. ITO 457 ITR 569.
iii. ITAT Dehradun Bench in the case of Ajay Garg vs .ACIT in ITA No.200/DDN/2024 order dated 26.09.2025.
3.4.0 The other submission of the Ld. A.R. was that the order passed by the AO under section 148A(d) of the Act was mechanically passed without any whisper on the contentions/objections of the assessee regarding non-existence of unaccounted credits and complete non-consideration of submissions/documents from the side of the assessee. The Ld. A.R. submitted that in response to the show-cause notice under section 148A(b) of the Act, the assessee had duly filed a comprehensive reply (annexed at pages 54 to 58 of the paper book), complete with a clear list of supporting documents enclosed at page 58. The Ld. A.R. submitted that the assessee repeatedly demonstrated at multiple places in the reply that the proposed reopening was incorrect, false, and entirely baseless, lacking any credible evidence or material on record. The Ld. A.R. further submitted that astonishingly, none of the specific contentions, grievances, or submissions raised by the assessee were addressed, evaluated, or even discussed by the Assessing Officer. Instead, the final order under section 148A(d) of the Act was passed in a thoroughly mechanical manner, repeating verbatim the original allegations and sustaining the exact same arbitrary escapement amounts (including the alleged unaccounted credits of Rs.39,78,18,573/-).
3.5.0 On the issue of variance between the final assessment order and the show-cause notice issued prior to assessment, the Ld. A.R. submitted that the show-cause notice issued under section 144B of the Act (placed at pages 334 to 338 of the paper book) perpetuates the same fundamentally incorrect premises initially raised in the notice under Section 148A(b) of the Act. It was submitted that the notice blindly repeats the erroneous table at paragraphs 2.1, 2.3, and 2.4, alleging unaccounted credits from four parties amounting to Rs.39,33,34,644/-, fictitious purchases from two parties amounting to Rs.44,83,929/-, and an aggregate alleged income escapement of Rs.39,78,18,573/-. The Ld. A.R. submitted that the show-cause notice miserably fails to mention the precise statutory provision under which the additions are sought to be made, whether under section 68, section 69, section 69A, section 69B, section 69C, or section 37 of the Act. He submitted that the correct section and the basis cannot be left to guesswork, speculation, or be treated as a procedural mystery for the assessee, who is entitled to a clear and precise charge to defend against.
3.5.1 The Ld. A.R. further submitted that there was a gross variance and total lack of coherence when comparing the show-cause notice with the final assessment order, which rests on entirely different backdrops and foundational grounds and that the final assessment order has been passed by travelling far beyond the scope of the show-cause notice issued to the assessee, which was legally impermissible. The Ld. A.R. referred to a chart at page 59 of the paper book and submitted that this chart depicts the variance in the notice vis-à-vis the additions made in the final assessment order. The same is being reproduced below for ready reference:
| S.No
(A) |
Type of transaction alleged
(B) |
Value as given
in show cause notice under section 148A(b)- (C) |
Value as given in
order passed under section 148A(d) – Page 3 & 9 of such order (D) |
Value as per
Show-cause notice under section 144B of the Act (Less than 7 days given) – Page 4 of SCN (E) |
Value as finally
incorporated in assessment order passed (F) |
| 1 | Bogus Purchase from Mool chand Shivam Kumar (PAN-FYEPS1391P) | 10,00,000/- | 10,00,000/- | 10,00,000/- | 11,40,47,083/- |
| 2 | Unaccounted credits from Mool Chand Shivam Kumar (PAN- FYEPS1391P) | 10,48,40,824/- | — | — | — |
| 3 | Unaccounted credits from M/s Khanak International (PAN- ATEPJ2761A) | 22,91,45,020/- | 22,91,45,020/- | 22,91,45,020/- | — |
| 4 | Unaccounted credits from M/s Shiv Poojan Vipin Kumar (PAN- CDEPS4855A) | 5,88,36,550/- | 5,88,36,550/- | 5,88,36,550/- | — |
| 5 | Unaccounted credits from M/s Pushpant Trading Co (PAN- BYCPR1215F) | 55,12,250/- | 55,12,250/- | 55,12,250/- | — |
| 6 | Bogus purchases from M/s Khanak International (PAN :- ATEPJ2761A) | 34,83,929/- | 34,83,929/- | 34,83,929/- | — |
| 7 | Bogus purchases from M/s Shiv Poojan Vipin Kumar | — | — | 5,88,36,550/- | |
| 8 | Bogus purchases from M/s Pushpant Trading company u/s 69C | — | — | — | 31,66,23,187/- |
3.5.2 The Ld. A.R. submitted that it is settled law that if a show-cause notice proposes an addition on “Ground A,” then an assessment order cannot make an addition on “Ground B” and doing so reduces the mandatory statutory show-cause notice to an empty, redundant formality. The Ld. A.R. submitted that this issue is no longer res integra and that passing an assessment order on grounds outside the show-cause notice has been deprecated by Courts as the most lethal and fatal violation of the core principles of natural justice, rendering the final assessment order legally non-est and void. In this regard, the Ld. A.R. placed reliance on the following decisions:
1) Hon’ble Jurisdictional High Court in the case of Samsung India Electronics Pvt. Ltd. vs. State of U.P. and
2 Others in Writ Tax No.777 of 2022, order dated 12.03.2024.
3. Hon’ble Bombay High Court in the case of Ankur V. Bankda vs. ACIT, Ward 24(1) and Others, 2023:BHC-OS:8486-DB.
4. Hon’ble Bombay High Court in the case of Raghuram Bachhu Nairy in Writ Petition No.2960 of 2022 – 2024:BHC-OS:2856-DB, dated 20.02.2024.
5. Hon’ble Apex Court in the case of Oryx Fisheries Pvt. Ltd. vs. Union of India, (2010) 13 SCC 427.
6. Hon’ble Apex Court in the case of Sona Builder vs. Union of India, 251 ITR 197.
3.6.0 Referring to ground No.3 of the appeal, the Ld. A.R. submitted that the action of reopening was admittedly based entirely upon information and material retrieved from a search operation conducted at the premises of a third party, Shri Sumit Jindal, on 31.10.2018 and that this material forms the sole basis of the allegations contained in the show-cause notice under section 148A(b) of the Act. The Ld. A.R. submitted that section 153C of the Act begins with a non-obstante clause and sets out a special, self-contained code for dealing with assessments concerning third parties discovered during a search. This specific mechanism cannot be bypassed or overlooked by arbitrarily resorting to the general reassessment provisions of section 147 of the Act. In this regard, the Ld. A.R. referred to CBDT Circular No. 7/2003 dated 05.09.2003. He further submitted that although section 153C of the Act originally used the restrictive expression “belongs to,” it was substituted by the Finance Act, 2015, to expand its purview to include information “pertaining to” or “relating to” any asset, liability, book of accounts, or document detected during a search qua a non-searched person and that this position was underscored by CBDT Circular No. 19/2015 (para 39) and has been settled by the Hon’ble Supreme Court in ITO v. Vikram Sujitkumar Bhatia [2023 SCC OnLine SC 370], wherein the Apex Court held that the 2015 amendment applies to search actions conducted prior to 01.06.2015 as well.
3.6.1 The Ld. A.R. submitted that issue is no longer res integra and has been litigated across various forums, given that the Income Tax Act is a Central legislation, the principle of stare decisis dictates that a consistent, uniform view must be adopted. In this regard, the Ld. A.R. placed heavy reliance on the following judicial authorities:
i. Hon’ble Bombay High Court in the case of Sejal Jewellary & Anr. Vs UOI in Writ Petition No.3057/2019 order dated 18.02.2025.
ii. Hon’ble Rajasthan High Court in the case of Shyam Sunder Khandelwal Vs ACIT, Central Circle-2, Jaipur D.B. Civil Writ Petition No.18363/2019.
(ii) Hon’ble Supreme Court in the case of Sri. Dinakara Suvarna Vs. DCIT underlying Karnataka High Court decision 454 ITR 21 (Kar.) ITA 16/2015 dated on 08.07.2022.
iv. Hon’ble Jurisdictional High Court in the case of Smt. Neelam Dubey Vs UOI in Writ Tax No.113/2024 order dated 07.05.2024.
v. Hon’ble Supreme Court in the case of UOI Vs. Rajeev Bansal in Civil Appeal No.8629/2024 order dated 03.10.2024.
3.6.2 The Ld. A.R. submitted that in view of the statutory mandate of section 153C of the Act read with the doctrine of special legislation and binding judicial pronouncements, the impugned initiation of proceedings under section 147/148 of the Act based on a third-party search is fundamentally non-est in law and deserves to be quashed.
3.7.0 Referring to ground No.4 of the appeal, the Ld. A.R. submitted that the primary commodity involved in the transactions is Maida, which is strictly governed under the Essential Commodities Act and that the corresponding sales, as well as the stock inward and outward summaries, were duly maintained, accounted for, and never disproved or discredited by the Assessing Officer in the assessment order. The Ld. A.R. further submitted that the source of the expenditure incurred towards the purchases is transparently embedded in the audited books of accounts. It was further submitted that crucially, the Assessing Officer has not rejected the audited books of accounts, nor has there been any doubt raised regarding the source of payments made to the alleged parties and that no case has been made out to show that these sources were unrecorded or outside the books. The Ld. A.R. submitted that it is a well-established principle that the existence of purchases is entirely distinct from the existence or traceability of the specific party from whom the purchases were made. It was submitted that the Hon’ble Courts have consistently laid down that the decisive test is whether sales could have possibly been effected without corresponding inward purchases or movement of goods, demonstrating that the purchases are an indispensable, necessary concomitant of the complete business and inventory cycle.
3.7.1 The Ld. A.R. submitted that the sole addition made under section 69C of the Act ignores the plain and literal reading of the provision. He submitted that section 69C of the Act principally applies to the source of payments for an expenditure, and not merely to the expenditure itself without examining or disproving its source and that where the source of expenditure is fully disclosed, traceable, and embedded within the audited books, section 69C of the Act cannot be invoked as a tool to treat genuine business expenditure or purchases as unexplained expenditure. In support of his arguments, the Ld. A.R. placed reliance on the following decisions/Circular:
(1) Hon’ble Delhi High Court in the case of CIT-V Vs. M/S Radhika Creation in ΙΤΑ 692/2009 order dated 30.04.2010 [10 taxman.com 138(Del)]
ii. ITAT Delhi in the case of Vinod Kumar Goyal Vs NFAC in ITA No.2354/Del/2025 order dated 10.12.2025.
iii. ITAT Delhi in the case of Robust Resorts & Hospitality LLP Vs. DCIT in ITA No.4312/Del/2024 order dated 12.11.2025.
iv. CBDT Circular No.204 dated 24.07.1976 relevant intent and purpose of section 69C.
3.7.2 The Ld. A.R. submitted that in light of the statutory design of section 69C of the Act, the undisputed recording of purchases and sales in the audited books, the unchallenged stock/inventory flow of Maida, and binding judicial precedents, the addition made by treating genuine purchases as bogus under section 69C of the Act is legally unsustainable and deserves to be deleted in its entirety.
3.8.0 Pressing ground No.5 of the appeal, the Ld. A.R. submitted that the assessee had duly filed exhaustive documentary evidence during the assessment proceedings, as evidenced by e-acknowledgments, which include:
i. Audited Balance Sheet of the concern.
ii. Complete ledgers of the alleged parties.
iii. Bank statements highlighting payments made to such parties.
iv. Inventory/Stock Register establishing the corresponding sales of the commodity to various parties.
v. Complete invoices of the alleged suppliers.
vi. Complete Gross Profit (GP) and Net Profit (NP) charts of the assessee for the last three years.
vii. Specific trading accounts of the relevant purchases, including detailed profit calculations.
3.8.1 The Ld. A.R. submitted that undisputedly, there has been no rejection of the audited books of accounts, closing stock, or corresponding sales under section 145(3) of the Act, despite the subject transactions being core trading purchases that have a direct, natural effect on the business inventory. It was further submitted that the sales and gross turnover of the assessee remained completely undoubted and undisputed throughout the assessment proceedings. Furthermore, the Assessing Officer recorded no adverse findings against the business profit rate, arbitrarily escalating profits without rejecting the audited books.
3.8.2 The Ld. A.R. also submitted that it is a foundational principle of tax jurisprudence that so long as the books of accounts are neither rejected under section 145(3) of the Act nor proved to be false, manipulated, or incomplete, the Assessing Officer cannot accept the books for computing turnover and sales while simultaneously rejecting specific trading transactions or purchases. On the violation of the Doctrine of Election (Approbate and Reprobate), the Ld. A.R. submitted that the principle that a party cannot “approbate and reprobate”, borrowed from Scottish law and embodied in the Doctrine of Election, dictates that an authority cannot accept an instrument or set of books for one purpose while rejecting them for another (as highlighted by the Hon’ble Supreme Court in Nagubai Ammal v. B. Shama Rao, AIR 1956 SC 593, 602). The Ld. A.R. further submitted that the Revenue cannot cherry-pick individual entries or purchases for ad-hoc disallowance while relying on the same audited books to compute gross turnover and overall business income. The Ld. A.R. submitted that the Assessing Officer failed to bring on record any comparable cases or market data to legally discard or disprove the profit margins declared by the assessee. In this regard, the Ld. A.R. also placed reliance on the following decisions:
1. Hon’ble Delhi High Court in the case of PCIT(Central)-1 vs. M/s Forum Sales Pvt. Ltd. in iTA No.862/2019, dated 01.03.2024.
2. Hon’ble Allahabad High Court in the case of CIT & Others vs. Pashupati Nath Agro Food Product, Hardoi in ITA No.165/2010.
(3) Hon’ble Allahabad High Court in the case of CIT vs. Mascot (India) Tools & Forgings (P) Ltd., 320 ITR 116 (Alld.).
3.8.3 The Ld. A.R. submitted that in light of the comprehensive documentary evidences, the unquestioned turnover and stock movement, the absence of any rejection of books under section 145(3) of the Act, and the legal impermissibility of cherry-picking trading entries, the ad-hoc additions/disallowances made by the Assessing Officer are wholly illegal and deserve to be deleted in their entirety.
3.9.0 Pressing ground No.6 of the appeal, the Ld. A.R. submitted that it is a physical and commercial impossibility for sales to be effected without corresponding purchases or material inflows and that where purchases are alleged to be bogus, the corresponding sales generated from those very materials must logically also be challenged as bogus. It was further submitted that it is an admitted fact, clearly discernible from the orders passed, that the Revenue has raised doubts solely on the trade purchases of goods while leaving the corresponding sales, revenue, and the turnover of the assessee completely untouched and undisputed. The Ld. A.R. submitted that if the Revenue alleges that purchases are bogus, it must demonstrate whether the sales or production could have been executed without utilizing the material in question. Unless it is established that the materials were not used in the corresponding sales, purchases cannot be discriminatorily treated as completely non-existent and at best, it may be a case of purchases from grey-market or alternate parties, but not fictitious/bogus purchases. He submitted that where the material is embedded in the recorded sales, the addition of the entire purchase value is legally flawed. 3.9.1 The Ld. A.R. submitted that Income-tax can only be levied on real income and that disallowing entire business purchases while acknowledging and taxing the gross receipts/sales generated from those very purchases results in an artificial, inflated, and fictitious assessment of income that violates the real income theory. It was again submitted that it is a settled position of law that a party relying upon a record or set of books cannot accept a part of it that suits them (i.e., accepting sales turnover) while arbitrarily discarding the other part (i.e., treating purchases as bogus). In support of his argument, the Ld. A.R. placed reliance on the judgment of the Hon’ble Supreme Court in the case of Suzuki Parasrampuria Suitings v. Official Liquidator [Civil Appeal No. 10322 of 2018, dated 08-10-2018] wherein the Hon’ble Court reiterated that a litigant/authority cannot be permitted to approbate and reprobate by taking shifting, contradictory stands on the same set of facts and that the Revenue cannot accept the books of accounts to embrace business income/sales while simultaneously rejecting the corresponding expenses/purchases through a pick-and-choose approach.
3.10.0 Further, to demonstrate the inappropriateness in the assessment order, the Ld. A.R. invited our attention to a Table, which is reproduced here below:
| S.No | Nature of transaction | Finding in show cause notice (Whether accepted or
not ) |
| 1 | Purchase of Maida from three parties | Not Accepted |
| 2 | Sales of Maida | Accepted |
| 3 | Closing Stock of Maida after reducing of sales and including alleged purchase of Maida | Accepted |
| 4 | Bank payments made to alleged parties | Accepted |
| 5 | Recovery from sales used for source of making payments to alleged purchases | Accepted |
3.10.1 In this regard, the Ld. A.R. placed reliance on the following decisions:
i. ITAT Lucknow Bench in the case of ITO vs. Rajeev Kumar Kapoor in ITA No.424/LKW/2023, order dated 20.01.2026.
ii. ITAT Lucknow Bench in the case of ACIT Vs Harshit Garg in ITA No.451/LKW/2024 order dated 04.07.2025.
iii. Hon’ble Supreme Court in the case of PCIT Vs Tejua Rohitkumar Kapadia dated 04-05-2018 along with Underlying Gujarat High Court decision in Tax Appeal No.691/2017 order dated 18/09/2017.
iv. Hon’ble Gujarat High Court in the case of CIT Vs. Bholanath Poly Fab Pvt. Ltd in Tax appeal No. 63/2012 order dated 23.10.2012.
v. Hon’ble Delhi High Court in the case of PCIT Vs. M/s Agson Global Pvt. Ltd. in ITA 68/2021 order dated 19.01.2022.
vi. ITAT Lucknow in the case of DCIT Vs. M/s Kushal Foods Pvt. Ltd. in ITA No.840/Lkw/2014 order dated 27.07.2016.
vii. Hon’ble Bombay High Court in the case of The Commissioner of Income Tax-1, Mumbai Vs. M/s. Nikunj Eximp Enterprises Pvt. Ltd.
3.11.0 The Ld. A.R. further submitted that the assessee company is exclusively engaged in the wholesale, bulk trade of basic and essential commodities and that it is a well-established economic reality that profit margins across the globe in essential and bulk commodities are inherently thin due to the massive scale and high volume of trade. It was submitted that there was no strait-jacket formula applicable to every business and that the margins depend entirely on the specific trade dynamics and market realities. The assessee has also furnished before us a chart demonstrating the comparative financial track record of the assessee in the preceding as well as succeeding years, which is reproduced below:
| F.Y. | GROSS TURNOVER | GROSS PROFIT | G.P. RATIO | NET PROFIT | N.P. RATIO |
|---|---|---|---|---|---|
| 2016-17 | 4,296,043,687 | 19,171,176 | 0.45% | 6,150,273 | 0.14% |
| 2017-18 | 4,007,785,671 | 31.437,369 | 0.78% | 13,759,953 | 0.34% |
| 2018-19 | 4,996,615,936 | 37,485,091 | 0.75% | 18,566,420 | 0.37% |
| 2019-20 | 5,517,658,783 | 56,975,596 | 1.03% | 40,788,193 | 0.74% |
3.12.0 The Ld. A.R. submitted that in view of the aforementioned facts, the additions/disallowances made by the AO and confirmed by the Ld. First Appellate Authority be deleted. 3.13.0 Alternatively, the Ld. A.R. submitted that in case of any addition/disallowance, the same may be restricted to 0.75% of the alleged bogus purchases, as made by the AO, on identical set of facts, in succeeding year, i.e., 2019-10.
4.0 Per contra, the Ld. CIT(DR), referring to the impugned order, submitted that the facts of the case show that there was reason enough before the AO to consider the reopening action under section 148 of the Act. In this regard, the Ld. CIT(DR), placed reliance on the judgement of the Hon’ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 wherein it was held that, “…….. if the AO for whatever reason has reason to believe that, Income has escaped assessment it confers jurisdiction to reopen the assessment…’. The Ld. CIT(DR) submitted that, therefore, in this case, the AO had information which was verifiable before him to form his opinion and, therefore, there was no infirmity in the said reopening done by the AO under section 148 of the Act. The Ld. CIT(DR) submitted that the AO had rightly exercised the powers for reopening the case under section 147 of the Act after recording the reasons and formed his belief that the income had escaped assessment. The Ld. CIT(DR) further submitted that during the course of the said assessment proceedings, the Assessing officer had sent various notices to the assessee and the assessee had provided its submissions to the Assessing officer and, thus, the assessee had voluntarily become a part of the assessment proceedings and that after considering the submissions of the assessee and after giving it adequate opportunity to be heard, the Assessing officer went ahead and made the additions.
4.1 On merits of the case, the Ld. CIT(DR) also submitted that the assessee has not provided any detailed submissions regarding the purchases made from M/s Mool Chand Shivam Kumar, but the assessee had provided some ledger, bills/invoices, which have been duly considered by the Ld. Appellate Authority. It was further submitted by the Ld. CIT(DR) that the said Ledger provided by the assessee was not confirmed or signed by the parties, i.e., M/s Mool Chand Shivam Kumar and the assessee and that no ledger confirmation has been provided by the assessee either to the Ld. Appellate Authority or to the Assessing officer.
4.2 With regard to the disallowance of purchases made from M/s Shiv Poojan Vipin Kumar, the Ld. CIT(DR) submitted that the assessee had not provided any detailed submissions regarding the purchases made from M/s Shiv Poojan Vipin Kumar, but the assessee had provided some ledger, bills/invoices which have been considered by the Ld. Appellate Authority. The Ld. CIT(DR) further submitted that the Ledger provided by the assessee was not confirmed or signed by the parties, i.e., M/s Shiv Poojan Vipin Kumar and the assessee itself and no ledger confirmation has been provided by the assessee to either the Ld. Appellate Authority or to the Assessing officer.
4.3 With regard to the disallowance of purchase from M/s Pushpant Trading Co., the Ld. CIT(DR) submitted that the assessee has not provided any detailed submissions regarding the purchases made from M/s Pushpant Trading Co. It was submitted that the Ledger so provided by the assessee was not confirmed or signed by the parties i.e. M/s Pushpant Trading Co. and the assessee itself and no ledger confirmation has been provided by the assessee either to the Ld. Appellate Authority or to the Assessing officer. The Ld. CIT(DR) submitted that the Assessing officer, in its assessment order, while making the addition has stated that (1) The assesse has not given proof of delivery slips/gate pass to evidence the actual movement of goods; (2) The assessee has not submitted copy of stamped purchase bill duly signed by the receiver to evidence the movement of goods; and (3) From the audit report it is observed that for the year, the assessee has shown gross profit of 3.14 crore on turnover of Rs.400.77 Crore resulting in GP rate of 0.78%.”.
4.4 The Ld. CIT(DR) submitted that it is pertinent to mention here that the assessee has not provided delivery slips/gate passes to prove the actual movement of goods either to the Ld. Appellate Authority or to the Assessing officer either. He submitted that, moreover, the assessee has not provided the copy of stamped bills duly signed by the recipient to evidence the movement of goods either to the Ld. Appellate Authority or to the Assessing officer. The Ld. CIT(DR) submitted that the assessee has also not provided Bank statements of the assessee itself and bank statements of the parties to prove the genuineness of the transactions and that the assessee had also sought a VC/ personal hearing and the same was duly granted to the assessee on 10.02.2025 @3:30PM onwards and, thereafter, had again filed details which were also considered. The Ld. CIT(DR) submitted that the AO had found that the assessee had procured fictitious purchase bills and indulged in procuring accommodation entries to the tune of 10’s of crores of rupees. It was further submitted that the purchases were found to be fictitious by the AO and that the records showed that the assessee had been repeatedly indulging in such fictitious activity over the years in its line of business. The Ld. CIT(DR) submitted that from these activities of the assessee, it was obviously clear that the assessee was indulging in huge purchases in cash and subsequently also seeking such accommodation entries/bills from willing parties to cover up the same. The Ld. CIT(DR) submitted that the assessee cannot take a high moral ground, as his books of accounts were not coming clean and tacitly are unreliable. It was further submitted that it was common sense that such activities only lead to the muddying up of the banking system and making it vulnerable to money laundering and, thus, the finding of the AO is correct and in order.
4.5 The Ld. CIT(DR) submitted that the Ld. First Appellate Authority, placing reliance on the judgments of the Hon’ble Calcutta High Court in the case of Principal Commissioner of Income Tax – 9, Kolkata Vs. Mrs. Premlata Tekriwal and also the Judgment of the Hon’ble Gujarat High Court in case of N.K. Industries Ltd. Vs DCIT [2016] 72 taxmann.com 289 (Gujarat), has rightly dismissed the appeal of the assessee. He, therefore, submitted that no interference is called for in the order of the Ld. First Appellate Authority and the appeal of the assessee is liable to be dismissed.
5.0 We have heard the rival submissions and have also perused the material on record. It is seen that the assessee- company was engaged in trading of essential commodities, like Atta, Maida, Chawal, Sooji, etc. in wholesale model. The case of the assessee was reopened under section 147/148 of the Act on the basis of search operation on one Shri Sumit Jindal carried on 31.10.2018 and subsequently show cause notice under section 148A(b) of the Act was issued and order under section 148A(d) of the Act was passed on the basis of alleged unaccounted credits from four parties, amounting to Rs.39,33,34,644/- and Rs.44,83,929/- as fictitious purchases from two parties. Throughout the course of assessment proceedings as well during the first appellate proceedings and also during the course of arguments before us, it has been submitted that there was a fundamental flaw in the proceedings so initiated, because of the fact that the alleged unaccounted credits were non-existent. It was emphasized time and again that there was no credit of any amount and it was only a case of purchases through normal banking channels and the payments were debited from and recorded and disclosed in the running business bank accounts of the assessee. It was also the submission of the assessee before the lower authorities as well as before us that no cogent or incriminating material was provided to enable the assessee to submit proper response. The assessee also took objection to the initiation of reassessment proceedings on the basis of incorrect facts, but the same, as per the submissions of the Ld. A.R. before us, were not disposed of/considered by the AO. Subsequently, the AO proceeded to make an addition of Rs.48,95,06,820/-under section 69C of the Act on account of alleged bogus purchases. The assessee carried the matter before the Ld. First Appellate Authority, who upheld the additions made by the AO by rejecting the grounds of appeal.
5.1 The first essential question to be considered by us is whether the reassessment proceedings were initiated properly and within the legal framework provided by the Act. It has been emphatically argued by the Ld. A.R. that the initiation is based entirely on an incorrect assumption of facts alleging unaccounted credits and fictitious purchases. It is seen that the case was reopened on the basis of information as provided in pages 1 and 2 of the assessment order, which has also been reproduced at page 2 of this order. A perusal of the assessment order shows that while initiating the reassessment proceedings, the AO has simply referred to the information received consequent to search conducted on Shri. Sumit Jindal on 31.10.2018, wherein he was one of the eight Hawala Operators covered and wherein he was found to be operating various bank accounts for providing accommodation entries by issuing non-genuine sales bills of goods and non-genuine purchase bills. As per the information and notice under section 148A(b) of the Act, M/s Khanak International (having PAN:AETPJ2761A), M/s Mool Chand Shivam Kumar (having PAN: FYEPS1391P), M/s Pushpant Trading Co. (having PAN:BYCPR1215F), M/s Shiv Poojan Vipin Kumar (having PAN: CDEPS4855A), M/s Om Trading Co. (having PAN: CSQPP7321H) and M/s Gupta Trading Co. (having PAN: BKKPG9737K) were seven of the parties who had participated in connivance with Shri. Sumit Jindal in providing bogus entries to the assessee. The quantum as per the Reasons was bogus purchase of Rs.10.00 lakhs from M/s Mool Chand Shivam Kumar and Rs.34,83,929/- from M/s Khanak International. Whereas, the quantum as per notice under section 148A(b) was Rs.39,78,18,573/- from the above mentioned seven parties. A perusal of the Notice under section 148A(b) of the Act also shows that it has been mentioned in the said notice that the beneficiaries had been identified through Bank Accounts and GST Returns available with the various firms of Shri. Sumit Jindal and that due to limitation of paucity of time, at first stage, beneficiary companies and large beneficiaries in the individuals, partnership firms and Corporates were identified out of all the beneficiaries which included the assessee also. However, a careful perusal of the above said notice under section 148A(b) of the Act clearly shows that no live nexus between the stated alleged bogus entry providers and the assessee company has been established by referring to any document or entry which could point out as to whether the assessee company had any link with the seven alleged bogus entry providing companies. Thus, it is very much apparent that the entire edifice of the initiation of reassessment proceedings is ‘borrowed satisfaction’ from the information received consequent to the search in the case of Shri. Sumit Jindal. It is settled law that assumption of jurisdiction for reassessment is not a mere procedural step but has been held by the Courts to be a ‘jurisdictional condition precedent’ because it is the foundation on which the AO’s entire power to reassess rests. If the notice is itself defective, the AO never acquires jurisdiction and everything built in it collapses. The Hon’ble Courts have emphatically held it so – be it the pre-2021 ‘reason to believe’ era or the post-2021 ‘section 148A’ regime. The settled law now emerging in post-2021 regime is that section 148A is not a procedural formality but a critical safeguard against harassment without a just cause and it follows that a notice cannot rest on vague or unsubstantiated grounds. As a consequence, defects in the section 148/148A notice – be it absence of independent reasons, borrowed satisfaction, mechanical sanction, wrong notices, non-disposal of objections or breach of statutory timeline, will render such reassessment void ab initio, not merely irregular or curable on remand. A procedural lapse is ordinarily curable; a jurisdictional lapse is not. In the present appeal before us, as the factual matrix clearly demonstrates, the AO proceeded to initiate reassessment proceedings, basing such reopening entirely on the information received after search on Shri. Sumit Jindal and proceeded with issuance of notice without any independent verification of such information vis-à-vis a direct nexus with the assessee. As the facts show, the information was not analyzed by the AO to reach an objective satisfaction that the assessee’s case could be reopened based entirely on such information but without any further investigation by the AO so as to justify the reopening.
5.2 Therefore, we are of the considered view that there was no live and rational nexus between the information received and the belief of escapement of income by the AO. The AO failed to demonstrate that the information relied upon had a direct, tangible and specific connection with the assessee’s transaction and alleged escapement of income. The notice issued under section 148A(b) of the Act clearly reflects that the AO merely reproduced the generalized information without verifying its accuracy or relevancy vis-à-vis the assessee.
5.3 The notice issued under section 148A(b) of the Act was based entirely on information emanating from a search on a third party, i.e. Shri. Sumit Jindal but no linkage has been pointed out between the persons/entities named in such information and the assessee. Thus, the AO did not verify the basic facts before forming a belief of escapement. Further, even the quantum of alleged transactions mentioned in notice under section 148A(b) of the Act was factually incorrect and the AO made no attempt to verify the correct figures and this goes to further demonstrate that the belief of escapement was formed on unverified and unreliable material having no live nexus with the assessee’s case. As the perusal of assessment order will show, total additons were made to the tune of Rs.50,65,41,970/- and pertained to three parties viz. M/s Mool Chand Shivam Kumar, M/s Shiv Poojan Vipin Kumar and M/s Pushpant Trading Co. only and there was no addition with respect to other four parties. Therefore, we have no hesitation in holding that the AO’s belief was formed mechanically without establishing any live, rational or proximate connection between the information received and the alleged escapement of income. Accordingly, the proceedings initiated and the additions made on such vague and unverified material are held to be invalid in the eyes of law and cannot be sustained. Accordingly, we hold the initiation of reassessment proceedings to be bad in law and void ab initio and quash the same.
5.4 The assessee has also pointed out to many more legal defects and absence of due process during the course of reassessment proceedings viz. (i) the material being relied upon not being supplied to the assessee; (ii) the response to the show cause notice not being considered by the AO; (iii) there being a variance between the final assessment order and the show cause notice issued prior to the assessment; (iv) invocation of provisions of section 147 when the AO should have resorted to provisions of section 153C, etc. In this regard also, we are in agreement with the submissions of the Ld. A.R. that the facts on record show that the material relied upon by the AO was not provided to the assessee so as to enable it to respond to the same in a proper manner. Further, the record also shows that the response to the show cause notice was not even considered by the AO and he proceeded to complete the proceedings without due consideration of the same. Further, the chart reproduced earlier at page 16 of this order also confirms the contention of the Ld. A.R. that there was variance between the show cause notice and the assessment order which has not been suitably explained by the AO and does not stand the test of legality. On these counts also, the assessment order cannot be sustained.
5.5 Before parting, although the reassessment order itself has been quashed, it will be worthwhile to examine the assessee’s case on merits also. It is seen that the AO has treated impugned purchases as bogus and has added them to the income of the assessee but on the other hand has accepted the sales figures. It is also noteworthy that the AO has not rejected the books of account and has proceeded to make additions to the income as disclosed in the return of income. Thus, the AO, on one hand has disbelieved the purchases aspect, but on the other hand, has accepted the sales aspect without appreciating a basic accounting principle that to effect sales, purchases have to be made. Adding the purchases as bogus without considering the issue of non-availability of stock (by rejecting the purchases) has no foundation to stand on. We are in agreement with the contentions of the Ld. A.R. on the Doctrine of Election (Approbate and Rebate) that an authority cannot accept an instrument or set of books for one purpose while rejecting them for another. In fact the AO has resorted to cherry picking purchases for disallowance while relying on the audited book result for computing the gross turnover. Accordingly, the action of the AO fails on merits on this count and cannot be sustained.
5.6 It is also seen that the AO has invoked the provisions of section 69C of the Act to make the impugned addition. In our considered opinion, the provisions of section 69C of the Act per se, cannot be applied at all, as the Revenue has to first bring it on record that there was an expenditure which had been incurred by the assessee and that the assessee was not able to prove such expenditure. This particular finding by the AO is again lacking in the assessment order. As is evident from the paper book filed, the assessee had filed voluminous documents before the AO including: (i) Audited Balance Sheet of the concern; (ii) Complete ledgers of the alleged parties; (iii) Bank statements highlighting payments made to such parties; (iv) Inventory/Stock Register establishing the corresponding sales of the commodity to various parties; (v) Complete invoices of the alleged suppliers; (vi) Complete Gross Profit (GP) and Net Profit (NP) charts of the assessee for the last three years; and (vii) Specific trading accounts of the relevant purchases, including detailed profit calculations. It is a fact on record that the AO has not commented adversely on any of these but has proceeded to disallow the purchases under section 69C of the Act without recording any observations or finding as to why the documents of the assessee so filed were not to be trusted. Therefore, the action of the AO cannot be sustained on merits on this count also.
5.7 It is also seen that the AO has only discarded purchase of Maida from three parties but has accepted sales of Maida, closing stock of Maida (including purchases from the three parties), bank payments made to the three parties and receipts from sales utilized for making payments to the three parties which again points out to flip-flop approach of the AO and cannot be approved by us as it fails the test of reasonableness and logic.
5.8 Therefore, on an overall view of the facts of the case, the additions made by the AO and as sustained by the Ld. First Appellate Authority cannot be sustained on merits also and are liable to be deleted. It is so ordered accordingly.
6.0 In the final result, the appeal of the assessee stands allowed.
Order pronounced in the open Court on 25/09/2026.
