Sales Accepted, Books Not Rejected: ITAT Cuts Bogus Purchase Addition to 5%

Pankaj Bhanwarlal Dhaddha Vs ITO (ITAT Mumbai)

Sales Accepted, Books Not Rejected: ITAT Cuts Bogus Purchase Addition to 5%

The Mumbai ITAT granted substantial relief to a trader in steel and nickel alloys by directing the Assessing Officer to restrict the addition on alleged bogus purchases to 5%, following the Tribunal’s own decision in the assessee’s case for the subsequent assessment year.

The assessment was reopened based on information received from the Sales Tax Department alleging that the assessee had obtained accommodation bills from certain suspicious dealers. The Assessing Officer treated the purchases as non-genuine and disallowed 12.5% of the disputed purchases, despite the assessee having furnished supporting details and despite the fact that the sales declared by the assessee were never disputed.

Before the Tribunal, the assessee pointed out that in its own case for AY 2011-12, the ITAT had already dealt with an identical issue and had restricted the disallowance to 5% of the disputed purchases. It was also emphasized that the books of account had not been rejected and that sales could not have been effected without corresponding purchases.

The Tribunal observed that the Assessing Officer had merely relied upon third-party information and had not carried out any independent verification. It further noted that neither the sales nor the books of account were rejected. Since the facts were identical to those considered in the assessee’s own case for AY 2011-12, judicial consistency required adoption of the same view.

Accordingly, the ITAT directed the Assessing Officer to restrict the disallowance to 5% of the disputed purchases, in line with its earlier order, thereby substantially reducing the addition.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. This appeal by assessee is directed against the order of ld. CIT(A)/NFAC, Delhi dated 15.09.2025 for Assessment Year (AY) 2010-11. The assessee has raised following grounds of appeal:

“1. On the facts and circumstances of the case in law, the Ld. CIT(A) erred in upholding the reopening under section 147, which was based only on third-party information without independent application of mind by the AO.

2. On the facts and circumstances of the case in law, the Ld. CIT(A) erred in confirming the addition of *29,11,627/- as bogus purchases despite evidence of cheque payments, stock records, and sales.

3. On the facts and circumstances of the case in law, the Ld. CIT(A) erred in sustaining additions without granting cross-examination of the alleged entry providers, violating principles of natural justice.

4. On the facts and circumstances of the case in law, the Ld. CIT(A) wrongly disallowed the deduction under section 80C of ₹87,647/- towards LIC premium, which is legally allowable.

5. On the facts and circumstances of the case in law, the Ld. CIT(A) erred in not following decision of Hon’ble ITAT in own case in respect of alleged purchases whereas 5% estimated by Hon’ble ITAT.

6. The Assessee reserves his right to amend modify delete and make any additional grounds of appeal.”

2. Rival submissions of both the parties have been heard and record perused. The learned Authorised Representative (ld. AR) of the assessee submits that assessee is individual and engaged in the business of reseller of metal and Nikel alloy in the name of Kalpataru Nickel Alloys. Case of assessee was reopened on the basis of information received from Sales Tax Department that assessee is beneficiary of non-genuine purchases from alleged entry provider. As per information, the assessee has purchased of Rs. 2.32 crore from suspicion / entry provider. The Assessing Officer (AO) made addition by disallowing 12.5% of aggregate of purchases from such alleged such suspicious dealers, despite the fact that assessee furnished complete details to substantiate purchases. The ld. CIT(A) upheld the action of AO. The ld. AR of the assessee submits that neither the books of account was rejected nor sales of assessee was disputed. The sales are not possible in absence of purchases. The ld. AR of the assessee submits that on similar set of fact in assesses own case for A.Y. 2011-12 in ITA No. 2458/M/2023 dated 26.10.2023, similar disputed purchases were restricted to 5.00%. The ld. AR of the assessee submits that though the purchases are genuine, yet to avoid the long drawn litigation, the order of Tribunal in A.Y. 2011-12 (supra) may be followed. The ld. AR of the assessee submits that he is not pressing other grounds of appeal which relates to validity of reopening and deduction under Chapter VIA.

3. On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue submits that AO made addition on the basis of information that assessee is beneficiary of bogus purchases. The Investigation Wing carried out full-fledged investigation about the entry provide who is providing only accommodation entry without actual delivery of goods. The ld. Sr. DR for the Revenue submits that lower authorities have made reasonable disallowance and same may be upheld.

4. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that the AO has not disputed the sale of assessee. The assessee is a trader in Steel and nickel items. The sale is not possible in absence of purchases. The AO while making addition solely relied on the information received by him. The AO has not made any independent verification of facts. We also find that AO while making disallowance of purchases @ 12.5% from alleged disputed parties have not rejected the books of account of assessee. On careful perusal of assessment order, order of ld CIT(A) and order in assesses own case in ITA No. 2458/M/2023 dated 26.10.2023 for A.Y. 2011-12 (supra), we find that issue before us is similar as of in appeal for AY 2011-12. Therefore, considering the decision of coordinate bench of tribunal, we direct the AO restrict the disallowance as per the decision in A.Y. 2011-12. In the result, ground No. 2 & 5 are allowed. Further, considering the facts that the ld. AR of the assessee has is not pressed other grounds of appeal which relates to validity of reopening and deduction under Chapter VIA, thus, those grounds of appeal are dismissed as not pressed.

5. In the result, the appeal of the assessee is partly allowed.

Order was pronounced in the open Court on 09/06/2026.