INCOME TAX OFFICER, DELHI vs. AKASH DEEP SETHI, DELHI

After considering the same, the AO rejected the same and proceeded to sustain the addition @ 25% of the total turnover as net profit of the assessee with the following observations :- “1. Filling of Return of Income and following the prescribed method of accounting could not convert the claim of bogus purchases into genuine one. To establish the correctness and genuineness of the purchases, the assessee has to submit the supporting documentary evidences including requesting the concern persons to file the requisite details. 2. Merely filling of bills/vouchers etc., the claim of purchases could not be established as genuine specially when the notice u/s 133(6) of the LT. Act were issued and most of the persons have not filed any reply to the notices. The onus always lies upon the assessee to request the suppliers to file the details. 3. On the basis of PAN and GST registration no., the claim of purchases could not be treated as genuine specially in absence of details called for u/s 133(6) of the LT. Act. Due to non-compliance of the notice u/s 133(6) of the I.T. Act, the claim of purchases from that parties .could not be treated as genuine.

Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. After considering the detailed submissions and findings of the AO, ld. CIT (A) gave partial relief to the assessee by restricting the disallowance to the extent of 2.46% of the turnover instead of 25% of the gross turnover as under := “5.4. The appellant has maintained in his reply that assessing officer has committed a legal error by disallowing the purchases and questioning the books maintained and audited u/s 145 solely based on non-compliance u/s 133(6) of the Income Tax Act. The appellant has failed to prove the genuineness or creditworthiness of the parties either during the assessment proceedings or during the appellate proceedings. The fact remain that none of the 11 parties have filed their ITR as no such detail of ITR has been filed either during the assessment proceeding or appellate proceeding. During the appellate proceeding the appellant has further maintained that out of the 11 alleged parties, the appellant had no transaction with 2 of them. However during the assessment .proceeding in the entire reply given before the assessing officer this fact has not been mentioned by the appellant even once. The appellant has in his reply before the assessing officer repeatedly stated that he will try to bring confirmation from all the 11 parties. 5.5 In view of the above findings it is clear that the appellant has indulged in purchase from the parties who had doubtful credentials. The appellant has alleged in his Ground of appeal

Aggrieved the Revenue is in appeal before us and assessee has filed cross objections in support of the findings of the ld. CIT (A), raising following grounds of appeal :- “Revenue’s Appeal

At the time of hearing, ld. DR of the Revenue brought to our notice detailed findings of the AO and submitted that none of the parties from whom assessee has made purchases responded to the notices issued u/s 133(6) of the Act and further submitted that none of these parties are traceable. Even the assessee has not filed any details in support of the purchases made from these parties. Therefore, he heavily relied on the detailed findings of the AO.

On the other hand, ld. AR of the assessee submitted as under :- “A. The AO alleged that the assessee made substantial purchases from multiple parties who are Either did not file Income Tax Returns (ITRs) for A.Y. 2021–22, Filed non-business ITRs, or Reported a much lower turnover in their ITRs compared to their GSTR-1 returns. • The allegation of the assessing officer that assessee has made purchases from those suppliers who are either non-filler or work reported lower turn- over. This allegation is without any basis. On the contrary, the assessee has submitted complete details in respect of each of the supplier placed at PB Page 138-349. • The assessing officer as issued notice under section 133(6) and each of the notice had been duly served as there is no allegation that any of the notice has come back unanswered or supplier was not available at the given address. • The assessing officer has made wild allegation without bringing any material to support the allegation. • On the contrary, the assessee has filed GSTR-2A which clearly shows the filing status of the supplier placed at PB Page 162-164. • PAN and GST Registration Establishes Supplier Identity CO No.26/Del/2025 Each of the suppliers had valid PANs issued by the Income Tax Department and GST registrations granted by the concerned tax authorities. These registrations are issued only after proper due diligence and verification by respective departments. Hence, it is incorrect and legally impermissible to question the existence or legitimacy of these suppliers, especially in the absence of any contrary evidence. • Genuineness of Transaction Evidenced by Proper Documentation It is relevant to mention the fact that the assessee has fully complied with the statutory obligations by maintaining proper books of accounts, which were audited under section 44AB of the Income Tax Act. The auditor did not raise any qualifications or adverse remarks. This indicates that the financial statements, including purchases, were maintained as per accounting standards and tax law. Further, the assessee submitted comprehensive documentary evidence for each purchase transaction, including:  Goods Receipt (GR) notes and E-way bills  Transporter details and delivery challans  Bank statements showing payments via proper banking channels  Ledger confirmations from suppliers  GSTR-2A matching purchase entries B. Non-Compliance with Notices under Section 133(6):- Notices issued under section 133(6) to 11 suppliers did not yield any response implied that the purchases were not verifiable. • The Assessing Officer has drawn an adverse inference on the genuineness of purchases solely based on the non-response of 11 suppliers to notices issued under Section 133(6) of the Income-tax Act, 1961. It is respectfully submitted that such an inference is both legally unsustainable and factually flawed, for the following reasons: i. Non-response by Third Parties Cannot Lead to any Disallowance Section 133(6) empowers the AO to obtain information from third parties, but the mere non-receipt of replies does not invalidate the transactions between the assessee and such parties. ii. Onus Discharged by the Assessee The assessee, in response to the show cause notice and statutory requisitions, provided extensive and credible documentation in support of the purchases, including: • Tax Invoices bearing GST and PAN details; • Transport documents (e.g.,e-way bills, bilty, goods receipts); • Bank payment proofs, evidencing payments through NEFT/RTGS; CO No.26/Del/2025 • Ledger confirmations and supplier-wise purchase registers; • GSTR-2A data, confirming the input tax credit and supplier filings. Once such documentation is placed on record, the initial burden of proof cast upon the assessee under general principles of taxation stands discharged. • In support of the above facts and contentions, assessee placed reliance on the judgement of HON’BLE SUPREME COURT PASSED IN THE CASE OF ORISSA CORPORATION PVT. LTD. V. CIT, (1986) 159 ITR 78 (SC)wherein hon’ble Apex Court held that when the assessee furnishes complete particulars of the transactions and makes payments through proper banking channels, the failure of the recipients to respond to departmental notices cannot be a valid ground to treat the transaction as bogus. Relevant findings are extracted as under: In Sreelekha Banerjee v. CIT [1963] 49 ITR 112, this court held that if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money was and to prove that it was not income. The Department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of an income nature, the Department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot by merely rejecting good explanation unreasonably, convert good proof into no proof. In CIT v. Daulatram Rawatmull [1964] 53 ITR 574 (SC), the principles governing reference under section66 of the 1922 Act, similar to section 256 of 1961 Act were discussed and it was held that the High Court has no power under section 66(2) of the Indian Income-tax Act, 1922, which is in parimateria with section256(2) of the Act, to call upon the Appellate Tribunal to state a case, if there was some evidence to support the finding recorded by the Tribunal, even if it appears to the High Court that on reappreciation of the evidence, it might arrive at a conclusion different from that of the Tribunal. In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the CO No.26/Del/2025 file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. • Further reliance has been placed on the following judgements of various courts:  THE COMMISSIONER OF INCOME TAX-I VERSUS M/S NIKUNJ EXIMP ENTERPRISES PVT LTD, 2013 (1) TMI 88, BOMBAY HIGH COURT  CONTINENTAL CARBON INDIA LTD VERSUS ITO DELHI, 2011,ITAT DELHI  ASSTT COMMISSIONER OF INCOME TAX VERSUS VS M_S SWASTIK ROADLINES PVT LTD, 2013 (8) TMI 108, ITAT AGRA  OFFICE OF THE ITO- 31 (1) (5) MUMBAI VERSUS M_S GOLD FINGER, 2018 (5) TMI 1319, ITAT MUMBAI • Accordingly, in line with the above ruling, the mere non-availability or non-verification of suppliers in the instant case does not, by itself, establish that the purchases were bogus, especially when supported by uncontroverted documentary evidence. C. The AO further alleged that despite being granted multiple opportunities, the assessee failed to provide necessary documents. • The allegation that the assessee failed to provide the necessary documents despite multiple opportunities is factually incorrect and devoid of merit. The assessee fully cooperated during the assessment proceedings and furnished all requisitioned details, including: o Acknowledgement of Income-tax return dated 12.01.2022 – at PB Pg 1 o Audited Financial Statements – at PB Pg 2-6 o List of suppliers along with PAN and GSTN – at PB Pg 24 o Detail of purchases made during the F.Y.2020-21 – at PB Pg 25-39 CO No.26/Del/2025 o Detail of sales made during the F.Y.2020-21 – at PB Pg 40- 57 o Confirmation of Accounts of debtors – at PB Pg 58-63 o Stock register - Quantitative wise detail of stock for F.Y. 2020-21– at PB Pg 64-78 o Details of bank accounts maintained by the assessee – at PB Pg 79 o Bank Statement for period 01.04.2020 to 31.03.2021  ICICI Bank – at PB Pg 80-125  Bank reconciliation – at PB Pg 126  Punjab National Bank – at PB Pg 127-129 o Details of suppliers along with address – at PB Pg 138 o Bank statement of the assessee highlighting the payments made to suppliers – at PB Pg 139-161 o Form GSTR 2A reflecting the counter filing status of suppliers – at PB Pg 162-164 o Ledger confirmation of the following suppliers along with invoices/bills (GR/BILTY) – at PB Pg165-339  Bharat Alloy and Metal Traders(Proprietor Inderjeet)  Brime Traders (Proprietor Karan Kumar)  Ganesh Trading Co.(Proprietor Rahul Bansal)  Hindustan Paper Machinery Industries(Firm)  OM Sales Corporation.(Proprietor Karanjeet Singh)  Rajnandini Metal Limited  Sankalp Traders (Proprietor Govind)  Shipra Overseas(Proprietor Rohtash)  Swastik Enterprises (Proprietor Sunil Sharma)  Viswas Enterprise (Proprietor Amit Kumar) o Detail of expenses for F.Y.2020-21 – at PB Pg 340-349 • All submissions were made timely in response to notices under Sections 142(1) and the Show Cause Notice dated 02.12.2022. These are already placed on record before the Ld. CIT(A) and form part of the Paper Book. • Therefore, the observation that documents were not provided is contrary to the record and cannot form the basis for adverse inference against the assessee. D. The AO rejected the books of accounts under section 145(3) without pointing out any specific defect or discrepancy in the books of the assessee. • The Assessing Officer failed to point out any specific defect, discrepancy, or inconsistency in the books of account maintained by the assessee. The books were: - Regularly maintained in the normal course of business, CO No.26/Del/2025 - Duly audited under Section 44AB by an independent chartered accountant, • In the present case, the Assessing Officer (AO) rejected the books of account of the assessee without pointing out any specific defects and proceeded to make an arbitrary addition. It is a well-settled principle of law that even after rejecting the books, the AO cannot make an addition without a reasonable and justifiable basis. The estimation of profit must be grounded in past profit trends, comparable cases, and industry standards, rather than an ad-hoc percentage. Several judicial precedents, emphasize that once books of account are regularly maintained, audited, and supported by documentary evidence, their rejection must be backed by cogent reasoning. Mere suspicion or general observations cannot justify an arbitrary addition. Reliance has been placed on the following judgements of various courts:  ITO, WARD 58 (2) NEW DELHI VERSUS NEERAJ KUMAR PROP. M/S NEERAJ METAL AND (VICE- VERSA) 2025 (2) TMI 290 - ITAT DELHI  GORJA STEEL PROCESSORS VERSUS DCIT,2024, ITAS NO.2905 TO 2907/DEL/2022  SUNIL GARG VERSUS DCIT, CENTRAL CIRCLE-II, FARIDABAD HARYANA, 2025 (1) TMI 905 - ITAT DELHI, DATED: - 16-1-2025  SHRI KAMAL SHARMA VERSUS DCIT, CENTRAL CIRCLE-II, FARIDABAD, 2024 (10) TMI 1628 - ITAT DELHI, DATED.- OCTOBER 24, 2024”

However, the Ld. CIT(A) was of the view that the assessee had not fully discharged the onus of proving the genuineness of purchases from certain suppliers.

Accordingly, the Ld. CIT(A) chose to estimate the gross profit at 2.46% of the declared turnover—based on the assessee’s own historical gross profit trend. On applying this rate to the declared turnover of ₹18.22 crore, the CIT(A) arrived at a gross profit of ₹44,83,177/-. After giving credit for the net profit of ₹13,14,900/- already disclosed by the assessee in the return, the Ld. CIT(A) sustained the balance addition of ₹31,68,277/-.

In this regard, it is being submitted that while sustaining the above addition, ld. CIT(A) placed reliance upon the various judgments which are CO No.26/Del/2025 distinguishable and not applicable to the present case as in all these judgments there were adverse material in the form of admission by the onus regarding accommodation entries/hawala business and the adverse statement of the supplier.

Your honors, in the present case there is absolutely no adverse statement or any adverse report of any investigation in respect of any of the suppliers from whom the assessee has made purchases during the year. Facts of the above referred cases are completely different from the facts of the assessee. Therefore, addition based on the gross profit (GP) rate is inappropriate in the case of the assessee and liable to be deleted. No addition could be made when purchases were supported by proper documentation and payments were made through banking channels 1. Ld. CIT(A) at page 22 in para 5.8 of its order, held that sale of the appellant is not doubtful it can be concluded that unless some purchases are made there cannot be corresponding sales 2. It is well established principle of law that no addition can be made where purchases are duly recorded in regular books of account, supported by valid and authenticated purchase invoices/vouchers, payments were made through banking channel, particularly when the corresponding sales against these purchases are not doubted. Furthermore, in the present case, the purchases made are duly reflected in the assessee’s Form GSTR-2A, clearly evidencing that the respective suppliers have filed their GST returns acknowledging their transactions. Reliance has been placed on the following judgements of various courts:  PR. COMMISSIONER OF INCOME TAX, SURAT-I VERSUS TEJUA ROHITKUMAR KAPADIA 2017 (10) TMI 729 - GUJARAT HIGH COURT Dated: - 18-9-2017 3. It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was CO No.26/Del/2025 found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises.  ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-2, GHAZIABAD AND OTHERS VERSUS VIJAY KUMAR GOEL AND OTHERS 2015 (6) TMI 763 - ITAT DELHI 16. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the AO made the addition merely on the basis of statement of one Sh. Surendra Kumar Sharma, Proprietor of M/s Riddhi Siddhi Enterprises which was later on retracted and it was stated that he was not indulged in providing the entries to the assessee or to any other person. The AO did not provide any opportunity to the assessee to cross examine Sh. Surendra Kumar Sharma. In the present case, it is also noticed that the turnover of the assessee was accepted by the Trade Tax Department and it is not the case of the AO that proper books of accounts were not maintained by the assessee in regular course of business or the same method of accounting was not followed consistently. The ld. CIT(A) examined the bank accounts as well as books of accounts of the assessee and categorically stated that the purchases as well as the sales were through banking channel and there was no cash deposit in the bank account of the assessee. In the present case, the AO has not pointed out any defects in the books of accounts, therefore, the ld. CIT(A) was fully justified in deleting the addition made by the AO on account of alleged bogus purchases particularly when the GP rate declared by the assessee was progressive and was accepted by the AO. As regards to the additions sustained by the ld. CIT(A) by applying the net profit rate of 5% of the alleged unverifiable purchase. We are of the view that when the ld. CIT(A) himself accepted the trading results of the assessee and also held that the payment for purchases of material had been made through banking channel, GP rate declared by the assessee was progressive then there was no occasion to make the addition by applying the net profit rate of 5% by considering the purchases of ₹ 1,39,70,618/- as unverifiable. We, therefore, by considering the totality of the facts as discussed herein above delete the addition sustained by the ld. CIT(A).

In the result, the appeal of the Department is dismissed and Cross Objection of the assessee is allowed.”

Considered the rival submissions and material placed on record. We observe that the case of the assessee was selected for scrutiny in order to verify the documents and correctness of purchases including expenses. During assessment proceedings, AO has issued 133(6) notices to 12 suppliers of the assessee and none of the parties has submitted any details. When the issue CO No.26/Del/2025 was raised by issue of notice u/s 142(1), assessee has submitted basic documents like bills and vouchers etc. to claim the genuineness of the purchases. The AO rejected the basic documents and due to non-response of the suppliers, he doubted the genuineness of the transaction and further observed that the parties have supplied worth of goods between Rs.10 lakhs and Rs.1 crore, they have not filed any return of income and also not responded to the various notices. Accordingly, he treated the above purchases as non-genuine and proceeded to add 25% of the turnover as gross profit earned by the assessee. We observe that after considering the facts available on record, ld. CIT (A) treated the purchases as non-genuine by relying on the turnover of the assessee for AYs 2020-21, 2021-22 and 2022- 23. He observed that the average gross profit declared by the assessee for three years is at 2.52%. He observed that during the year under consideration, the assessee himself has declared GP of 2.46% of the total turnover and observed that assessee has declared net profit of Rs.13,14,900/- during the year under consideration, by relying on several case laws, he sustained the addition of 2.46% of the gross turnover as net profit as must have earned by the assessee. Since the assessee has declared Rs.13,14,900/-, he sustained the addition to the extent of Rs.31,68,277/-. From the facts available on record, we observe that no doubt, the purchases seem to be non- genuine based on the findings of the lower authorities. However, the CO No.26/Del/2025 assessee has also declared sales which were not doubted by the AO. Without there being any purchases, the assessee would not have achieved the sales. Therefore, we are inclined to accept the findings of the ld. CIT (A). However, we observe that ld. CIT (A) after analyzing the financial data of three years from AYs 2020-21 to 2022-23, he observed that assessee has declared average GP of 2.46% and also accepted that assessee has declared 2.46%, that being the case, he should have proposed the addition to that extent of different between 2.46% to 0.72%, however, he proposed 2.46% net GP considering the factual matrix in this case. After going through the facts on record, the various ITAT Benches have proposed addition in the case of bogus purchases in and around GP of 5%. In the given case, assessee has already declared 2.46% as GP and ld. CIT (A) has sustained the addition of 2.46% which is in line with the overall percentage of 5%. Therefore, we do not see any reason to disturb the findings of ld. CIT (A). Accordingly, the grounds raised