INCOME TAX OFFICER -41(2)(2), MUMBAI vs. JALLALUDDIN MOHD ANIS KHAN, BHANDUP (W)

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ITA 2842/MUM/2026Status: DisposedITAT Mumbai31 August 20266 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee had sufficiently proved the genuineness of purchases with invoices, delivery challans, and bank payments. The non-payment of VAT by suppliers alone was insufficient to deem purchases bogus.

What were the facts?

The Assessing Officer (AO) added Rs. 5,15,409/- for alleged bogus purchases and disallowed other business expenses. The CIT(A) deleted these additions. The Department appealed this deletion.

What were the issues?

Whether purchases are genuine despite suppliers being alleged hawala dealers and failing to pay VAT. Whether business expenses were rightly disallowed.

Which sections of the Income-tax Act were involved?

Section 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: SHRI SANDEEP GOSAIN

For Respondent: Shri Aditya, CA (Virtually Appear)

PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER: This appeal is filed by the Department against the order of Ld. CIT(A) vide DIN: ITBA/APL/S/250/2025-26/1084619303(1) dated 09-Jan-2026 for the Assessment Year 2010. The Department has raised the following grounds of appeal:

1) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that the assessee had sufficiently proved the genuineness of the purchases despite specific information received from the DGIT (Inv.) that the suppliers were hawala dealers and despite the failure of the assessee to produce primary evidences such as transport receipts, delivery challans, stock records and VAT payment proof 2) Whether the Ld. CIT(A) erred in law in deleting the disallowance of business expenses amounting to Rs. 1,56,229/- made on account of non-verifiability and personal element, without properly appreciating the findings recorded by the AO in the assessment order 3) Whether the Ld. CIT(A) was justified in law in accepting documentary evidences such as invoices and bank payments at face value, without examining the surrounding circumstances and the investigation findings indicating that the suppliers were accommodation entry providers

2.

Ground Nos. 1 and 2 raised by the Revenue are interrelated and interconnected and relate to challenging the order of the CIT(A) in deleting the additions made by the AO. Therefore, I have decided to adjudicate these grounds through the present consolidated order.

3.

Ld. DR appearing on behalf of the Department, while relying on the order of the AO, submitted his arguments. Whereas the Ld. AR, while reiterating the same arguments which were raised by him before the Revenue authorities and also relying upon the order passed by the Ld. CIT(A), supported the findings of the Ld. CIT(A).

4.

I have heard the counsel for both the parties, perused the material placed on record, the judgments cited before me, and also the orders passed by the Revenue authorities.

6.

I notice that the assessee is engaged in the business of trading in iron and steel products and, during the course of assessment proceedings, the AO made an addition of Rs. 5,15,409/- under Section 69C on account of alleged bogus purchases from Abhilasha Sales Pvt. Ltd. and M/s Ashley Traders Pvt. Ltd. Apart from this, business expenses were also disallowed on the ground that the same were either not fully verifiable or were not wholly and exclusively incurred for the purpose of business. However, the Ld. CIT(A) deleted all the additions made by the AO. In its order, the operative portion is contained herein below:

Findings and Decisions

Disallowance of Purchases - Alleged Bogus Purchases (Rs.5,15,409/-) 3.1 The appellant contended that the purchases from M/s Abhilasha Sales Pvt. Ltd. and M/s Ashley Traders Pvt. Ltd. were genuine and supported by proper invoices, delivery challans, and bank payment receipts. The Assessing Officer, however, disallowed these purchases relying on information from the DG (Investigation) that these suppliers were "hawala dealers" and treated the transactions as bogus under section 69C of the Income-tax Act, 1961. The AO also observed that the suppliers had not discharged their VAT liabilities, which, according to him, prevented the appellant from claiming VAT set-off under the VAT Act.

3.2 The appellant submitted that the goods were duly received, payments were made through account payee cheques, and the corresponding sales were recorded in the books of accounts. It was further explained that the VAT adjustment was made under protest to preserve the right to claim a refund once the suppliers complied with their statutory obligations.

3.3 The legal position is well settled by the Hon'ble Supreme Court in Durgaprasad More v. CIT (1982) 82 ITR 540 (SC), which held that the burden of proving a claim made in the return of income lies on the assessee, and the AO cannot arbitrarily disallow genuine claims without material evidence. Furthermore, in Jyotindra Nath Jain v. CIT (1958) 34 ITR 888 (SC), it was held that an assessee is entitled to arrange his affairs to minimize tax liability provided the transactions are genuine and not a sham. As clarified by the Hon'ble Delhi High Court in Medica Hospitals v. CIT (2001) 250 ITR 575 (Del), when the genuineness of purchases is substantiated by invoices, delivery receipts, and bank payments, the Assessing Officer cannot treat such purchases as bogus merely because the supplier defaulted on statutory obligations. Similarly, the Hon'ble Gujarat High Court in Sanjay Oil & Industries v. CIT (2009) 316 ITR 274 held that non-payment of VAT by the supplier does not automatically render a purchase by the assessee as bogus if the goods were received and payments were made in good faith.

3.4 After considering the submissions and supporting documents provided by the appellant, I find that the appellant has sufficiently proven the genuineness of the purchases. The goods were received, payments were made through proper banking channels, and sales were duly recorded in the books of accounts. The AO's reliance solely on the non-payment of VAT by the supplier is, therefore, insufficient to disallow genuine purchases. Accordingly, the addition of Rs.5,15,409/- is upheld in favor of the Revenue under section 69C. Accordingly ground of appeal no. 01 raised by the appellant is dismissed.

7.

After having considered the entire facts of the present case, I too find that the assessee has sufficiently proven the genuineness of the purchases and that the goods were received and payments were made through proper banking channels. The sales were also recorded in the books of accounts. The AO's reliance solely on the non-payment of VAT by the supplier is, therefore, insufficient to disallow genuine purchases. Accordingly, the additions made by the AO were rightly deleted. However, inadvertently, the Ld. CIT(A), while passing the order, in the last line had written:

“upheld in favor of the Revenue under section 69C. Accordingly ground of appeal no. 01 raised by the appellant is dismissed.”

8.

But the facts remain that, while deleting the disallowance of business expenses, the Ld. CIT(A) rightly noted that the AO had disallowed certain expenses on an estimated basis, considering their unverifiable nature and possible personal element, whereas the assessee had categorically submitted that the expenses were incurred wholly and exclusively for business purposes and had furnished supporting documentary evidence. Thus, relying upon the judicial precedents mentioned by the Ld. CIT(A), the Ld. CIT(A) had rightly deleted the adhoc disallowance made in the case of the assessee without any specific adverse evidence on record.

9.

Even otherwise, no new facts or circumstances or documents have been placed on records by Ld. DR in order to controvert or rebut the lawful findings so recorded by the Ld. CIT(A), therefore, we see no reasons to interfere into or to deviate from the findings so recorded by Ld. CIT(A), hence we dismiss the grounds raised by the Revenue and uphold the order of Ld. CIT(A) deleting the disallowance.

10.

Therefore, I uphold the order of the Ld. CIT(A) in deleting the disallowance. Accordingly, the grounds raised by the Revenue are dismissed.

11.

In the result, appeal filed by the Revenue stands dismissed.

Order pronounced in the open court on 31.08.2026.

Sd/- SANDEEP GOSAIN JUDICIAL MEMBER Mumbai Dated: 31.08.2026 RY-SrPS Copy to: INCOME TAX OFFICER -41(2)(2), ROOM NO-834 8TH FLOOR KAUTILYA 1 BHAVAN BKC,MUMBAI-400051, MUMBAI-400051, MAHARASHTRA

JALLALUDDIN MOHD ANIS KHAN, SHOP NO/2 JAHID COMPOUND,DARGAH 2 ROAD SONAPUR BHANDUP (W),MUMBAI, MUMBAI-400078, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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