J B KHOKHANI AND CO,MUMBAI vs. ACIT, CIRCLE 20(1), MUMBAI

Brief facts are that the assessee is a partnership firm which filed its return of income on 30.09.2022, declaring a total income of ₹6,46,72,800. The case was selected for complete scrutiny under CASS on account of certain specified parameters. The explanation furnished by the assessee on the original issues forming the basis of selection was accepted by the Assessing Officer. However, during the course of examination of the details furnished, the Assessing Officer noticed certain discrepancies in the reconciliation of purchases.

The assessee had furnished a breakup of purchases aggregating to ₹241,95,39,007.25. On verification thereof, the Assessing Officer held that purchases amounting to ₹1,55,00,93,317 remained unverifiable. The said amount comprised reconciliation differences of ₹67,43,90,580 and purchases of ₹87,57,02,737 which, according to the Assessing Officer, were not supported by adequate primary evidence. Since the corresponding sales had been accepted, the Assessing Officer estimated the profit element embedded in such purchases at 12.5% and made an addition of ₹19,37,61,664. The assessment was accordingly completed

Before the learned CIT(A), the assessee submitted that the show-cause notice dated 12.03.2024 had proposed an adjustment in respect of purchases amounting to ₹60,11,76,215 on the ground of alleged non-deduction of tax at source under section 194Q. However, while passing the assessment order, the Assessing Officer proceeded on an altogether different footing and treated purchases aggregating to ₹1,55,00,93,317 as unverifiable for want of invoices, bank statements, confirmations and other supporting evidence. According to the assessee, such documents had neither been specifically called for during the assessment proceedings nor was the assessee confronted with the substantially enlarged amount ultimately forming the basis of the addition.

During the appellate proceedings, the assessee filed additional evidence in support of the purchases. The learned CIT(A) admitted the additional evidence and forwarded the same to the Assessing Officer for examination and submission of a remand report. In the course of the remand proceedings, the Assessing Officer issued various notices and the assessee claims to have furnished replies from time to time, both electronically and physically. The assessee has also referred

The Assessing Officer, however, in his communication dated 25.03.2026, reported that the documents stated to have been furnished by the assessee were not available either in the ITBA remand functionality or in the departmental DAK records and, therefore, could not be verified. Based substantially upon the said factual position and the absence of effective verification of the evidence, the learned CIT(A) confirmed the addition and dismissed the appeal. 7. Before us, the learned counsel submitted that the basis of the addition made in the assessment order was materially different from the proposal contained in the show-cause notice. He further submitted that the assessee had placed substantial documentary evidence before the learned CIT(A) and had also responded to the notices issued during the remand proceedings. However, the evidence remained unexamined merely because the Assessing Officer reported that the documents were not accessible on the relevant departmental functionality. He accordingly submitted that the matter may be restored to the Assessing Officer for fresh examination and adjudication.

We have heard the rival submissions and carefully perused the material placed on record. The addition of ₹19,37,61,664 has been made by estimating the profit element at 12.5% of purchases aggregating to ₹1,55,00,93,317, which were considered unverifiable. The assessee, however, has placed substantial documentary evidence in support of the purchases and contends that such evidence was duly furnished during the appellate and remand proceedings. On the other hand, the remand report records that the documents were not available on the relevant departmental functionality and, therefore, could not be verified. Thus, the

We also find that the show-cause notice issued during the assessment proceedings referred to purchases of ₹60,11,76,215 and proposed action on account of alleged non-deduction of tax under section 194Q. The assessment order, however, proceeded by treating purchases aggregating to ₹1,55,00,93,317 as unverifiable for want of supporting evidence. There was, therefore, a material variation both in the basis and in the quantum of the proposed adjustment. Be that as it may, since substantial documentary evidence has now been placed on record and the same requires examination, the substantive issue concerning the genuineness and verifiability of the purchases cannot be fairly adjudicated without a proper factual verification.

Considering the entirety of the facts, we find that the evidence furnished by the assessee has not been examined in its proper perspective. The remand proceedings also did not culminate in an effective verification, principally on account of the dispute as to whether the documents claimed to have been furnished by the assessee were accessible on the departmental portal. In these circumstances, neither the addition can be sustained merely for want of such verification

We, therefore, set aside the impugned order and restore the matter to the file of the Assessing Officer for fresh adjudication in accordance with law, after considering the material and explanations furnished by the assessee and affording it a reasonable opportunity of being heard. We have not expressed any opinion on the merits of the addition, and all the contentions of both sides are left open.

In the result, the appeal of the assessee is allowed for statistical purposes.