AAR GEE FORMULATIONS,NEW DELHI vs. ACIT, CENTRAL CIRCLE-5, DELHI

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ITA 1024/DEL/2026Status: DisposedITAT Delhi15 July 2026AY 2021-224 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal, acknowledging divergent judicial views on bogus purchases, decided to allow a lumpsum disallowance of 5% of the disputed purchases for both assessment years. For scrap sales, a lumpsum addition of Rs. 10 lakhs was made, considering potential expenditure incurred by the assessee.

What were the facts?

The assessee's purchases were disallowed as accommodation entries by the lower authorities. The assessee argued that the purchases were genuine, even if from unregistered dealers, and their corresponding sales were not questioned.

What were the issues?

Whether purchases disallowed as accommodation entries are to be fully disallowed or a lumpsum disallowance is permissible. Whether additions for unexplained scrap sales are justified.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI

Before: SHRI SATBEER SINGH GODARA & SHRI SANJAY AWASTHI

For Appellant: Ms. Sakshi Rustagi, Adv
Hearing: 29.06.2026Pronounced: 29.06.2026

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER ITA No. 1024 & 1025/Del/2026 Assessment Year: 2021-22 & 2022-23

Aar Gee Formulations Vs Assistant Commissioner of A-89, Okhla Phase-I, Okhla Income Tax Industrial Estate, S.O. Tehkhand Central Circle-5, South East Delhi- 110020 NCC DIT(S), Jhandewala New Delhi Ext. New Delhi-110055 (APPELLANT) (RESPONDENT) PAN No. AAPFA4325D

Assessee by: Sh. Salil Kapoor, Adv., Sh. Sumit Lalchandani, Adv., Ms. Sakshi Rustagi, Adv. Revenue by : Sh. Bhopal Singh, CIT DR Date of Hearing: 29.06.2026 Date of Pronouncement: 29.06.2026 ORDER These assessee’s twin appeals ITA Nos. 1024 & 1025/Del/2026; both for assessment year 2021-22 & 2022-23, arise against Commissioner of Income Tax (Appeals)-24 (in short, ‘CIT(A)’), New Delhi’s order all dated 26.11.2025, passed in case nos. Delhi—24/10172/2020-21 & Delhi- 24/10113/2021-22, involving proceedings u/s 147 r.w.s 144 of the Income Tax Act, 1961; hereinafter referred to as, ‘the Act’, respectively.

Heard both the parties at length. Case files perused.

2 2. We proceed assessment year-wise for the sake of convenience and brevity.

3.

Assessment Year: 2021-22 (Assessee’s appeal ITA No. 1024/Del/2026) Learned counsel presses for the assessee’s solitary substantive ground/argument herein that both the lower authorities’ respective assessment and lower appellate findings have erred in law and on facts in disallowing its purchases of Rs. 3,44,72,824/- as mere accommodation entries u/s 37(1) of the Act.

4.

That being the case, both the parties vehemently reiterate their respective stands against and in support of the impugned bogus purchases disallowance. We wish to make it clear that there is no dispute in principle that the assessee’s municipal business activity is in dispute. The fact also remains that possibility of assessee sourcing his purchases from unregistered dealers per se could not be altogether ruled out as well. And that its corresponding sales have nowhere been questioned in both the lower proceedings. Various recent judicial precedents (2025) 173 taxmann.com 592 (Guj.) Ravjibhai Becharbhai Dhamelia vs. ACIT; (2024) 160 taxmann.com 110 (Bom) PCIT Vs. Hitesh Mody (HUF), (2024) 160 taxmann.com 93 (Del) PCIT Vs. Forum Sales (P) Ltd.; (2025) 172 taxmann.com 283 (Bom) PCIT Vs. Kanak Impex (India) Ltd; (2025) 178 taxmann.com 424 (Del. – Trib.) DCIT Vs. Kohinoor Foods Ltd.; and (2025) 177 taxmann.com 836 (Delhi-trib.) DCIT Vs. Tirupati Matsup (P.) Ltd. have

3 recently decided the instant issue of bogus purchases with divergent views as well.

5.

Faced with these peculiar facts, it is thus deemed appropriate in the larger interest of justice that a lumpsum disallowance @ 5% of the assessee’s alleged bogus purchases amounting to Rs.3,44,72,824/-, would be just and proper with a rider that the same shall not be treated as a precedent. The assessee’s book entries are hereby rejected to the very extent. Necessary computation shall follow as per law. No other ground or argument has been pressed.

6.

This assessee’s former appeal ITA No. 1024/Del/2026 is partly allowed in above terms.

Assessment Year: 2022-23 (Assessee’s appeal 1025/Del/2026) There is hardly any dispute between the parties that the assessee’s tenth substantive ground pressed herein is very much identical in nature since directed against section 37(1) disallowance of its alleged bogus purchases amounting to Rs. 44,76,760/-. That being the case, we adopt our foregoing detailed discussion mutatis mutandis to restrict the same to that @ 5% in very terms.

7.

Lastly comes the assessee’s eleventh substantive ground herein directed against both the learned lower authorities’ respective findings making non-recorded/unexplained scrap sales addition of Rs. 11,12,753/-. Learned counsel submits that the impugned addition is neither sustainable

4 in law nor on facts since not supported by any evidence in both the learned lower proceedings. The Revenue, on the other hand, takes us to the Assessing Officer’s detailed discussion in Para 7.1 onwards at page 30 that the departmental authorities had indeed found and seized the corresponding material overwhelming indicating such scrap sales totalling to Rs. 11,12,753/- in issue. We are of the considered view in this factual backdrop that although no interference on our part is warranted with the impugned addition in principle, possibility of the assessee having incurred at least some expenditure regarding the same could not be altogether ruled out. We conclude in this factual backdrop that a lumpsump addition of Rs. 10 lakhs in the given facts would be just and proper with a rider that the same shall not be treated as a precedent. Necessary computation shall follow as per law.

8.

This assessee’s twin appeal ITA Nos. 1024 & 1025/Del/2026 are partly allowed in above terms. A copy of this common order be placed in the respective case files.

Order Pronounced in the Open Court on 29.06.2026. Sd/- Sd/- (SANJAY AWASTHI) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:15.07.2026 *Pooja Mittal, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR

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