ANOWAR HOSSAIN MONDAL,GUSHKARA, PURBA BURDWAN vs. I.T.O., WARD - 2(1), BURDWAN

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2018-19 dated 04.11.2025. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:

“1. That on the facts and in the circumstances of the case the Ld. CIT(A), NFAC is wrong, unjust and has erred in law in confirming the addition made by the Ld.AO, NFAC merely on surmises and suspicion, without recording justifiable dissatisfaction with the appellant's explanations regarding the genuineness of purchases.

“6. Ground wise Findings and Decision of the appellate authority Ground No. 1 - Validity of Reassessment Proceedings The appellant contends that the AO initiated proceedings merely based on information from the Investigation Wing without independent application of mind or tangible material linking escapement of income to the appellant. Finding: Perusal of the records shows that the information from the Investigation Wing was specific and credible, indicating that the appellant was a direct beneficiary of accommodation entries in the form of bogus purchases from M/s Rajbhar Trade Commercial during the relevant year. The AO recorded reasons citing such tangible material, obtained satisfaction, and issued notice u/s 148A(b), giving the assessee an opportunity to respond. Subsequent approval u/s 151 was duly obtained. The satisfaction recorded is neither mechanical nor general in nature, rather, it contains a live nexus between the information and formation of belief of escapement. Judicial precedents (Raymond Woollen Mills Ltd. v. ITO, 236 ITR 34 (SC), ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (SC)) have held that sufficiency of material is not to be examined at this stage, only the existence of tangible material and bona fide belief is relevant. Accordingly, the reassessment proceedings are found valid and sustainable. Ground No. 1 is dismissed. Ground Nos. 2 & 3-Addition of 15,08,950/- towards Bogus Purchases The main issue for consideration is whether purchases shown by the assessee from M/s Rajbhar Trade Commercial amounting to 15,08,950/- are genuine or bogus. (i) Appellant's Submission The assessee argued that: i) Purchases were supported by bills, bank payments (RTGS), and confirmations. ii) Goods were used in government contract works, iii) Merely because the supplier is not found at the address after six years does not render the transaction non-genuine. iv) Sales corresponding to purchases were accepted. v) Relied on several judicial pronouncements (e.g., Vaman International Pvt. Ltd. Mohammad Haji Adam & Co., etc.) contending that entire purchase should not be disallowed. (ii) Findings and Discussion The AO made detailed verification which revealed: i) Non-existence of supplier: Field enquiry report from the Investigation Wing categorically stated that M/s Rajbhar Trade Commercial was not operating at the stated address. The concern had no fixed assets, infrastructure, or stock, and was used as a paper entity to issue GST invoices. ii) Non-response to statutory notices: Notices issued u/s 133(6) remained unserved. No confirmation or evidence directly from the supplier was produced.

iii) Transport details unverifiable: The vehicles mentioned in invoices were found either de-registered or non-operational during the relevant period, proving that actual movement of goods could not be established. iv) No evidence of actual delivery: Apart from self-generated invoices and bank payments, no delivery challans, weighment slips, or transport receipts were produced to substantiate physical receipt of goods. It is settled law that mere payment by cheque or existence of invoice is not sufficient to prove genuineness of a transaction unless the supplier's identity, capacity, and genuineness of transaction are established. (Refer. CIT v. Precision Finance Pvt. Ltd. 208 ITR 465 (Cal), N.K. Proteins Ltd. v. DCIT 292 CTR 354 (SC)). The appellant's reliance on Vaman International Pvt. Ltd. and Mohammad Haji Adam & Co. is distinguishable. In those cases, the purchases were partly proved through stock reconciliation and sales linkage, whereas in the present case, the supplier has been conclusively found to be a non-existent accommodation entry provider. No independent corroborative evidence of actual delivery or consumption has been demonstrated. The plea that goods were utilized in government contracts remains unsubstantiated, as no work order-wise material consumption register or certificate from the Panchayat authorities linking these specific purchases was furnished. In view of the above, the purchases remain unverified and unverifiable. The AO's action in treating the same as bogus and disallowing u/s 69C is justified. Further, once the purchases are proved to be bogus, the corresponding expenditure is deemed to be unexplained under section 69C. The deeming fiction squarely applies since the assessee failed to satisfactorily explain the source and genuineness of the expenditure. (iii) Judicial Position The Hon'ble Supreme Court in N.K. Proteins Ltd. v. DCIT (2017) held that once it is established that the assessee obtained accommodation entries and not actual goods, the entire amount of such bogus purchases is liable to be added. Similarly, CIT v. La Medica 250 ITR 575 (Del) and Sumati Dayal v. CIT 214 ITR 801 (SC) emphasize that surrounding circumstances and human probabilities must be considered rather than mere documents. Hence, in view of overwhelming evidence that the supplier was a non- genuine entity, and the appellant failed to discharge the onus of proving genuineness of purchase, the entire addition of 15,08,950/- u/s 69C is upheld. Ground Nos. 2 & 3 are dismissed. Ground No. 4 - Interest Income Discrepancy The AO noticed a difference of 78,170/- between interest income declared in the original and revised returns. The appellant has not provided any cogent explanation for such variation either during assessment or appellate proceedings. Therefore, the AO's action is found correct. Ground No. 4 is dismissed.

The appeal is dismissed in toto. The assessment order u/s 147 r.w.s. 143(3) dated 10.03.2023 is confirmed.”

■ It was nobody's case that both the sales and purchases are unaccounted. If that be so and the purchases have been recorded in books of account by accommodation entry, then same gets automatically reflected in the books of account. In the instant case, since the purchases are recorded by accommodation entry in the books of account and sales have not been disputed, the Commissioner (Appeals) was not justified in estimating the profit, when the basis of addition was not low profit. [Para 19] ■ The Tribunal also mi irected itself by approaching the issue with the erroneous belief that it was estimating profit. In fact, the issue before the Tribunal was whether the Commissioner (Appeals) was justified in not confirming entire purchase additions. Therefore, to that extent, the Tribunal too mi irected itself by approaching the issue solely based on estimating profit. [Para 20] ■ It is viewed that both the Appellate Authorities ought to have appreciated that the issue before them was whether the assessee had proved the purchases of which the claim for deduction was made. The assessee, having failed to discharge its onus on this issue before all three authorities, it is viewed that the additions made in the assessment order by the Assessing Officer was justified. [Para 21] ■ If the approach of the Appellate Authorities of estimating the profit on such purchases is to be accepted, then, in effect, the consequence would be that even if assessee has failed to prove its claim of deduction of purchases, still by estimating profit, impliedly deduction of purchases is given. For example, if the purchases by accommodation entries are Rs.100 and a profit of 10 per cent is estimated, then to the extent of Rs.90 deduction on account of purchases is deemed to have been given by the Appellate Authorities. This approach would not be correct since it is nobody's case that the assessee has made sales out of books by purchasing the goods out of books. [Para 22] ■ If the approach of the Appellate Authorities is accepted, then the provision of section 69C, which is an enabling provision, would become redundant. Section 69C provides that where an assessee has incurred any expenditure and offers no explanation about the source of expenditure or the explanation offered is not in the opinion of the Assessing Officer satisfactory, then the amount of expenditure may be deemed to be the income of the assessee and such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. It is viewed that if the approach of the Commissioner (Appeals) and the Tribunal is accepted, then it would amount to endorsing outright conduct of illegality, contrary to the express provisions of section 69C, which the Appellate Authorities have entirely ignored. In the above example, by estimating 10 per cent and thereby impliedly giving a deduction of Rs.90, in ITA No(s). 3245/KOL/2025 Assessment Year(s) 2018-19 the teeth of the provisions of section 69C, which expressly bars the allowability of unexplained expenditure. [Para 23] ■ The assessee relied upon the details of sundry debtors and sundry creditors filed during the original assessment proceedings under Section 143(3) to contend that the details of purchases have been furnished. These details were furnished in the course of the original assessment proceedings under section 143(3) and not during the re-assessment proceedings. This fact has been admitted by the respondent-assessee. After the original assessment order under Section 143(3), the revenue, on the basis of the information received from the DGIT (Inv.)/Sales Tax Department, reopened the case on the ground that the purchases made by the respondent-assessee are from hawala operator. Therefore, the details of sundry debtors and creditors filed in the original assessment proceedings do not absolve the respondent-assessee from proving the source of the purchases in the course of the re-assessment proceedings. On the contrary, on account of reasons for which case was reopened, the onus was more to prove purchases which respondent-assessee has totally failed. [Para 28] ■ The re-assessment proceedings were initiated for this very reason that the purchases which were accepted in the original assessment proceedings are non-genuine after the passing of the assessment order. The respondent- assessee chose not to attend the re-assessment proceedings even though the notices were sent to the respondent-assessee by post, email and affixture. The CIT(A) has given a finding that the address of the petitioner mentioned in the assessment order and in Form No.35, which is an appeal filed by the respondent-assessee, is same and the respondent-assessee intentionally did not accept notice sent by post. The CIT(A) has also given a finding that notices sent by email have not bounced back and there is no rebuttal to the affixture of notice on the office of the respondent-assessee. [Para 29] ■ The assessee having consciously and intentionally decided not to join the investigation, cannot now contend that the revenue should have given them all the details before making the addition. Such a conduct of the assessee cannot be accepted. It was incumbent upon the assessee to have joined the reassessment proceedings, discharge the initial onus of proving the purchases and seek details, if any. Having not joined the reassessment proceedings, the contentions raised by the assessee on this issue are to be rejected.[Para 30] ■ The submission of assessee that if this addition made by the AO is sustained, then profit rate would be exorbitant and therefore addition should be deleted is to be rejected. The fallacy of this argument is that the AO has not made the addition because of low profit. The addition was made because the assessee failed to prove genuineness of purchases because of allegation of purchases by accommodation entries as explained above. If contention of assessee is accepted, then every addition would have to be deleted if related to business deduction. Such a submission is to be rejected outright. [Para 31] ■ The Commissioner (Appeals) has given a clear finding of fact that the assessee was involved in getting bogus bills. This finding has not been challenged by the assessee before the Tribunal, and only submission made before the Tribunal was on the estimation of gross profit. [Para 34] ■ The question of law admitted in this appeal states explicitly that neither of the Appellate Authorities has considered the provisions of section 69C. [Para 36] ■ The assessee has not made any submissions on the provisions of section 69C, although the same were explicitly framed in the admission order and relied upon by the revenue in the course of the hearing. Therefore, the only conclusion that can be arrived at is that the assessee does not dispute the applicability of the provisions of section 69C to its facts. [Para 37] ■ It is viewed that in the instant case, the assessee has offered no explanation of the source of the expenditure incurred on account of purchases and, therefore, the Assessing Officer was justified in making an addition of the said amount and the Appellate Authorities were not justified in estimating the profit rate and thereby impliedly grant deduction of such unexplained expenditure which is contrary to the express provision of section 69C. [Para 38] ■ In the instant case, the assessee has not appeared in the reassessment proceedings to discharge its onus on proving purchase transactions under consideration. Before the Commissioner (Appeals) for the first time, scanty details of sundry debtors, creditors and stocks were given. The Commissioner (Appeals) gave a finding of the assessee's involvement in bogus transaction. Therefore, the finding of the Assessing Officer on the genuineness of the purchases was confirmed by the Commissioner (Appeals). Before the Tribunal, the assessee has not canvassed any submission on the genuineness of the purchases but only pleaded for an estimation of a certain percentage of such bogus purchases to be added. Therefore, before all three authorities, the assessee has not proved the genuineness of the purchases, which inter alia include the source of making the payment for such purchases. In the light of these factual findings by three authorities, today before the High Court, the assessee's submissions that they have discharged the onus cast upon them to prove the genuineness of the purchases, including the source cannot be accepted. [Para 39] ■ In view of the above, the appeal of the revenue is allowed by answering the question in favour of the revenue and against the assessee.

Consequently, the order of the Assessing Officer is restored, and the order passed by Commissioner (Appeals) and the Tribunal is reversed. However, it is made clear that the aggregate addition after considering the Commissioner (Appeals) and the Tribunal's order should not exceed Rs.20.07 crores. [Para 40]”

Copy of the order forwarded to: