SATISH KUMAR,PATIALA vs. DEPUTY COIMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, CHANDIGARH, CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH PHYSICAL HEARING BEFORE HON’BLE SHRI LALIET KUMAR, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM 1. आयकर अपील सं. / ITA No.1446/CHANDI/2025 (िनधा�रण वष� / Assessment Year: 2014-15) & 2. आयकर अपील सं. / ITA No.1447/CHANDI/2025 (िनधा�रण वष� / Assessment Year: 2015-16) & 3. आयकर अपील सं. / ITA No.1448/CHANDI/2025 (िनधा�रण वष� / Assessment Year: 2016-17) & 4. आयकर अपील सं. / ITA No.1449/CHANDI/2025 (िनधा�रण वष� / Assessment Year: 2017-18) & 5. आयकर अपील सं. / ITA No.1450/CHANDI/2025 (िनधा�रण वष� / Assessment Year: 2018-19) Shri Satish Kumar DCIT, Central Circle-1 बनाम/ #388, Ward -4, Near Ramu Photostat Ground Floor, C.R. Building Saligram Street, Bhagat Singh Chowk, Sector – 17, Chandigarh Vs. Patiala, Punjab – 147105 �ायीलेखासं./जीआइआरसं./PAN/GIR No. AGYPK-9758-R (अपीलाथ�/Appellant) (��थ� / Respondent) : अपीलाथ�कीओरसे/ Appellant by : Sh. Ashwani Kumar (CA), Sh. Aditya Kumar (CA) and Ms. Deepali Aggarwal (CA) – Ld. ARs ��थ�कीओरसे/Respondent by : Dr. Ranjit Kaur (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 18-05-2026

घोषणाकीतारीख /Date of Pronouncement 02-06-2026 : आदेश / O R D E R Per Bench 1. Aforesaid appeals by assessee for Assessment Years (AY) 2014- 15 to 2018-19 have identical facts and issues. First, we take up appeal for AY 2014-15 which arises out of an order of learned Commissioner of Income Tax (Appeals)-3, Gurgaon [CIT(A)] dated 15-09-2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) r.w.s. 147 of the Act on 10-03-2022. The impugned order is a common order for AYs 2014-15 to 2018-19. The grounds of appeal read as under: i) That order passed u/s 250(6) by the Learned Commissioner of Income Tax (Appeals)- 3, Gurgaon is against law and facts on the file is as much as he was not justified to uphold the action of the Learned Assessing Officer in resorting to reopening of assessment by invoking provisions of Section 147. ii) That the Learned CIT(A) gravely erred in not appreciating that the approval u/s 151 of the Act was purely mechanical, casual and ritualistic and without any application of mind, resulting in the reopening illegal and void. iii) That the Learned CIT(A) gravely erred in sustaining the addition of Rs.5,02,512/- being 2.5 per cent of the sales and purchases made to M/s S. P. Singla Group as presumptive commission. iv) That the Learned CIT(A) was not justified to uphold the action of the Learned Assessing Officer in coming to arbitrary conclusion that sales and purchases made to M/s S. P. Singla Group are bogus. v) That the Learned CIT(A) was not justified to uphold the addition despite the fact that no opportunity to cross examine Sh. Vikram Singh and Sh. Balvir Singh, whose statement was heavily relied upon by the Learned Assessing Officer, was provided to the appellant. vi) That the order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 is bad in law in as much as action ought to have been taken u/s 153C of the Act as the reopening has been made on the basis of alleged evidence found during the course of search u/s 132 on 09.08.2018 at the premises of M/s S. P. Singla Group of cases.

As is evident, the assessee has assailed the reassessment proceedings on legal grounds besides assailing quantum addition on mertis. 2. The Ld. AR advanced arguments on legal grounds as well as on merits and supported the case of the assessee. Reference has been made to supporting case laws, the copies of which have been placed on record. The Ld. Sr. DR also advanced arguments supporting the orders of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 3.1 The assessee being resident individual was running two proprietorship concerns viz. Shree Radhey Traders and Shree Ganesh Enterprises. The regular return of income as filed by the assessee was initially processed u/s 143(1). However, the case was reopened pursuant to survey action u/s 133A on Shree Radhey Traders (prop. Shri Satish Kumar) on 07-09-2018 by the investigation wing in connection with search & seizure operation u/s 132 conducted by the department on M/s S.P. Singla Group on 09-08-2018. The Ld. Ao recorded reasons to reopen the case of the assessee wherein Ld. AO made reference to the statement of one Shri Balvir Singh (Accountant of Shree Radhey Traders) and also to the statement of Shri Satish Kumar (assessee). It was observed therein that during survey proceedings, the purchases made by Shree Radhey Traders were verified and on such verification, it was found that the purchases were made by it from another proprietorship concern of the assessee viz.

Shree Ganesh Enterprises. Upon further verification, it was found that purchases were made by Shree Ganesh Enterprises from another concern in the name of Shree Balaji Traders (prop. Shri Vikram Singh). During survey, statement of Shri Balvir Singh (Accountant of Shree Radhey Traders) was recorded wherein he was confronted with genuineness of purchases made from Shree Balaji Traders. It was stated by him that mere exchange of bills took place between the above concern and no actual material was supplied against the said bill. Shri Satish Kumar (assessee), in recorded statement, failed to provide the requisite details. He was also confronted with the fact that the net profit as declared by the assessee was only 1.5% of total sales made by him which was much lower when compared with business of same nature. A commission u/s 131(1)(d) was issued to Shri Vikram Singh prop. Shree Balaji Traders who did not have any designated office or shop. Further, his house was located in a very poor locality of a village which was not commensurate with the profile of the businessman declaring turnover worth several crores. In the recorded statement, he stated that majority of sales were done to two proprietorship concerns of the assessee and also to another entity viz. M/s Mahadev Stone Crusher Co. He did not maintain transportation bills and also failed to give details of his suppliers. He also failed to produce copy of account of the three concerns and merely stated that the copy of accounts was lying with his CA in Rajasthan. All the above findings would indicate that the two entities of the assessee were mere book entities which were merely into providing bills without any actual

supply of material. Therefore, the purchase entries taken by M/s S.P. Singla Construction Pvt. Ltd. from these two concerns of the assessee were bogus in nature and the same needed to be disallowed. Shree Radhey Traders provided supplies to the tune of Rs.78,19,108/- during this year. All the sales made by Shri Ganesh Enterprises to M/s S.P. Singla Constructions Pvt. Ltd. were bogus in nature and the assessee was just providing bogus bills on commission basis. The commission percentage on such kind of business would usually be around 2% to 3%. The judicious rate of commission of 2.5% was to be considered on assessee’s total sales. The total escaped income was thus arrived at Rs.1,95,477/- which was required to the taxed. Accordingly, after forming belief of escapement of income in this manner, notice u/s 148 was issued by Ld. AO to the assessee on 27-03-2021. 3.2 In response, the assessee offered same income of Rs.3.15 Lacs. During the course of reassessment proceedings, this issue was confronted to the assessee. The assessee assailed the reopening on the ground that reasons were recorded on borrowed satisfaction and the reopening was in a mechanical manner. However, the legal ground stood rejected by Ld. AO on the ground that the reasons were recorded on the basis of credible information gathered during the course of survey u/s 133A on Shree Radhey Traders. No regular assessment was framed for this year. The case of the assessee was covered under Clause (b) of Explanation-2 to Sec.147. The belief was formed on the basis of concrete information after due application of mind to the facts

of the case and as per the information available with the department at the time of recording of reasons. 3.3 On merits, it transpired that the assessee was involved in wholesale business and retail trading of construction material. The assessee contended that Shri Balvir Singh joined the assessee firm during FY 2016-17 only and sole reliance was placed on his statement without any independent verification of the facts. The same does not prove that during FY 2014-15, the assessee was not carrying out any business activity or it was a sham entity. Further, Shri Radhey Traders did not make any business transaction with Shree Balaji Traders during this year and reassessment proceedings were initiated on vague, non- existing and incorrect reasons. The assessee stated that all the purchases and sales transactions was carried out through banking channels which was evident from Bank statement, VAT registration documents, copies of account of Sundry Creditors as well as copy of account of Sundry Debtors as furnished to Ld. AO. The assessee made sales to various other entities also for which the purchases were made from another entity viz. M/s Bhagwati Enterprises. The sales were duly evidenced by Sales invoices, material receipt note issued by the purchaser, challan receipts, dharam kanta receipts issued at the time of actual weighment of goods in transporting vehicles etc. Further, the allegation was purely based on conclusions drawn in respect of status of Shri Vikram Singh from whom the assessee had been making purchases starting from 31-01-2018 i.e., from AY 2018-19 onwards only. The conclusion of Ld. AO qua escapement of income was not

applicable for this year since the assessee did not carry out any business transaction with Shree Balaji Traders. No independent verification was done by Ld. AO and the entire proceedings were based on conjectures and surmises only. The allegation was made simply by referring to the living standard of Shri Vikram Singh who was merely one of the suppliers and that too, from AY 2018-19 onwards. The assessee also raised a plea that no opportunity of cross-examination of persons making statements against the assessee was ever provided to the assessee which run contrary to the decision of Hon’ble Apex Court in the case of Andaman Timber Industries vs. CCE (281 CTR 0241). Lastly, the assessee achieved net profit of Rs.2.28 Lacs which was higher than the proposed presumptive commission and therefore, no adverse inference was warranted. 3.4 It was noted by Ld. AO that the assessee made sales of Rs.122.80 Lacs to 6 entities whereas it made purchases of Rs.78.19 Lacs which included retail sales as well as purchases made from M/s Bhagwati Enterprises. Going by the statement of the assessee as well as statement of Shri Balvir Singh and Shri Vikarm Singh, all the contentions of the assessee stood rejected by Ld. AO and he continued to allege that the assessee issued bogus bills against commission. No transportation bilties were furnished by the assessee but the assessee only furnished material receipts which could not be subjected to third party verification. Further, no toll tax challan copies were filed by the assessee to enable independent verification. Finally, the books of the assessee were rejected and Ld. AO estimated commission rate of

2.5% on sale of Rs.122.80 Lacs as well as on purchases for Rs.78.19 Lacs. The said estimation yielded commission income of Rs.5.02 Lacs which was added to the returned income of Rs.3.15 Lacs and assessed income was arrived at Rs.8.17 Lacs. Aggrieved, the assessee preferred further appeal against the same. Appellate Proceedings 4. The assessee questioned the reassessment jurisdiction of Ld. AO on various legal grounds and also assailed the impugned additions on merits by way of detailed written submissions which have already been extracted in the impugned order. The adjudication of Ld. CIT(A) is contained in para 4.2 onwards. The Ld. CIT(A) rejected the legal argument on the ground that Ld. AO had sufficient material and concrete information with him to reopen the case of the assessee. The assessee’s objection to mechanical approval u/s 151 stood rejected on the ground that the approval was an administrative action which is required to be based on set of circumstances and subjective satisfaction as per the provisions of the Act. In the present case, the approval was accorded after due examination and verification by the Range Head. The Ld. AO was correct in placing reliance on the recorded statements of key persons and the books were rightly rejected. Considering the recorded statements, Ld. AO was justified in rejecting the books of accounts and making addition of commission income. Finally, the appeals for all the years were rejected by way of common order against which the assessee is in further appeals before us.

Our findings and Adjudication 5. From the enumerated facts, it emerges that the assessee has carried out wholesale and retail trading of construction material during this year. The whole case of Ld. AO is based on survey action on the assessee wherein the statement of the assessee as well as the statement of assessee’s accountant Shri Balvir Singh was recorded. The Ld. AO placed heavy reliance on the statement of Shri Vikram Singh to reach a conclusion that the sales made by Shri Balaji Traders to Shree Radhey Traders were bogus in nature. However, the clinching fact remains that the assessee has not made any purchases from Shri Balaji Traders during this year. The only purchases as made by the assessee are from M/s Bhagwati Enterprises and other retail purchases which have not, at all, been doubted by Ld. AO. Further, in support of its sales and purchases, the assessee duly furnished plethora of documents which include confirmation from sundry creditors and sundry debtors, bank statement evidencing exchange of funds through banking channels, VAT registration documents etc. The assessee made sales to various entities in support of which the assessee had furnished sales invoices, material receipt note issued by the purchaser, challan receipts, dharam kanta receipts issued at the time of actual weighment of goods in transporting vehicles etc. None of these documents are found to be untrue. The accounts of the assessee are duly audited under law and no defect has been pointed out by Ld. AO in the books of accounts of the assessee. The assessee, in our considered opinion, had duly discharged its onus of substantiating its

trading activities. The onus was on Ld. AO to controvert the claim of the assessee. However, no independent verification has been carried out on any of the trading transactions and no material evidence has been brought on record by Ld. AO to controvert the claim of the assessee. The whole case of Ld. AO has been founded on recorded statements alone which also do not indicate that the transactions of the assessee were bogus in nature. When the assessee has not made any purchases from Shree Balaji Traders during the year, there is no question of any escapement of income in assessee’s case. In the recorded reasons, Ld. AO has also referred to low profit rate as declared by the assessee on its turnover to justify reopening which run contrary to the allegation that the assessee’s entities were bogus in nature. On the facts of the case, it was to be concluded that the reopening was based on wholly irrelevant facts and the reasons were recorded in a mechanical manner on borrowed satisfaction without due application of mind. No tangible material has been brought on record by Ld. AO which would indicate any escapement of income in the hands of the assessee. We, therefore, find substantial force in legal arguments of Ld. AR. Further, the addition, on merits, could also not be sustained since the assessee has duly discharged its onus of substantiating the trading transactions whereas the action of Ld. AO in estimating commission rate of 2.5% on purchases as well as on sales is devoid of any merits. The said computation is merely on suspicion, conjectures and surmises without there being any material evidence on record to support the same. The rejection of books could not be held to

be justified. In fact, Ld. AO has accepted the returned income of the assessee which is based on assessee’s regular books of accounts only. The returned income has further been enhanced by commission income which is wholly unjustified and amount to double addition. Accordingly, we find no reason to sustain the impugned additions on merits also. By deleting the same, we allow the appeal of the assessee on legal grounds as well as on merits. 6. The assessment for AY 2015-16 has been reopened and the assessment has been framed on similar lines. The assessee has not made any purchases from Shree Balaji Traders during this year also. The Ld. AO, taking the same view, enhanced returned income by estimated commission income of 2.5% on sales as well as on purchases. Similar are the facts in AYs 2016-17 & 2017-18. The facts in AY 2018-19 are substantially the same except for the fact that the assessee has made purchases from Shree Balaji Traders during this year. However, the assessee has furnished all the requisite documents in support of its trading transactions and we see no reason to take a different view in this year also. The impugned order is common order for AYs 2014-15 to 2018-19. Facts being pari-materia the same, our adjudication as for AY 2014-15 shall, mutatis-mutandis, apply to all these assessment years also. The impugned addition, for all the years, stands deleted accordingly. 7. All the appeals stand allowed in terms of our above order. Order pronounced on 02nd June, 2026.

-Sd- -Sd- (LALIET KUMAR) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AS Dated: 02-06-2026 आदेश की �ितिलिप अ�ेिषत /Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

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ITAT CHANDIGARH