JENISH KIRITBHAI SHETH,JAMNAGAR vs. INCOME TAX OFFICER , WARD 1(2) , JAMNAGAR, JAMNAGAR

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ITA 410/RJT/2026Status: DisposedITAT Rajkot08 May 2026AY 2021-229 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that the assessee maintained proper books of accounts, quantitative records, and made payments through banking channels. The sales were also accepted. Therefore, the addition was reduced.

What were the facts?

The assessee's case was selected for scrutiny due to purchases from non-filers or suppliers with low turnover. The Assessing Officer made an addition for alleged non-genuine purchases, which was sustained by the CIT(A) at 12.50% of purchases.

What were the issues?

Whether purchases from suppliers who are non-filers or have filed non-business ITR can be treated as non-genuine, and if so, what is the appropriate addition to be made.

Which sections of the Income-tax Act were involved?

Section 147,Section 143(2),Section 142(1),Section 133(6),Section 37,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC”

Before: Dr. Arjun Lal Saini

Hearing: 07/04/2026Pronounced: 08/05/2026

आयकर अपीलीय अिधकरण, राजकोट �ायपीठ, राजकोट। In The Income Tax Appellate Tribunal, “SMC” Rajkot Bench, Rajkot Before Dr. Arjun Lal Saini, Accountant Member आयकर अपील सं./ ITA No.410/Rjt/2026 �नधा�रण वष�/Assessment Year :2021-2022 Jenish Kiritbhai Sheth, Income Tax Officer, Ward 1(2), बनाम/ 202, Pragati Appartment, Hathi Jamnagar, Vs Colony, Garbi Chowk, Nr. Jain Aayakar Bhawan, P.N. Marg, Vijay Farshan Mart, Jamnagar Jamnagar, Gujarat 361008 361005 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: ABOPS5375D (अपीलाथ�/Appellant) (��यथ�/Respondent) �नधा�रती क� ओर से/Assessee by : Shri Suresh Tejwani, Ld. AR राज�व क� ओर से/Revenue by : Shri Gopi Nath Chaubey, Ld. Sr. DR सुनवाई क� तार�ख/Date of Hearing : 07/04/2026 घोषणा क� तार�ख/Date of Pronouncement : 08/05/2026 आदेश/ORDER Per Dr. Arjun Lal Saini, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year 2021-22, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals), dated 17.03.2026, which in turn arises out of an assessment order passed by Assessing Officer u/s. 147 of the Act on 22.12.2022.

2.

The solitary grievance of the assessee in this appeal is that learned CIT(A) erred in sustaining the estimated addition at the rate of 12.50% of purchases of Rs.5,17,15,884/-.

ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO 3. Succinctly, the factual panorama of the case is that assessee before me is an Individual. The assessee’s case was selected for Scrutiny assessment, under CASS on the following issue: "Assessee has made substantial purchases from suppliers who are either Non-filers or have filed non-business ITR." In this case, the assessee e-filed Return of Income on 16.02.2022 for assessment year (A.Y.) 2021-22, declaring total income at Loss of Rs.43,54,196/-. The case of the assessee was thereafter selected for scrutiny under CASS for reason mentioned above. Notice under section 143(2), dated 28.06.2022, was duly issued and served. Subsequent thereto, statutory notices under section 142(1) were issued calling for details, submissions and explanations on the issue for which the case was selected for scrutiny. The assessee is proprietor of Western Wire Company which is engaged in production of binding wires, nails and barbwire, chain-link, fencing rolls and Shaktiraj Corporation, which is trading in purchase and sale of M.S. scrap. The assessing officer noted that the assessee has made substantial purchases from such suppliers who are either Non-filers or have filed non- business ITR or reflected a substantially lower turnover in ITR as compared to turnover shown in GSTR-1 return. There is a possibility that assessee has booked bogus expenses in order to reduce its profit/taxable income. During the course of assessment proceedings, in response to notices issued u/s 142(1) of the Act, the assessee has submitted his Tax audit report, profit and loss account and the balance sheet along with a copy of his return of income. The information available in the Insight portal of the income tax department details the sales and purchases of the assessee, as retrieved from the GST return filed by the assessee. Upon processing these details alongwith the Income Tax Portal the resultant information contained that some of the goods were purchased from the parties who did not file the return of income. Therefore, notices u/s. 133(6) were issued to the purchase parties which was flagged in the insight portal, wherein the purchase party had not filed the return of income for the captioned assessment year (A.Y.). However, no replies were received from these purchase parties even

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ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO though the notice u/s 133(6) of the Act was delivered to them through the e-filing portal. However, the assessee had filed the reply before the assessing officer.

4.

As per assessee's reply to notice u/s 142(1) of the Act, GST search was conducted in the assessee’s premises on 20.01.2021 and all accounting documents like bills, vouchers, books of account, registers, etc, are impounded by the GST Department. The assessee has submitted copy of panchnama, dated 20.01.2021, drawn by them. The assessee also submitted ledger account of the above parties and Bank statement highlighting the payment and Reconciliation of Sales and Purchases. However, the genuineness of transaction is not proved as the assessee has not submitted any supportive evidences like confirmation from the above parties. With regard to purchases made from Anil Kumar Kripalani for Rs. 27,881.36/-, the assessee replied that he has purchased mobile phone from him and it is recorded in the books of account under the head 'Fixed Asset'. The Profit and Loss account shows total purchases amounting to Rs. 8,67,58,188/-and the corresponding sales shown is Rs. 8,76,01,286/-. The closing stock shown is nil as against the opening stock of Rs. 45,35,499/-. The G.P. ratio shown is - 4.24%. In view of the above, the assessee was show caused on 07.12.2022, as to why a sum of Rs.5,17,43,765/- should not be treated as non-genuine and added to his total income.

5.

In response to the show cause notice issued, the assessee submitted his reply on 12.12.2022. The relevant extract of the reply submitted by the assessee is reproduced as under: “I am in receipt of the captioned show cause notice dated 07 12 2022 wherein I am asked to show cause as to why the proposed aggregate variation of Rs.5,17,43,765/- should not be made to my returned income on account of the alleged non-genuine purchases made from certain parties. In this connection, I strongly object to your proposal of making the aforesaid variations to my returned income on account of the following- Vide this SCN, your Honor has alleged that the purchases made from 4 parties aggregating to Rs.5.17.43.765/- are non-genuine, primarily on the ground that they neither filed their ROI nor responded to notices issued u/s 133(6) of the Act. First of all, it is placed on record that my books of account are duly audited by an independent Chartered Accountant. Further, I have maintained complete quantitative

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ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO records and the copy of the same has already been submitted vide my submission dated 18.08.2022 Further, the fact remains that I am only a trading concern and the quantity sold is duly matched with the quantity purchased. As, there cannot be any sale without corresponding purchase, even if there is some doubt about the parties from whom I have purchased goods, still no adverse inference can be drawn as all the transactions are duly supported by invoices etc and the payment is made through proper banking channel only. Further, since the sales of MS Steel made by me have been accepted, no adverse inference may also be drawn in respect of the purchases of MS Steel made by me. In so far as M/s Mobile World (Prop: Shri Anilkumar Kriplani) is concemed, I had purchased a Mobile phone from him which is duly recorded in my books of account under the head "Fixed Assets". I further submit that the rest of the purchases (from the other three parties) has been claimed as expenditure u/s 37 of the Act which lays down following conditions to claim an expenditure as deduction and the same are as under. Expenditure should not be of capital nature, Expenditure should not be of personal nature, Expenditure should be incurred wholly and exclusively for business purpose. Expenditure should be accrued in relevant assessment year, and Expenditure should not be prohibited under the law. It may kindly be seen from the above that the alleged purchases do not fall in any of the categories and the only basis of the proposed disallowance is that the creditors are alleged to be non-compliant assessees. Sir, first of all, the law doesn't compel me or fastened any liability on me to check whether my creditors have filed their return of income or not. After the operation of GST laws, I am required to see and I can keep a check that whether they have filed their GST returns or not so that I can claim the GST credit on purchases made by me. Further, if there is any non-compliance by them in so far as the GST returns are concerned then every possible effort is made by me to compel them to file their GST returns. However, no such legal requirement is embodied in the Income tax laws that requires me to verify the filing of their IT returns or whether they have filed it properly or whether due taxes have been paid by them. Under the income tax laws, I cannot be penalised even if they do not record sales in their books or they do not file their IT returns or they do not file it correctly or whether they responded to the notices issued u/s 133(6) of the Act to them. Since no such onus is casted upon me, I may not be penalized for their actions. Further, since I am a buyer of goods and the transactions have already been completed, I cannot compel them or ask them to comply with the requisitions sent to them directly by you. 5. In this background, I cannot be held responsible much less purchases can be treated as bogus because of the fact that all the payments have been made through account payee cheques and there is nothing on record either of the GST authorities or the IT authorities that the above sellers either admitted or even any independent enquiry made either by the GST/Income tax authorities led to even remote implication that they had returned the equivalent cash to me in lieu of cheques received by them. No prudent businessman would part with 100% of his money to save 30% of tax. In view of the above factual and legal position. I submit that the proposal of bogus purchases of Rs.5,17,43,765/- drawn by you is completely wrong and baseless. And no addition may thus be made in my case on this ground. Kind attention of your Honor is further invited to my submissions dated 18.08.2022 30:11 2022, 03.12 2022 wherein it was categorically submitted that a search action was carried out at my premises by the GST Department on 20.01.2021 and various documents including the purchase invoices,

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ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO transportation receipts e-way bills etc were seized by them running into more than 1000 pages. I have also submitted the copy of Panchnama dated 20.01.2021 drawn by them. I had also requested the GST Department to supply me a copy of the seized material as I require the same for my on-going Income tax proceedings vide my letter dated 18.11.2022 and a copy of the same was also submitted with you vide my letter dated 30.11.2022. However, nothing has been heard from the GST Department till date and no seized material has been supplied to me despite making specific requests. Since I am not in the possession of the documents asked by you, I am unable to furnish the same. Further at Para 3 of the captioned SCN, you have stated that you had called for the information from the GST Department and from the documents supplied by them, you have observed that they have seized only the Sales / Purchase Bill File. Sales Bill only and not the e-way bills, weigh bills etc. In this connection, at the outset, I request you to supply me a copy of the information / details /documents supplied by the GST Department directly to your Honor. Further, I again place on record that e-way bills etc were seized by them and I do not have copy of the same. And in some of the cases, transportation expenses were borne by the seller and the purchases were on CIF basis hence, I may not be in possession of transportation bills. However, I again file the copy of the relevant ledgers, bank statement reflecting payments made to suppliers/creditors and the month wise product wise quantitative details of the items traded in. Further in view of what has been stated above and further, in absence of any evidence suggesting the alleged purchases to be bogus, no disallowance can be made in my hands merely on conjectures and surmises.

6.

However, the assessing officer, rejected the above contention of the assessee and observed that profit element embedded in these purchases may be taxed. Therefore, assessing officer calculated 12.5% of these purchases, as an estimated addition, that is, (12.5% of Rs.5,17,15,884/-), which works out to Rs.64,64,485/-, as business income and this amount was brought to tax as business income of the assessee.

7.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal, before Ld. CIT(A), who has confirmed the action of the assessing officer. Before learned CIT (A), the assessee argued that once the sale is accepted than purchases are going to be genuine and should be accepted. The assessee submitted e-way bills, details of transportation expenses and in some cases, the transportation expenses were borne by the seller and the purchases were on CIF basis, copy of the relevant ledgers were submitted, bank statement reflecting payments made to suppliers/creditors were submitted and the month

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ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO wise and product wise quantitative details of the items traded, were also submitted before the assessing officer.However, the ld.CIT(A) noticed that it is a settled principle that when corresponding sales have been accepted, it cannot be inferred that no purchases were made at all. In such cases, the practice consistently upheld by judicial forums is to restrict the addition to a reasonable percentage of alleged unverifiable purchases to account for possible inflation of purchase bills and suppression of profit. Hence, the assessing officer's approach of computing a fair addition based on a reasonable margin of 12.5% of unverified purchases aligns with principles of equity and fairness. The assessee further argued before ld.CIT(A) that the assessing officer should have reduced the estimated addition by the gross profit already disclosed. However, learned CIT(A) noticed that the estimation itself is in lieu of profit element embedded in non-genuine purchases and is a substitution for the possible suppression of profits. The assessing officer has already applied a reasonable percentage and no further set-off is warranted in this case. Accordingly, the addition of Rs.64,64,485/- made by the assessing officer was upheld by ld.CIT(A).

8.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal.

9.

Learned Counsel for the assessee submitted that the purchases were genuine and duly recorded in the books of accounts, but the supporting bills and vouchers could not be produced since the documents had been seized by the GST Department. The assessee submitted before the assessing officer, ledger extracts, month-wise and product-wise quantitative details, and banking channel payments to claim that the transactions were genuine, books of accounts were audited, hence, no addition should be made in the hands of the assessee.

10.

Alternatively, and without prejudice to the above, learned Counsel for the assessee submitted that the Assessing Officer made the addition to the tune of

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ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO Rs.64,64,485/-, that is, @12.5% of purchases, which is on very higher side, particularly when sale of the assessee has not been disputed, therefore, addition made by the assessing officer, should be either deleted fully or an estimated addition @2% may be made in the hands of the assessee to meet the end of justice.

11.

On the other hand, Ld. DR for the revenue submitted that the assessee has failed to discharge the onus of proving the genuineness of the purchases and has not brought on record any cogent evidence to prove that purchases are genuine, hence, estimated addition on purchases @12.5% is sufficient to cover the leakage of the revenue. Therefore, no further relief should be given to the assessee.

12.

I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I note that assessee has been filing GST return regularly and the GST Department has not doubted that the assessee has admitted the bogus purchases. That is, these is no conclusion of GST department that assessee had made bogus purchase. The assessee has been filing GST return regularly and disclosing the name and address of the parties from whom the assessee purchases the goods. The assessee had also shown the purchases in the profit and loss account and corresponding sales of the assessee, shown in the audited profit and loss account, has not been doubted by the assessing officer. I note that books of account of the assessee are duly audited by an independent Chartered Accountant, and the assessing officer did not find any defect in the Books of accounts. Further, the assessee has maintained complete quantitative records, month- wise and product- wise quantitative details are maintained by the assessee, which were audited by the Chartered Accountant and which were submitted to the assessing officer during the assessment proceedings. Further, the facts examined by me, clearly states that assessee is a trading concern

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ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO and the quantity sold is duly matched with the quantity purchased. As, there cannot be any sale without corresponding purchase, even if there is some doubt about the parties from whom assessee had purchased goods, still no adverse inference can be drawn as all the transactions are duly supported by invoices, bills, transportation bills and all purchases are reflected in the GST returns, and the payment is made through proper banking channel only. Further, since the sales of MS Steel made by assessee have been accepted, by the assessing officer, hence no adverse inference may also be drawn in respect of the purchases of MS Steel made by assessee.

13.

I further note that purchases cannot be treated as bogus because of the fact that all the payments have been made through account payee cheques and there is nothing on record either of the GST authorities or the Income Tax authorities that the above sellers either admitted or even any independent enquiry made either by the GST/Income tax authorities, which led to even remote implication that they had returned the equivalent cash to assessee in lieu of cheques received by them. Therefore, considering these facts and circumstances of the case, I note that the profit estimation done by the assessing officer, is on very higher side.Therefore, I find merit in the submissions of ld. Counsel for the assessee to the effect that profit rate sustained by the ld CIT(A), on purchases is at very higher side. Therefore, considering the nature of business, I proceed to work out the estimation of profit keeping in mind the following facts:

(i)The estimate is not opened up to be framed in an arbitrary manner. (ii)The estimate by rule of thumb is absolutely infirm. (iii)The estimation of rate of profit return must necessarily vary with the nature of the business. (iv)There cannot be any uniform yardstick.

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ITA No.410/Rjt/2026 Jenish Kiritbhai Sheth v. ITO (vi)An assessment to be best of judgement can only be based on the material available on record and past records and considering the totality of the facts. (v) Only real income and neither notional income nor astronomical income, can be taxed under the Income Tax Act, 1961.

14.

Accordingly, I hereby estimate the profit on purchases at the rate of 6% keeping in mind that the method to be adopted for estimation, must be, which is approximately nearer to the truth. Hence, the addition should be made in the hands of the assessee by applying the reasonable rate of profit, which is @6%, therefore total estimated addition comes to Rs.31,02,953/- (6% of Rs.5,17,15,88/- ). Accordingly, I direct the assessing officer to make the addition in the hands of the assessee to the tune of Rs.31,02,953/-, as business income. Therefore, assessee’s appeal is partly allowed, in above terms.

15.

In the result, appeal filed by the assessee, is partly allowed, in above terms.

Order is pronounced in the open court on 08/05/2026.

Sd/- [ Dr. Arjun Lal Saini ] लेखा सद�य/Accountant Member //True Copy// राजकोट/Rajkot िदनांक/ Date: 08/05/2026 Copy of the order forwarded to : 1. The assessee 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, RAJKOT 6. Guard File By order

Assistant Registrar/Sr. P.S./P.S. ITAT, Rajkot

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