HYT ENGINEERING COMPANY PVT.LTD,PUNE vs. ACIT CENTRAL CIRCLE-2(3), PUNE

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ITA 2101/PUN/2025Status: DisposedITAT Pune07 May 2026AY 2018-1924 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while some purchases were non-genuine, the addition should be restricted to net profit. For condemned machinery, the addition to closing stock was limited to its fair market value as scrap, not the full purchase price.

What were the facts?

The assessee company's purchases from two parties were deemed non-genuine by the AO due to lack of purchase orders, leading to an addition. Additionally, the AO added the full value of condemned machinery to closing stock, alleging under-reporting.

What were the issues?

Whether purchases without purchase orders are to be treated as non-genuine, and how condemned machinery should be valued for closing stock purposes.

Which sections of the Income-tax Act were involved?

Section 133A,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCHES “A”, PUNE

Before: DR.MANISH BORAD & SHRI VINAY BHAMORE

For Appellant: Shri Kishor B. Phadke
For Respondent: Shri Aviyogi Ambadkar
Hearing: 25.03.2026Pronounced: 07.05.2026

PER DR. MANISH BORAD, ACCOUNTANT MEMBER :

The captioned appeal at the instance of assessee pertaining to A.Y. 2018-19 is directed against the order dated 22.07.2025 framed by CIT(A) Pune-12 arising out of Assessment Order dated 11.03.2021 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

2.

Assessee has raised following grounds of appeal :

“1. The learned CIT(A) erred in law and on facts in confirming the order of learned AO by assessing total income at Rs.46,55,09,229, instead of returned income of Rs.41,11,94,560, thereby confirming the addition of Rs.5,43,14,669. 2. The learned I-T Authorities erred in law and on facts in making an addition of Rs.1,56,88,280 on account of alleged non genuine purchases merely because the appellant failed to furnish the purchase orders in this regard, without appreciating the fact that various details were submitted before I-T Authorities in order to substantiate the said purchases.

3.

Alternatively & without prejudice to Ground No. 2 above, the learned I-T Authorities erred in law and on facts in not restricting the addition to the extent of net profit percentage on such alleged non genuine purchases since the addition is based merely on the basis of non availability of purchase order.

4.

The learned I-T Authorities erred in law and on facts in making an addition of Rs. 3,86,26,389 on account of under-reporting of closing stock of condemned machines without appreciating the fact that the value of said machines in commercial world is scrap value only and the addition, if any, on account of under-reporting of closing stock of condemned machines needs to be restricted to Net Realizable Value as certified by the Chartered Engineer.

5.

Alternatively & without prejudice to Ground No. 4 above, the learned I-T Authorities erred in law and on facts in making addition of gross amount on account of under-reporting of closing stock of condemned machines instead of net amount i.e. net of GST.

6.

Appellant craves leave to add, alter, clarify, explain, modify, delete any of the grounds of appeal, and to seek any just and fair relief.”

3.

Brief facts of the case are that the assessee is a Private Limited company engaged in the manufacturing of special purpose machines and rendering related services. Original return of income for A.Y. 2018-19 e-filed on 14.03.2019 declaring total income of Rs.41,11,94,560/-. Survey action u/s.133A of the Act was conducted at the assessee’s business premised on 29.01.2019. During the course of survey, purchase of material from two parties namely N.L. Bhandari in short ‘NLB’ and Bhandari Steel Yard (in short ‘BSY’) were found to be made without purchase order. Also the required documents such as delivery challan, goods receipt note were not available for verification. Mr.Bhojraj Teli offered the amount of Rs.3,89,90,360/- for taxation of the alleged bogus purchases which included the purchases of Rs.1,86,08,811/-

for A.Y. 2018-19. Similarly there were certain issues observed by survey team regarding under reporting of closing stock by not including the value of condemned machineries purchased and the transactions were spread during A.Y. 2018-19 and A.Y. 2019-20. Based on these information, the case of the assessee selected for complete scrutiny under CASS followed by validly serving notice u/s.143(2) of the Act.

4.

During the course of assessment proceedings, the assessee pleaded that the alleged purchases from NLB and BSY at Rs.11,03,392/- and Rs.1,75,04,419/- are genuine purchases and GST has been paid and GSTR-2A furnished. Copies of invoices and delivery challans are also furnished. Payments were made through account payee cheques. It was submitted that only for non furnishing of purchase order the alleged purchases should not treated as bogus. However, ld. Assessing Officer was not satisfied with these submissions and treated the purchases from NLB and BSY as bogus and made the addition at Rs.1,56,88,280/- which is net off GST.

5.

Further regarding the under reporting of closing stock of condemned machinery, ld. AO observed that assessee purchased machineries from HYT-SAM India (JV) which were previously purchased from Integral Coach Factory (ICF) and this purchases was also spread from A.Y. 2018-19 to A.Y. 2019-20. Purchases for A.Y. 2018-19 amounted to Rs.3,86,26,389/-. However, these purchases were not included in the closing stock resulting into under valuation of closing stock. It was claimed by the assessee that in lieu of huge contract of Rs.233.07 crore received from ICF through

Joint Venture, i.e. HYT-SAM India (JV) the assessee had to purchase the condemned machineries, however, the Fair Market Value of these machineries were much lower and therefore since the assessee values the stock ‘at cost or market value whichever is less’ therefore only Fair Market Value of the condemned machinery should be brought to tax. However, these submissions could not satisfy the AO and did not agree to the contentions made during the course of assessment proceedings and made the addition for underreporting of closing stock of condemned machinery at Rs.3,86,26,389/-. Income assessed at Rs.46,55,09,229/-.

6.

Aggrieved assessee preferred before the ld.CIT(A) and reiterated the submissions as made before AO, however, ld.CIT(A) was not satisfied and confirmed the impugned additions observing as follows :

Finding confirming the disallowance for bogus purchases : “Findings and Decision of the Appellate Authority:

5.

2 I have considered the assessment order, submission of the appellant and the facts of the case. Facts in brief are that a survey action u/s 133A of the Act was conducted at the business premises of appellant on 29.01.2020. During the course of survey proceedings, the survey team was concluded that purchase of material from 2 parties namely Bhandari Steel Yard and N. L. Bhandari was made without purchase order issued by the purchase department of HYT Engineering Co. Pvt. Ltd., which is as under : Sr.No. Name of party Amount (in Rs.) 1 N L Bhandari 11,03,392/- 2 Bhandari Steel Yard 1,75,04,419/- Total 1,86,07,811/-

5.

3 During the assessment proceedings, the details were called from the appellant in respect of non-genuine purchase. The appellant had furnished the details submission before the Ld. AO. The reply of the appellant was duly considered by the Ld. AO and same was not acceptable. However, the appellant had not furnished copy of purchase order with above two parties during the assessment proceedings as well as survey proceedings. Thus, this clearly shows that purchases from above two parties were not genuine. Further, the appellant had stated before the Ld. AO that if all additions to be made, it needs to be made net of GST. Thus, the appellant had submitted the details of purchase along with bifurcation of purchase / GST as under :

Sr.No. Name of party Amount (in Rs.) GST Net purchase 1 N L Bhandari 11,03,392/- 2,41,367/- 8,62,025/- 2 Bhandari Steel Yard 1,75,04,419/- 26,78,164/- 1,48,26,255/- Total 1,86,07,811/- 29,19,531/- 1,56,88,280/-

5.

4 In view of above, the Ld. AO considered the appellant's plea in respect of addition of bogus purchase was considered after netting of GST. Accordingly, addition of Rs. 1,56,88,280/- was added to the total income of the appellant on account of non-genuine purchase.

5.

5 I have considered all the material available on record. It is seen that during the course of survey action on 29/01/2020, it was found that the purchases made from M/s Bhandari Steel Yard (Prop. Mahendra Kumar Surajmal Bhandari) and N.L Bhandari to the tune of Rs. 3,78,86,968/- and Rs.11,03,392/- respectively are non- genuine as the appellant could not substantiate the purchases by furnishing all the required evidences. In view of this, Shri Bhojraj Tell (M.D) had offered the said amount of Rs.3,89,90,360/-as additional income over and above its regular income for A.Y 2018-19 and 2019-20. Additional income of Rs.2,03,82,549/- on account of purchases from Bhandari Steel Yard had been offered as additional income in the return of income for A.Y 2019-20 which was pending to be filed at the time of survey action. Since Shri Bhojraj Teli (MD) has voluntarily offered this income in the survey and has included the same in the return of income for A.Y 2019-20 and there has been no retraction, the grounds are without any basis and contrary to the stand already taken and persisted by the appellant.

5.

6 Further, as regards the argument that the addition should be restricted to some percentage of gross profit, rather than disallowing the whole amount of purchases, I do not find any merit in the argument of the appellant. The appellant is in the business of manufacturing. During the course of survey, it was found that certain purchases were non-genuine. Therefore, I am of the considered opinion that the entire purchases have been rightly disallowed by the Ld. AO. In view of the above, Ground no. 2 and 3 are dismissed.”

Finding confirming the under reporting of closing stock of condemned machinery : “Findings and Decision of the Appellate Authority:

6.

3 I have considered the assessment order, submission of the appellant and the facts of the case. Facts in brief are that a survey action u/s 133A of the Act was conducted at the business premises of appellant on 29.01.2019. During the survey proceedings, several pages were found, in which the pages contained details of condemned machinery purchase transactions by HYT-SAM India (JV) from Integral Coach Factory valued at Rs.4,35,90,898/-. On verification from the books of accounts. it was observed that the said purchase value of machinery stock of Rs. 4,35,90,898/- was not recorded in closing stock even though the purchase price was debited as expenditure. The discrepancy was confronted with Shri Bhojraj Teli, the Director HYT Engineering Co. Pvt. Ltd. vide statement recorded u/s 133A during the time of survey, who admitted that the purchase price of the machinery of Rs. 4,35,90,898/- had not been added to the closing stock. And also stated that the machinery of Rs.3,86,26,289/- was received FY 2017-18 and machinery of Rs. 49,64,509/- was received in FY 2018-19. Hence, the appellant offered the same for taxation for respective year. During the assessment proceedings, the details were called from the appellant. The appellant had furnished detailed submission stating that non-inclusion of the condemned machinery in the closing stock was inadvertent and glossed over. The reply of the appellant was duly considered by the Ld. AO and same was not acceptable. In view of above, addition of Rs. 3,86,26,389/- was added to the total income of the appellant on account of under reporting of closing stock of Condemned Machinery.

6.

4 During the appellate proceedings, the appellant has submitted a copy of certificate of Chartered Engineer, wherein the value of the condemned machine has been valued at Rs.53,25,500/-, a copy of bid for tender to Integral Coach Factory, Chennai through JV viz. HYT-SAM India JV, a copy of sub-let agreement furnished and a copy of sale bills of the condemned machine.

6.

5 I have perused all the material before me and considered the submissions and arguments of the appellant. It is seen that during the course of survey action on 29/01/2020, it was found that the purchase value of machinery stock of Rs.4,35,90,898/-was not recorded in closing stock even though the purchase price was debited as expenditure. When confronted with the same Shri Bhojraj Teli (M.D) had offered the said amount of Rs. 4,35,90,898/- as additional income over and above its regular income for A.Y 2018-19 and 2019-20. Amount for A.Y 2018-19 is Rs.3,86,26,389/-. It is further seen that additional income of Rs.49,64,509/- had been offered as additional income in the return of income for A.Y 2019-20 which was pending to be filed at the time of survey action. Since Shri Bhojraj Teli (MD) has voluntarily offered this income in the survey and has included the same in the return of income for A.Y 2019-20 and there has been no retraction, the grounds are without any basis and contrary to the stand already taken and persisted by the appellant.

6.

6 Further, as regards the argument that the valuation done by the Integral Coach Factory (ICF) at Rs. 4,35,90,898/- is over valuation as the machinery was of scrap value, I do not find any merit in the argument. The appellant himself has shown this value in the purchase and has not shown the same as closing stock. The appellant does not dispute the value when it comes to taking advantage by way of debiting in the P&L account. But when it comes to crediting the same as closing stock, it makes an argument that the value was much more and submits the valuation of chartered accountant valuing the same as Rs.53,25,500/- Thus, the arguments and grounds put forth by the appellant are contradictory, contrary to the stand persistently taken by the appellant during the course of survey, after the survey and even at the time of filing of return and during the assessment proceedings. Therefore, the grounds deserves to be, and accordingly dismissed.”

7.

Aggrieved assessee is now in appeal before this Tribunal.

8.

Ld. Counsel for the assessee with regard to the addition for disallowance of purchases referred to the following written submissions placed before the lower authorities :

“2.3 Submission before your honours a) Genuineness of the purchases made In this regard, copy of ledger extracts of the two parties viz., N L Bhandari and Bhandari Steel Yard along with sample copy of invoices & delivery challans are enclosed as Annexure-1. Even the details of vehicles used for transportation of materials are enclosed as Annexure-2. Further copy of confirmation from the said parties is also enclosed as Annexure-3. In this regard, it is submitted that, all the payments have been made through banking channels only and that too well in time. Further, we are also enclosing herewith GSTR-2A in respect of payment of GST by the said parties in respect of the aforesaid sales to us. From the perusal of the GSTR-2A, your honor will appreciate that all the transactions/invoices have been duly reported well in in t time. Usually, bogus purchases Involve the parties who are in the habit of issuing bills without payment of GST. As against this, the suppliers are very well reputed and there in the market for long time. Your honor will appreciate that merely because there is a documentary deficiency such as non-submission of purchase orders at the time of survey, the purchases cannot be tagged as "bogus

purchases". The evidence on record is to be evaluated on overall basis and holistic view should be taken. In the case under consideration, the payments have been made through a/c payee cheques and the seller has paid due GST on such sales. All these facts are sufficient to dispel the doubt about the genuineness of the transactions and preponderance of the possibilities are in favour of the appellant. In this regard, the appellant relies on the decision of Hon'ble Supreme Court in the case of CIT vs. Odeon Builders Pvt. Ltd, where in Supreme Court has observed as under : S. 68/69 Bogus Purchases: Disallowance cannot be made solely on third party information without subjecting it to further scrutiny. The assessee has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. The AO has also not provided a copy of the statements to the assessee, thus denying it opportunity of cross examination. Accordingly, disallowance resulting in addition to income made for Rs 193960866/- is directed to be deleted. It is further submitted that under confused state of mind, to buy peace and to co-operate with the I-T authorities, the appellant has declared these amount of purchases as an additional income during the course of survey on account of documentary deficiencies ie., absence of purchase orders. Your honor will appreciate that the information available on record such as purchase invoice, delivery challans, payments for the purchases through banking channels only and that too well in time, details of vehicles utilized for transportation, GSTR-2A in which the details of purchases invoices have duly been reported and payment of GST thereon by the supplier, etc is more than sufficient to prove the genuineness of transaction, Further, the supplier has duly confirmed the account statements recording the transaction of purchase proves beyond doubt the genuineness of the transaction. Further, your honor will appreciate that various courts have held that addition cannot be made merely because the said income is accepted by the assessee as additional income during the course of survey. For this proposition, we rely on the following case-laws COMMISSIONER OF INCOME TAX vs. P. BALASUBRAMAΝΙΑΝ (2013) 354 ITR 0116

The statement recorded during survey operation u/s 133A may be a relevant material, but in the absence of further materials to substantiate the same, such statement recorded u/s 133A can hardly be the basis for assessment PAUL MATHEWS & SONS vs. COMMISSIONER OF INCOME TAX (2003) 263 ITR 0101 Sec. 133A(3)(ii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Sec 133A however, enables the IT authority only to record any statement of any person which may be useful, but does not authorize for taking any sworn in statement. The IT Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas s. 133A does not empower any ITO to examine any person on oath. Thus, in contra distinction, to the power under s. 133A, s. 132(4) enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement recorded under s. 133A is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has the evidentiary value as contemplated under law. Therefore, there is much force in the argument of the counsel for the appellant that the statement, elicited during the survey operation has no evidentiary value and the ITO was well aware of this.

Considering the above submission and various details placed on record, the appellant requests your goodself to kindly delete the addition made in this regard. b) GP based addition - Without prejudice to the above submission and without admitting the purchases from NL Bhandari and Bhandari Steel Yard as bogus purchases the appellant has to further submit that, the material purchased by the appellant has been used/consumed by the appellant in the course of business carried on by it and is supported by invoices, delivery challans, declaration of transactions in GSTR-2A by the suppliers, etc, and the same is being doubted for the reason of not supported by PO, then any addition for this discrepancy should be restricted to the some percentage of Gross Profit to safeguard the interest of revenue, rather than disallowing the whole amount of purchases. For this proposition, the appellant rely on the decision of Hon'ble ITAT Mumbai in case of M/s. Bhalchandra Trading P. Ltd v/s DCIT (ITA No. 2977 & 2978/Mum/2019). Copy of the said decision is enclosed as Annexure-4. c) Prayer/ conclusion Considering the above submission, the appellant requests your goodself to kindly delete the addition made in this regard and oblige."

9.

As regards the addition for under reporting of closing stock, submissions of the assessee read as under :

“3. Submission with respect to Ground No.4 and 5 : For the sake of easy referencing Ground No.4 & 5 is reproduced as follows :

4.

The learned A.O. erred in law and on facts in making an addition of Rs. 3,86,26,389 on account of under-reporting of closing stock of condemned machines without appreciating the fact that the value of said machines in commercial world is scrap value only and the addition, if any, on account of under-reporting of closing stock of condemned machines needs to be restricted to Net Realizable Value as certified by the Chartered Engineer.

5.

Alternatively & without prejudice to Ground No. 4 above, the learned AO erred in law and on facts in making addition of gross amount on account of under reporting of closing stock of condemned machines instead of net amount i.e. net of GST.

3.

1 Background of the issue: During the course of the survey, the survey party also observed that, transactions of purchases of condemned machines by the appellant from HYT SAM India JV amounting to Rs.3,86,26,389 were not included in the closing stock of the appellant. The appellant filed detailed submission in this regard.

3.

2 Learned AO's Arguments /allegation :- Without appreciating the detailed submission filed in this regard, the learned AO has made the addition of total amount in this regard by stating that non- inclusion of the condemned machinery in the closing stock can't be considered as inadvertent mistake.

3.

3 Submission before your honour a) Reason for non-inclusion of the condemned machinery in the closing stock - In this regard, it is submitted that the appellant has submitted bid for tender to Integral Coach Factory, Chennai for the work relating to modernization of ICF for complete switchover to stainless steel coach manufacturing. The bid was submitted through JV viz., HYT-SAM INDIA JV. Total tender value was Rs.233.07 Crores and major portion of the tender value was back-to-back sub- letted to appellant company. As a condition of the tender, the JV was required to purchase the condemned machine at a particular price. Being a major partner of the JV, it was decided that the condemned machine shall be transferred to the appellant by the JV at same value. The condemned machine taken over as a part of tender condition was a commercial decision though; the value of the condemned machine in commercial world is scrap value only. Copy of certificate of Chartered Engineer confirming these facts are enclosed as Annexure-5. Since these machines were having scrap value which is very meagre and the same were lying in the rented godown at Moshi Gaav where the appellant carries on cutting operation, the same remained to be noticed and accordingly, remained to be included in the closing stock statement. It is further submitted that the godown at Moshi Gaav is not used for storing of goods. Thus, this is an accidental error/mistake that too happened because of the nature of operations carried on in the godown at Moshi Gaav. The appellant's stock taking team took the stock at various locations, but it did not visit to the godown at Moshi Gaav since it is not used for storing of goods of the appellant. To justify the fact that these machines are condemned and having scrap value only, the appellant has to state that these machines are at present also lying with the company in the same godown which very well goes to prove that it has a scrap value only and no functional utility. On perusal of these facts, your honor will appreciate that non-inclusion of the condemned machinery in the closing stock is inadvertent and glossed over. b) Addition to be restricted to Net Realizable value The appellant is following the accounting policy of valuing stock at cost or net realizable value whichever is lower. The relevant portion of tax audit report certifying this fact is reproduced below - 14(a) Method of valuation of Raw Material & WIP - at closing stock employed in Cost or Market rates the previous year whichever is lower From the above, it is submitted that the addition for the condemned machinery to be included in the closing stock, has to be restricted at net realizable price I.e., Rs. 53.25 Lakhs as certified by the Chartered Engineer (i.e., lower of cost or net realizable value). However, due to ignorance about the accounting policy followed by the company wherein the stock is to be valued at lesser of cost or market value, the appellant has declared the amount of purchase price of the condemned machinery as additional income during the course of survey. c) Addition of Gross amount is incorrect - Without prejudice to the above submission that the addition for condemned machinery is to be made for cost or market value whichever is lower, it is submitted that the addition of total amount made in this regard is incorrect. The learned AO has made addition of total amount including GST. If at all, the addition is to be made, it has to be net of GST amount.

Considering the same, the addition so made should be restricted to net of GST only. d) Prayer/ conclusion: Considering the above submission, the appellant requests your goodself to kindly restrict the addition to Net Realizable value and that too net of GST amount only. Kindly consider the above submission and oblige."

6.

2 In continuation, the appellant vide letter dated 09.07.2024 has also filed its submission in respect of above ground, which is as under : "With reference to the above-referred appeal, the appellant has already filed the detailed submission. In continuation with the earlier submission, the appellant has to state and submit as follows: With respect to the addition of Rs. 3,86,26,389 on account of under- reporting of closing stock of condemned machines, it is submitted that the appellant has submitted bid for tender to Integral Coach Factory, Chennai through JV viz., HYT-SAM INDIA JV. Copy of the said tender document (relevant pages) is enclosed as Annexure-1 Total tender value was Rs. 233.07 Crores and the said tender was back-to-back sub-letted to appellant company. Copy of the sub-let agreement in this regard is enclosed as Annexure-2. As a condition of the tender, the JV was required to purchase the condemned machine at a particular price. Being a major partner of the JV, it was decided that the condemned machine shall be transferred to the appellant by the JV at same value. As submitted earlier, the value of the condemned machine in commercial world is scrap value only and to justify the same, the appellant has already submitted copy of certificate of Chartered Engineer. Now at present, the appellant has sold the said condemned machine for total consideration of Rs. 75 Lakhs. Copy of the sale bills is enclosed as Annexure-3. On perusal of the same, your honour will appreciate that the appellant has sold the machines for meagre value only and as such, the appellant requests your goodself to kindly restrict the addition in this regard to the extent of Net Realizable value only and that too net of GST amount only. Kindly consider the above submission and oblige."

10.

Further during the course of hearing, ld. Counsel for the assessee made reference to the various documents placed in the paper book running into 196 pages mainly exhibiting the documents in support of its claim that purchase from NLB and BSY are genuine and transactions duly confirmed by both the parties and GST has been paid. As regards the addition for under reporting of closing stock of condemned machinery, it was submitted that the purchases are made in order to get huge order from ICF and further reference made to the certificate of the Chartered Engineer certifying the Fair Market Value of the condemned machinery at Rs.53,25,500/- which has been purchased for a consideration of Rs.4,35,90,898/-. Reference also been made to the revisionary proceedings carried out for A.Y. 2018-19 by ld. PCIT and in direction thereof ld. AO has passed the assessment order u/s.143(3) r.w.s.263 and the issue referred was regarding the examination of purchase of condemned machinery to which the AO has observed that the purchases have been duly accounted for and there is no undisclosed investment by the assessee in this transaction. The documents placed in the paper book reads as under :

// this space is intentionally left blank //

11.

On the other hand, ld. DR vehemently argued supporting the finding of ld.CIT(A) extracted (supra) and stated that the assessee has itself accepted the addition for alleged bogus purchases as well as under reporting of closing stock of condemned machinery during the course of survey itself and therefore the assessee cannot retract from its submissions and therefore the addition made by the AO deserves to be sustained.

12.

We have heard the rival contentions and perused the record placed before us. In the instant appeal, two issues have been raised for our consideration, firstly regarding the addition for bogus purchases and secondly regarding the under reporting of closing stock by not including the value of condemned machinery.

13.

As regards the issue of bogus purchases is concerned, the assessee which is in the business of manufacturing of special purpose machines, made purchases from two parties namely N.L.Bhandari at Rs.11,03,392/- and Bhandari Steel Yard at Rs.1,75,04,419/-. This issue arose on account of the survey proceedings u/s.133A of the Act conducted on the assessee’s business premises on 29.01.2019 and during F.Y. 2018-19 relevant to the A.Y. 2019-20 also assessee purchased from very same parties but for want of certain documents the survey team confronted the assessee with the genuineness of these purchases and the assessee accepted it as bogus purchases and agreed to offer it to tax. Based on this information, the assessment proceedings for A.Y. 2018-19 were taken up and the assessee has been confronted with the purchases made from the alleged two parties namely NLB and BSY. It is an admitted fact that statement given during the course of survey cannot be equated to the statement given u/s.132(4) of the Act and therefore does not have any evidentiary value and any admission made in such statement given during the course of survey proceedings u/s.133A of the Act cannot by itself made the basis for addition. This principle has been laid down by the Hon’ble Apex Court in the case of CIT Vs. S. Khader Khan 352 ITR 840. Similar view was also taken in the case of CIT vs. P. Balasubramanian (2013) 354 ITR 116 (Mad) holding that the statement recorded during survey operations u/s.133A of the Act may be relevant material but in the absence of further material to substantiate the same such statement recorded u/s.133A can hardly be the basis for assessment. Similar view was also taken by the Hon’ble BSY and NLB have issued the invoices containing the details of description of goods, quantity and rate along with the details of motor vehicles through which goods have been transported. Further both the parties have issued GST invoices and the GST has been duly paid by the assessee as reflected in the entries in GSTR-2A of both the parties. One of the main reason for questioning the genuineness of these

purchases is non availability of the purchase orders. The survey team as well as AO has again and again referred to this fact that purchase orders for making the alleged purchases are not available. In our limited understanding, in the course of carrying out business, it is not mandatory that for every purchase there has to be a purchase order. This depends from company to company and case to case basis. In certain companies where there is a separate department of purchases and whenever there is a requirement of a particular item or goods as requisitioned by the stock department, then such requirement is placed before the purchase team and based on their list of vendors the purchases orders are placed mentioning the details of the goods along with quantity. Based on such purchase orders the transaction is taken up with the regular party. Rates and quantity are negotiated and finally once it is agreed then the purchase order is issued to the vendor and in reference to such purchase order the goods are delivered with the delivery challan. In the invoices, there is a reference of purchase order. But then the genuineness of the purchases cannot be measured with the help of a purchase order. What is required is that the goods are purchased for the business purposes. The parties who have sold the goods are identifiable and if the goods falls under the GST tax liability then invoices containing the GST Number and GST charged therein should be mentioned. Further the payments are made through account payee cheques. In the invoice, details of quantity and rate of goods along with the mode of delivery and the vehicle number is appearing. There is confirmation of the transaction by the vendor party. In the instant case, all these details, i.e. ledger of the alleged parties,

their invoices containing complete details along with the delivery challan, entries in GSTR-2A rates are provided. The books of account of the assessee having not been rejected as well as sales turnover is not in dispute and therefore there remains no reason to consider the alleged purchases as bogus since the assessee has placed all the required documents to explain the genuineness of the purchases. It is not the case of the Revenue that goods purchased by the assessee are not part of the regular goods purchased and used for the manufacturing business. Therefore, it is an accepted fact that the alleged purchases by the assessee in the form of Steel bars and cement have been consumed by the appellant in the course of business. It is also discernible from the Tax Audit report that the gross profit rate has improved to 28.93% as against 26.90% in the preceding year and similarly the net profit rate has also increased to 7.37% from 6.46%. Therefore, there cannot be a case of under statement of income by way of arranging the bogus purchases. In view thereof, we are of the considered view that the alleged purchases from N.L.Bhandari and Bhandari Steel Yard are genuine purchases. Therefore, we fail to find any consistency in the finding of ld.CIT(A) and the same is set aside. Disallowance of purchase of Rs.1,56,88,280/- is deleted. and therefore ld.CIT(A) erred in confirming the addition made by AO. Ground No.2 raised by the assessee is allowed. Ground No.3 raised by the assessee being an alternate one in nature becomes infructuous.

15.

As regards the issue of under reporting of closing stock for the purchase of condemned machinery, we note that HYT- SAM India (JV) purchased condemned machinery valuing

Rs.4,35,90,898/- from Integral Coach Factory which includes purchases during A.Y. 2018-19 at Rs,.3,86,26,389/-. Further HYT-SAM India (JV) has sold the alleged condemned machineries to the assessee. The purchases of such condemned machineries have been shown in the profit and loss account but they have not been included in the closing stock. During the course of survey proceedings carried out during F.Y. 2018-19, key person of the assessee company admitted that the condemned machinery have been purchased by the company and physically received and further confirmed that the price of the machinery purchased during F.Y. 2017-18 is Rs.3,68,36,389/- and at Rs.49,64,509/- purchased during F.Y. 2018-19 has not been added to the closing stock and the same is offered for taxation in respective years. However, in the return of income the assessee has not disclosed the above referred income for taxation for A.Y. 2018-19. Before ld. Assessing Officer, it has been submitted that the value of condemned machinery is much lower and since the assessee is valuing the stock “at cost or market price whichever is lower”

therefore the Fair Market Value of the condemned machineries should be added to the value of closing stock. Ld. Assessing Officer was not satisfied and added the total valueo f alleged purchases in closing stock which has been subsequently confirmed by ld.CIT(A) also.

16.

We have already discussed the judicial precedents that statement given during the course of survey do not have evidentiary value and for making any such addition supporting documents and evidences are required which should have nexus with such statement. Now on going through the details

placed before us, we observe that the assessee is dealing in turnkey projects of manufacturing specialised purpose machines and rendering special services. The turnover of the assessee company for A.Y. 2018-19 is Rs.302.76 crore. The assessee company has also entered into a Joint Venture in the name of HYT-SAM India (JV). This joint venture has approached Integral Coach Factory, Chennai for the award of contract and as per the copy of agreement for works contract placed at pages 187 and 188 it shows that the works contract of Rs.233.07 crore has been awarded to the assessee. In the very same agreement for works contract contains Schedule IV under the heading Uprooting and dispose of obsolete M&Ps as listed in Chapter VIII-D-Schedule IV amounting to Rs.4,35,90,898/-. This fact indicates that the assessee in order the grab the works contract of Rs.233.07 crore had to accept the condition for purchase of condemned machineries valuing at Rs.4.36 crore approx.. It is a clear case of commercial and business expediency in which the assessee is eyeing upon the contract of Rs.233.07 crore which will certainly give rise to handsome profits but to get such contract and to keep good relations with ICF for getting contracts in future it had to accept the condition for purchase of condemned machineries. Now once these machines valuing Rs.4.36 crore and that actual transaction is spread over two assessment years and the purchase amount for the year under consideration amounting to Rs.2,68,26,389/- assessee has duly entered the purchases in the profit and loss account but in the value of closing stock the value of condemned machinery is not appearing. Now the genuineness of the purchases is not in doubt and even in the assessment order

u/s.143(3) r.w.s.263 of the Act placed at 164 of the paper book passed on 15.03.2024 the Assessing Officer on duly considering the submissions has observed that the purchase of condemned machinery has been duly accounted in the books of account and the payment has been made through banking channel and there is no undisclosed investment by the assessee in this transaction and hence the provisions of section 115BBE of the Act are not applicable. In the very same assessment year, the only issue indicated is that the transaction of purchase is not included in the items of closing stock.

17.

Now coming to the part of value to be added under the head closing stock, we note that the Tax Audit report indicates the method of value of closing stock which states “that the raw materials and work in progress are to be valued at cost or market value whichever is lower”. It means that whatever purchases have been made during the year or in the past, when the closing stock is to be calculated then “it has to be valued at cost or market value whichever is lower”. Now comes the aspect of valuation of the condemned machineries. Assessee has filed the certificate of Chartered Engineer valuing the condemned machineries which are in the shape of scrap and the valuation report placed at pages 129 to 132 provides the details of each and every item purchases from the Integral Coach Factory and against the price as per the Tender, the scrap valuation is mentioned. As per this certificate the Fair Market Value of condemned machineries purchased for Rs.4,35,90,898/- has been shown as scrap and valued at Rs.53,25,500/- as on 10.03.2021. 18. We further observe that the assessee has finally sold the major parts of the old condemned (scrap machines) vide invoice dated 08.09.2021 and out of the 69 items mentioned in the certificate of the Chartered Engineer, 56 items have been sold at Rs.75 lakhs and has further charged GST at Rs.13,50,000/- making the total invoice value at Rs.89,38,500/-. All these facts starting from the selling of condemned machineries by Integral Coach Factory to the Joint Venture of HYT-SAM India and subsequent sale to the assessee company and thereafter the valuation made by the Chartered Engineer and the final sale value of the major components coupled with the fact that stock is to be “valued at cost or market value whichever is lower”, we are inclined to hold that the addition to the closing stock is to be only restricted to the Fair Market value of the alleged machines as on 31.03.2018. Further, for calculating the value of such machineries to be added in the closing stock for the year under consideration, we adopt the Fair Market Value of the total condemned machineries at Rs.85 lakh and the pro-rata value for the machines purchased during the year is calculated at Rs.66,45,835/- and the same deserves to be added to the closing stock of the assessee company. Therefore, against the addition sustained by CIT(A) at Rs.3,86,26,389/-, we sustain the addition at Rs.66,45,835/- and partly allow Ground No.4 raised by the assessee. Ground No.5 being alternate in nature is dismissed as Infructuous. Ground No.6 being general in nature needs no adjudication.

19.

In the result, the appeal of the assessee is partly allowed as per terms indicated above.

Order pronounced on this 07th day of May, 2026. (VINAY BHAMORE) ACCOUNTANT MEMBER पुणे / Pune; दिन ांक / Dated : 07th May, 2026. Satish

Satish Kumar Madishetty आदेश की प्रतिलिपि अग्रेपिि / Copy of the Order forwarded to : अपील र्थी / The Appellant. 1. प्रत्यर्थी / The Respondent.

2.3.

The Pr. CIT concerned. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, “A” बेंच, 4. पुणे / DR, ITAT, “A” Bench, Pune. ग र्ड फ़ इल / Guard File. 5. आिेश नुस र / BY ORDER,

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