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Facts
The assessee filed its return of income, which was processed. Information from the Sales Tax Department revealed bogus bills amounting to Rs. 9,66,393/-. The Assessing Officer reopened the assessment based on this information and affidavits from the bill issuers confirmed they only issued bills for commission without actual business.
Held
The Tribunal held that since the purchase bills were confirmed to be bogus and the assessee failed to substantiate the genuineness of purchases with cogent evidence, the addition made by the Assessing Officer was upheld. However, considering the assessee's claim that documents were not considered, the matter was restored to the Assessing Officer for fresh adjudication.
Key Issues
Whether the addition on account of bogus purchases can be sustained when the assessee claims documents were not considered by the AO and requests for a fresh assessment.
Sections Cited
143(1), 148, 133(6), 69C
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
ORDER PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 27.05.2025 passed by the Ld. Additional/Joint Commissioner of Income-tax (Appeal) – 2, Visakhapatnam [hereinafter shall be referred as ‘Ld. CIT(A)’] for assessment year 2011-12, raising sole ground as under:
Ld. CIT(A)-2 erred in accepting addition made in income by ITO ward 2(3) Thane Mumbai of Rs.9,66,393/- out of purchases.
Briefly stated, facts of the case are that the assessee filed its return Briefly stated, facts of the case are that the assessee filed its return Briefly stated, facts of the case are that the assessee filed its return of income electronically on 08.09.2011 declaring total income at of income electronically on 08.09.2011 declaring total income at of income electronically on 08.09.2011 declaring total income at Rs.5,36,643/- which was processed u/s 143(1) of the Income which was processed u/s 143(1) of the Income which was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’). Act, 1961 (in short ‘the Act’). Subsequently, the information was Subsequently, the information was received from the Sales Tax Department that assessee had obtained received from the Sales Tax Department that assessee had obtained received from the Sales Tax Department that assessee had obtained bogus bills from certain parties totalling to Rs.9,66,393/-. On the bogus bills from certain parties totalling to Rs.9,66,393/ bogus bills from certain parties totalling to Rs.9,66,393/ basis of information received from the Sales Tax Department survey basis of information received from the Sales Tax Department survey basis of information received from the Sales Tax Department survey action were conducted action were conducted by the Income-tax Department tax Department on parties who had issued bogus bills. who had issued bogus bills. In view of information, the Assessing In view of information, the Assessing Officer recorded reasons to believe that income escaped assessment Officer recorded reasons to believe that income escaped assessment Officer recorded reasons to believe that income escaped assessment and reopened the assessment by way of issue of notice u/s 148 of and reopened the assessment by way of issue of notice u/s 148 of and reopened the assessment by way of issue of notice u/s 148 of the Act on 19.07.2013 2013. Thereafter statutory notices were issued and hereafter statutory notices were issued and served upon the assessee. The Assessing Officer also issued notice served upon the assessee. The Assessing Officer also issued notice served upon the assessee. The Assessing Officer also issued notice u/s 133(6) of the Act to all the above mentioned alleged purchase u/s 133(6) of the Act to all the above mentioned alleged purchase u/s 133(6) of the Act to all the above mentioned alleged purchase parties but all the notices returned back with the notices returned back with the remark of postal remark of postal authorities as ‘left’ and ‘not known’. This fact was communicated to left’ and ‘not known’. This fact was communicated to left’ and ‘not known’. This fact was communicated to the assessee and assessee was asked to justify its purchases but no the assessee and assessee was asked to justify its purchases but no the assessee and assessee was asked to justify its purchases but no response was filed by the assessee in this regard. Thereafter, the response was filed by the assessee in this regard. Thereafter, the response was filed by the assessee in this regard. Thereafter, the Assessing Officer also gathered affidavits filed by those ‘hawala’ ( Assessing Officer also gathered affidavits filed by thos Assessing Officer also gathered affidavits filed by thos bogus bill issuer) parties wherein they affirmed that they had not parties wherein they affirmed that they had not parties wherein they affirmed that they had not done any business of of sales of purchases of goods of goods but only issued ‘hawala’ or ‘bogus’ bills bills to parties against commission commission received. Regarding the payment also those parties affirmed that payment the payment also those parties affirmed that payment the payment also those parties affirmed that payment received through cheques received through cheques from bill seekers were deposited in bank deposited in bank account and after clearing of the same account and after clearing of the same, cash of withdrawal cash of withdrawal was handed over to the recipient of bill recipient of bill after deducting the commission amount.
In view of above observation In view of above observations, the Assessing Officer held the , the Assessing Officer held the purchases as unexplained in terms of section 69C of the Act and purchases as unexplained in terms of section 69C of the Act and purchases as unexplained in terms of section 69C of the Act and added to the income of the assessee. On further appeal before the added to the income of the assessee. On further appeal before the added to the income of the assessee. On further appeal before the Ld. CIT(A), the assessee contended that cross Ld. CIT(A), the assessee contended that cross-examination of examination of those parties should have been provided to the assessee but the Ld. parties should have been provided to the assessee but the Ld. parties should have been provided to the assessee but the Ld. CIT(A) rejected the contention of the assessee for the reason that CIT(A) rejected the contention of the assessee for the reason that CIT(A) rejected the contention of the assessee for the reason that assessee did not submit any information or attended before the assessee did not submit any information or attended before the assessee did not submit any information or attended before the Assessing Officer to brief the genuineness of the AO even after Assessing Officer to brief the genuineness of the AO even Assessing Officer to brief the genuineness of the AO even provided multiple opportunities. The Ld. CIT(A) relying on the provided multiple opportunities. The Ld. CIT(A) relying on the provided multiple opportunities. The Ld. CIT(A) relying on the decision of the Hon’ble Bombay High Court in the case of Pr. CIT v. decision of the Hon’ble Bombay High Court in the case of Pr. CIT v. decision of the Hon’ble Bombay High Court in the case of Pr. CIT v. Kanak Impex India (2025) 172 taxmann.com 283 (Bombay) upheld Kanak Impex India (2025) 172 taxmann.com 283 (Bombay) upheld Kanak Impex India (2025) 172 taxmann.com 283 (Bombay) upheld the finding of the Assessing Officer. The relevant finding of the Ld. the finding of the Assessing Officer. The relevant findin the finding of the Assessing Officer. The relevant findin CIT(A) is reproduced as under: CIT(A) is reproduced as under:
“6.6 In light of the judgment of the Hon'ble Bombay High Court in 6.6 In light of the judgment of the Hon'ble Bombay High Court in 6.6 In light of the judgment of the Hon'ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd. (2025), it is clear that where the PCIT v. Kanak Impex (India) Ltd. (2025), it is clear that where the PCIT v. Kanak Impex (India) Ltd. (2025), it is clear that where the assessee fails to substantiate the genuineness of purchases with assessee fails to substantiate the genuineness of purchases with assessee fails to substantiate the genuineness of purchases with cogent eviden cogent evidence and merely relies on book entries then the entire ce and merely relies on book entries then the entire expenditure pertaining to such bogus purchases can be disallowed expenditure pertaining to such bogus purchases can be disallowed expenditure pertaining to such bogus purchases can be disallowed under Section 69C of the Income Tax Act. under Section 69C of the Income Tax Act. Applying this ratio to the present case, since it has been Applying this ratio to the present case, since it has been Applying this ratio to the present case, since it has been categorically admitted by the benefici categorically admitted by the beneficiaries themselves that the aries themselves that the purchase bills are not genuine, and no supporting documents have purchase bills are not genuine, and no supporting documents have purchase bills are not genuine, and no supporting documents have been produced to substantiate the transactions. been produced to substantiate the transactions. The addition made by the Assessing Officer should be upheld in The addition made by the Assessing Officer should be upheld in The addition made by the Assessing Officer should be upheld in its entirety in accordance with the settled legal posi its entirety in accordance with the settled legal posi its entirety in accordance with the settled legal position as laid down in the Kanak Impex judgment. down in the Kanak Impex judgment. Accordingly Accordingly Accordingly the the the ground ground ground No.s No.s No.s 1.1 1.1 1.1 raised raised raised by by by the the the appellant is dismissed.”
Before us, the Ld. Counsel for the assessee has filed a Paper Before us, the Ld. Counsel for the assessee has filed a Paper Before us, the Ld. Counsel for the assessee has filed a Paper Book and submitted that various documents containing purchase Book and submitted that various documents containing purchase Book and submitted that various documents containing purchase invoice, inventory ledger accounts etc. though filed before the ventory ledger accounts etc. though filed before the ventory ledger accounts etc. though filed before the Assessing Officer but Assessing Officer but were not considered by him. Accordingly, he not considered by him. Accordingly, he requested that matter matter might be restored back to the file of the be restored back to the file of the Assessing Officer for deciding afresh. Assessing Officer for deciding afresh.
We have heard rival We have heard rival submissions of the parties and perused submissions of the parties and perused the relevant materials on record the relevant materials on record. Though the Assessing Officer has . Though the Assessing Officer has clearly recorded that clearly recorded that (i) notices sent to the purchase parties notices sent to the purchase parties returned back un-served and this fact was communicated to the served and this fact was communicated to the served and this fact was communicated to the assessee, (ii) the bogus the bogus purchase parties confirmed the fact of no purchase parties confirmed the fact of no business activity and only issue of bills against ce business activity and only issue of bills against certain percentage rtain percentage of commission (iii) of commission (iii) The purchase parties admitted that cheque The purchase parties admitted that cheque received from parties was deposited in bank and thereafter cash received from parties was deposited in bank and thereafter cash received from parties was deposited in bank and thereafter cash which returned back which returned back after taking the commission. According to the after taking the commission. According to the Assessing Officer, these facts were duly informed to the assessee. these facts were duly informed to the assessee. these facts were duly informed to the assessee. But no compliance was made on the part of the assessee. On the But no compliance was made on the part of the assessee. On the But no compliance was made on the part of the assessee. On the contrary before us, the assessee is claiming that submissions filed contrary before us, the assessee is claiming that submission contrary before us, the assessee is claiming that submission by the assessee had not been considered by the Assessing Officer. not been considered by the Assessing Officer. The ld DR was not in position to rebut this submission of the The ld DR was not in position to rebut this submission of the The ld DR was not in position to rebut this submission of the assessee. In such circumstances circumstances, we feel it appropriate to e feel it appropriate to provide one more opportunity opportunity to the assessee and restore the matter back restore the matter back to the file of the Assessing Officer for deciding afresh. The assessee file of the Assessing Officer for deciding afresh. The assessee file of the Assessing Officer for deciding afresh. The assessee is directed to file all the necessary documentary evidences in is directed to file all the necessary documentary evidence is directed to file all the necessary documentary evidence support of its claim before the Assessing officer within seven days of support of its claim before the Assessing officer within seven days of support of its claim before the Assessing officer within seven days of the receipt of first notice by the Assessing Officer. The first notice by the Assessing Officer. The first notice by the Assessing Officer. The Assessing Officer shall afford adequate opportunity of being heard to the adequate opportunity of being heard to the assessee and decide the issue in dispute in accordance with law assessee and decide the issue in dispute in accordance with law assessee and decide the issue in dispute in accordance with law after examining the evidence after examining the evidences interalia, evidences evidences in support of delivery of goods if any by the alleged purchase parties. The sole delivery of goods if any by the alleged purchase part delivery of goods if any by the alleged purchase part ground of appeal of the assessee is accordingly allowed for ground of appeal of the assessee is accordingly allowed for ground of appeal of the assessee is accordingly allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes.