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Facts
The assessee claimed purchases of firewood from M/s Arabiya Traders. The AO disallowed the purchases on the ground that the supplier, Mr. Idris Khan, could not substantiate his own purchases from villagers. This disallowance was upheld by the CIT(A).
Held
The Tribunal held that the assessee had discharged its onus by providing purchase bills, ledger accounts, bank statements showing payments, and VAT returns. The supplier's inability to substantiate his own purchases does not automatically make the assessee's purchases bogus. Furthermore, for the unabated assessment year 2009-10, the addition was not based on any seized incriminating material, making it unsustainable.
Key Issues
Whether the disallowance of firewood purchases is justified when the assessee has provided supporting documents and the supplier's failure to substantiate his own purchases is the sole basis for disallowance? Whether additions under Section 153A are sustainable for an unabated assessment year without incriminating material seized during search?
Sections Cited
132, 153A, 133(6), 131, 234-A, 234-B, 234-C, 68
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is a set of 6 appeals filed at the instance of assessee pertaining to the assessment years 2009-10 to 2014-15 and arising from the common order of learned Commissioner of Income Tax (Appeal)-11 Bengaluru (hereafter learned CIT-A) dated 30th May 2025.
It is further noted that the issues raised in all these appeals are identical. Hence, for the sake of brevity and convenience, we proceed to adjudicate the assessee’s appeal for A.Y. 2009-10 in ITA No.
ITA No.1330 - 1335/Bang/2025
Page 2 of 12 1330/Bang/2025, taking it as a lead case. The finding given therein shall be applicable to all other appeals for A.Ys. 2010-11 to 2014-15.
The grounds of appeal
raised by the assessee in for A.Y. 2009-10 are as under: “1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The impugned search proceedings in the case of the appellant is bad in law and are ultra-vires the provisions of Section 132[1][a], [b] and [c] of the Act, having regard to the parity of the ratio of the Hon'ble Supreme Court in the case of AJIT JAIN reported in 260 ITR 80 and the Hon'ble Karnataka High Court in the case of C. RAMAIAH REDDY reported in 339 ITR 210, the order passed is patently illegal and requires to be cancelled as void-ab-initio.
3. Without prejudice to above, the learned CIT[A] is not justified in upholding the addition in respect of the fire wood purchases made by the appellant from Arabiya Trader on the ground that Mr. Idris Khan, Proprietor of Arabiya Traders could not substantiate his purchases of firewood that was sold to the appellant under the facts and in the circumstances of the appellant's case. 3.1 The learned CIT[A] ought to have appreciated that the appellant had produced proper documentary evidence in shape of sale bills of Arabiya Traders, his bank account and VAT returns filed and therefore, the mere fact that Mr. Idris Khan could not substantiate his purchases made cannot be a ground to disbelieve the purchases made by the appellant especially when he has confirmed the sales made to the appellant and hence, the impugned addition sustained by the learned CIT[A] is opposed to law and facts of the appellant's case and the same deserve to be deleted.
4. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.
5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
4. The Ground Nos. 1 & 5 of the assessee’s appeal are general in nature and do not require any separate adjudication. Likewise, the .
- 1335/Bang/2025 Page 3 of 12 Ground No. 4 of the assessee’s appeal pertains to the levy of interest under section 234A, 234B, and 234C of the Act which is consequential in nature and does not require any separate adjudication. Hence, Ground Nos. 1, 4 & 5 of the assessee’s appeal are hereby dismissed as infructuous.
The issue raised by the assessee through Ground No. 2 pertain to validity of search under section 132 of the Act.
At the outset, we note that this issue has not been pressed by the learned AR of the assessee. Hence, the same is being dismissed as not pressed.
The issue raised by the assessee through Ground No. 3 is that the learned CIT(A) erred in confirming the disallowances of purchases of firewood made from Arabiya Traders in the year under consideration.
7.1 The facts in brief are that the assessee is a partnership and engaged in the business of manufacturing of rice bran oil. The assessee was subject to search operation under section 132 of the Act dated 4th February 2015. In consequence to the search, assessment or reassessment proceedings under section 153A of the Act were initiated for 6 assessment years being A.Ys. 2009-10 to 2014-15.
The AO based on the search proceedings at the factory premises of the assessee firm found certain bills pertaining to the purchases of rice bran and fuel like firewood which were also seized. These bills were prepared by the employee namely Smt. Jayalakshami L of the assessee’s .
ITA No.1330 - 1335/Bang/2025
Page 4 of 12 firm. The entities (being supplier of rice bran and firewood) for which bills/invoice prepared by Smt. Jayalakshami L also included M/s Arbiya Traders (proprietor: Shri Idrish Khan) who supplied firewood to the assessee.
Accordingly, the AO to examine the genuineness of purchases of firewood issued notice under section 133(6) of the Act to Shri Idrish Khan proprietor M/s Arbiya Traders but no reply was received. Hence, a summon under section 131 of the Act was issued to which Shri Idrish Khan appeared personally but not furnished any required details called for. Hence, the AO disallowed the claim of purchases of firewood from M/s Arbiya Traders amounting to Rs. 42,92,140/- for the year under consideration (A.Y. 2009-10) and added to the total income of the assessee.
The aggrieved assessee preferred an appeal before the learned CIT(A).
The assessee before the learned CIT(A) filed additional evidence with respect to purchase of firewood from M/s Arbiya Traders which included the following: (i) Ledger copy of M/s Arbiya Traders in the books of the assessee. (ii) Photocopy of sales register manually maintained. (iii) VAT return being filed by M/s Arbiya Traders. (iv) Bank statement of M/s Arbiya Traders showing payment being received from the assessee.
The additional evidence was forwarded to the AO for remand report. The AO during the remand proceeding summon the proprietor of .
- 1335/Bang/2025 Page 5 of 12 M/s Arbiya Traders (Shri Idrish Khan) and recorded his statement. In the statement, he confirmed the supply of firewood to the assessee company. He stated that with respect to his business of firewood and paddy husk he maintain sales and purchase register only other than these register no books are maintained. The purchases were made from villagers; payments were made through cash at the time of purchases only. However, he admitted that there is no documentary evidence in his possession to support the purchases. He also does have any list of the person from whom such purchases were made. He explained that he plans his purchases in accordance with the requirement of the party and sale price agreed with the assessee firm (M/s Habib Agro). Regarding issuance of bill to the assessee company, he admitted invoice/bill are prepared by employee of assessee company only he has signed them.
Besides above, the AO observed that the impugned party have made sales of firewood to assessee firm only. The amount credited in his bank account from the assessee firm was immediately withdrawn. Based on these observation and failure of Shri Idrish Khan to substantiate his purchase for making sales to the assessee, the AO prayed that the addition made be sustained.
The assessee in rejoinder submitted that purchases of firewood from M/s Arbiya Trader are supported by bills, payments being made through banking channel, sale registered maintained by the party and VAT return being filed by the supplier. The proprietor Shri Idrsih khan also confirmed the sales made by him to the appellant assessee. The AO in the remand report has not found any infirmity in the evidence furnished in support of the purchases. However, the AO doubted .
ITA No.1330 - 1335/Bang/2025
Page 6 of 12 genuineness only for the reason that the supplier was not able to substantiate his purchases based on documentary evidence.
However, the learned CIT(A) after considering the facts in totality confirmed the disallowances made by the AO. The relevant finding of the learned CIT(A) is extracted as under: 6.8 I have perused the remand report and the additional evidence adduced by the appellant in this regard. The ledger extract of M/s Arabiya Traders, sale bills raised by Arabiya Traders and the HDFC Bank account of M/s Arabiya Traders were furnished as additional evidence. On perusal it is seen that the credits in the bank account are solely from the appellant and have been immediately withdrawn in cash by Arabiya Traders. As already observed from the remand report, Shri. Idris Khan, Prop. Arabiya Traders could not substantiate his purchases of firewood with evidence, nor could he substantiate the payments made. He also did not know who signed the bills raised on the appellant on his behalf. In view of the above, I am of the opinion that the purchases of firewood made from M/s Arabiya Traders are not substantiated and hence, the addition made on account of bogus purchase of firewood from Arabiya Traders is upheld.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us has filed a paper book running from pages 1 to 753. He argued that the appellant had produced proper documentary evidence in support of the purchases from M/s Arbiya Traders. These included sale bills, confirmation of accounts, bank entries, and VAT returns. Merely because the proprietor of Arbiya Traders, Mr. Idris Khan, could not fully substantiate his own purchases of firewood, the purchases made by the appellant could not be disbelieved. The learned AR stressed that the supplier had confirmed the sales to the appellant, and the payments were duly reflected in the .
- 1335/Bang/2025 Page 7 of 12 banking channel. Therefore, the addition sustained by the learned CIT(A) was contrary to facts and law.
The learned AR further contended that the principle of consistency and documentary evidence should prevail over mere suspicion. He emphasized that when the assessee had discharged his burden by producing primary evidence, the onus shifted to the department to prove that the documents were false or bogus, which was not done in the case on hand.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the addition has been made solely on the ground that the proprietor of M/s Arabiya Traders, Shri Idris Khan, could not produce supporting documents for his own purchases of firewood from villagers. At the same time, it is not in dispute that the assessee has furnished bills of purchase, ledger accounts, copies of the bank statement of the supplier reflecting payments received from the assessee, and VAT returns filed by M/s Arabiya Traders. These evidences were duly placed before the lower authorities and were never found to be false or fabricated. In fact, during the remand proceedings, Shri Idris Khan himself appeared before the Assessing Officer and confirmed that he had supplied firewood to the assessee. His statement, though lacking further details of his own sources of procurement, nevertheless establishes the fact of sales made to the assessee.
- 1335/Bang/2025 Page 8 of 12 20.1 It is a settled principle of law that the assessee cannot be expected to prove the source of source. Once the assessee has discharged the primary onus by showing that payments were made through banking channels, that purchase bills exist, and that the supplier has admitted the transactions, the burden shifts to the Department to disprove the genuineness of such transactions with cogent evidence. In the present case, no evidence has been brought by the Department to establish that the firewood purchases shown by the assessee were non- existent or that the material was not used in the manufacturing process. Mere suspicion arising from the manner in which the supplier conducted his own business cannot be a valid ground to disallow purchases in the hands of the assessee.
20.2 We also find force in the argument that the assessee is engaged in manufacturing rice bran oil and requires large quantities of fuel such as firewood for its production process. The consumption of such fuel is reflected in the production records and has not been doubted by the Assessing Officer. Thus, in our considered opinion the purchases cannot be brushed aside simply because the supplier failed to maintain comprehensive records of his own procurement.
20.3 We also draw support from the decision of the Hon’ble Gujarat High Court in CIT v. Nangalia Fabrics Pvt. Ltd. [2014] 220 Taxman 17 (Guj.), where it was held that when purchases are supported by bills, entries in books, and payments through banking channels, disallowance cannot be made simply because the supplier did not maintain detailed records or was not traceable later. The relevant finding is extracted as under:
ITA No.1330 - 1335/Bang/2025
3. The question pertains to the purchases made by the assessee-respondent. On account of unverifiable purchases, the Assessing Officer made additions to the tune of Rs. 1.27 crores. He was of the opinion that none of the parties could be located and therefore, such purchases were held to be bogus. When it was challenged before the CIT(A), the CIT(A) was of the opinion that they could not be held bogus as the corresponding sales had been effected by the respondent in the next year. In subsequent year also and in the past, such purchases were made which were never questioned. When challenged before the Tribunal on the basis of the facts presented before us, it held that these purchases could not be held bogus by holding thus: "13. We have considered the rival submissions and the materials placed on record. The purchases are supported by bills, entries in the books of account, payment by cheque and quantitative details Assessing Officer did not find any inflation in purchase price or inflation in consumption or suppression the production. The addition had been made only on the ground that the parties are not traceable. Assessee had made payment through crossed cheques and assessing officer did not find that payment made came back to assessee. Assessing Officer has made addition in respect to the outstanding amount as on 31.3.2001 which has been cleared in the succeeding years. The ratio of the creditor to the purchases is normal considering the past records of the assessee. The creditors were outstanding owing to liquidity as assessee is also required to get credit in respect of sales also. Even otherwise provision of section 68 is not attracted to amounts representing purchases made on credit as held in the case of Panchan Dass Jain cited supra. The addition for bogus purchases cannot also be sustained in full or in part in view of the various cases laws cited by the assessee and in view of the facts that the decision of Vijay Proteins Ltd. and Sanjay Oil Cake Industries are not applicable to the facts of the assessee's case. Assessee's case is covered by the decision of Hon'ble Gujarat High Court in case of Kashiram Textile Mills. In view of the matter, addition made by the assessing officer is deleted. Ground No.1 of Assessee's appeal is allowed and ground No.1 of Revenue's appeal is dismissed."
The issue is essentially based on facts. The Tribunal, having been satisfied by genuineness of the purchases as also specially considering the payments made through the cheques, was of the opinion that such addition could not be sustained. Issue, essentially and pre-dominantly based on facts, requires no consideration as no question of law arises.
20.4 In the present case, the Department has not shown any material to establish that the firewood was not received by the assessee or that the payments made were fictitious. In view of the above, we hold that the assessee has satisfactorily demonstrated the genuineness of the impugned purchases and the addition made by the Assessing Officer and confirmed by the learned CIT(A) is unsustainable in the given facts and circumstances. Accordingly, the disallowance on account of purchases .
- 1335/Bang/2025 Page 10 of 12 from M/s Arabiya Traders is directed to be deleted. Hence the ground of appeal of the assessee is hereby allowed.
20.5 Without prejudice to the above, we have also examined the legal position arising from the fact that the year under consideration, i.e., A.Y. 2009-10, is an unabated assessment year. It is an undisputed fact that on the date of search under section 132 of the Act, the assessment for A.Y. 2009-10 had already attained finality and was not pending. In such circumstances, the settled position of law, as laid down by the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell Pvt. Ltd. [2023] 149 taxmann.com 399 (SC), is that in case of unabated assessment years, additions under section 153A of the Act can be made only on the basis of incriminating materials unearthed during the course of search. If no such incriminating material relating to the alleged bogus purchases is found, the completed assessment cannot be disturbed.
20.6 In the present case, the disallowance of firewood purchases from M/s Arabiya Traders is not based on any seized incriminating material. As such the Assessing Officer relied only upon regular books of account, bills, and third-party enquiry, but no seized document was shown to establish that the purchases were bogus. The mere fact that certain bills were found at the premises cannot be considered as incriminating material when such bills were already recorded in the regular books and disclosed to the Department. Therefore, applying the ratio laid down by the Hon’ble Supreme Court in Abhisar Buildwell (supra) which was followed in several subsequent Tribunal decisions, we hold that no addition could have been made for this unabated year in the absence of seized incriminating material. On this technical ground also, the addition .
- 1335/Bang/2025 Page 11 of 12 made by the Assessing Officer and sustained by the learned CIT(A) is not sustainable and deserves to be deleted.
In the result, appeal of the assessee is hereby partly allowed. to 1335/Bang/2025, appeals filed by the assessee for the A.Ys. 2010-11 to 2014-15.
At the outset, we note that the issues raised by the assessee in captioned appeals for the AYs 2010-11 to 2014-15 are identical to the issue raised by the assessee in for the assessment year 2009-10. Therefore, the findings given in shall also be applicable for the assessment years 2010- 11 to 2014-15. The appeal of the assessee for the A.Y. 2009-10 has been decided by us vide paragraph Nos.20 to 20.6 of this order wherein we have allowed the grounds of appeal of the assessee on merits and legal grounds in relation unavailability of incriminating material in case of unabated assessment years whereas dismissed the other legal grounds, general ground and consequential grounds as infructuous or not pressed. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2009-10 shall also be applied for the assessment years 2010-11 to 2014-15. Hence, the ground of appeal filed by the assessee on merit for A.Y. 2010-11 to 2014-15 and legal ground in relation to unavailability of incriminating material for unabated assessment years being A.Y. 2010-11 to 2013-14 are hereby allowed whereas other grounds are hereby dismissed as infructuous or not pressed.
- 1335/Bang/2025 Page 12 of 12
In the result, the appeals of the assessee for A.Ys. 2010-11 to 2014-15 are hereby partly allowed.
In the combined result, all six appeals of the assessee are hereby partly allowed.
Order pronounced in court on 10th day of November, 2025