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Facts
The Revenue appealed against the deletion of an addition made by the AO on account of bogus purchases amounting to Rs. 87,64,74,079/-. The AO disallowed the purchases from M/s Sharp Kind Trading Pvt. Ltd. (SKTPL) alleging that SKTPL was a non-existent entity, had declared abnormally low profits, and that no evidence of transportation of goods was provided.
Held
The Tribunal restored the issue back to the file of the AO for fresh adjudication. The Tribunal noted that certain important aspects, including the GST investigation and closure report, along with evidence of transportation of goods, were not fully examined by the AO. Therefore, the AO was directed to examine these aspects and decide the genuineness of purchases from SKTPL.
Key Issues
Whether the purchases made from M/s Sharp King Trading Pvt. Ltd. were genuine and whether the CIT(A) erred in deleting the addition made by the AO based on the grounds raised by the Revenue.
Sections Cited
147, 144B, 37(1), 148, 143(2), 142(1), 270A(9), 69-C, 40A(3), 250, 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of Revenue and Cross Objection by the assessee pertaining to A.Y. 2017-18 are directed against the order dated 27.03.2025 framed by National Faceless Appeal Centre, Delhi emanating out of Assessment Order dated 30.05.2023 passed u/s.147 r.w.s.144B of the Income Tax Act, 1961 (in short ‘the Act’).
Revenue has raised following grounds of appeal :
“1. On the facts and circumstances of the case, the ld.CIT(A) erred in deleting the addition of ₹87,64,74,079/- made by the AO on account of bogus purchases.
2. On the facts and circumstances of the case, the ld.CIT(A) erred in not considering the fact that the entity M/s. Sharp Kind Trading Pvt. Ltd. was a bogus non- existing entity and the transaction between the assessee and the said concern were non-genuine.
3. On the facts and circumstances of the case, the ld.CIT(A), being the first fact finding authority, grossly erred in not ascertaining the fact as to whether there was any actual delivery of goods.”
The appellant craves leave to add, amend or to delete any ground of appeal.”
Brief facts of the case are that the assessee is a Limited company engaged in the Manufacturing, Trading and sale of Hand Tools and Forgings. Return of income for A.Y. 2017-18 filed on 09.10.2017 declaring income of ₹17,50,38,980. Ld. Assessing Officer (AO) based on the information received from the O/o. ITO, Ward-4(3)-4, Mumbai about the alleged bogus purchases of ₹87.65 crore made by the assessee from M/s. Sharp Kind Trading Pvt. Ltd. (in short ‘SKTPL’) which was gathered during the course of scrutiny proceedings of SKTPL wherein for effecting the sales to the assessee at 87.65 crore negligible expenditure of ₹9,39,457 was incurred. After serving valid notices u/s.148, 143(2) and 142(1) of the Act, re- assessment proceedings were carried out and assessee was asked to file the details as called for in the notice issued u/s.142(1) of the Act on 24.02.2023 to which necessary compliances made. Ld. AO observed that out of the total sales made by the vendor SKTPL, 97.8% sales has been made to the assessee. He observed that SKTPL has declared abnormally low profit before tax and it is merely 0.07% of the total sales. Ld. AO further observed that assessee has not furnished any evidence of transportation of goods purchased worth ₹87.65 crore and even the entity namely SKTPL also could not furnish any transportation bills. Reference also made to the physical verification made of the Registered office of SKTPL. Even though the assessee made the submissions that the alleged purchases from SKTPL are genuine and sales have been made against the said purchases, transportation charges borne by the supplier, payments made through banking channel and books of account regularly audited, however, ld. AO concluded the re-assessment proceedings disallowing 100% of the purchases made from SKTPL thereby making addition u/s.37(1) of the Act at ₹87,64,74,079 observing as follows (relevant extract) :
“5. Summary The submission of the assessee M/s Sharp King Trading Co. Pvt. Ltd and submissions made by other entities was perused and examined but not found tenable, on following grounds : (a) Neither assessee nor Sharp King have submitted the transportation bills for the instant AY, nor for other preceding or succeeding years to substantiate the ongoing business relationship, despite asking for it multiple times. As per assessee's own submission, the transportation cost is borne by M/s Sharp King trading, however, M/s Sharp King Trading also did not furnish any transportation related documentary proof. Thus, proving that no actual transportation of goods has actually happened. Merely furnishing ledgers, and bank statement is not a conclusive proof of actual purchases made by the assessee. • All our vendors including Sharp King are required to deliver these materials at our warehouse at their own cost and arrangement. Once the materials are delivered at our warehouse and post inspection of the said materials by our
Quality Control team a signed copy deliver challan is issued to Sharp King. A Copy of said delivery challan is enclosed herewith and marked as Annexure-C.
(b) The assessee comprises 97.8% of the total sales made by the M/s Sharp king Trading Pvt Ltd, yet no transportation bills were furnished with respect to it. Even though M/s Sharp king Trading Pvt Ltd accepted under oath that it had delivery challan, lorry receipts, acknowledged delivery notes custom clearing registers, yet nothing was furnished by it.
(c) M/s Sharp King has booked operating expenses worth Rs.9,37,457/- against total turnover of Rs.85,25,52,144/-, which is abysmally low. Also, no freight or transportation charges have been booked by it in its other expenses, even though it is claimed in 148A(d) order that seller has borne the transportation charges. The only bill furnished with respect to assessee was of meagre Rs.300/-.
(d) The physical verification of the two warehouses and two corporate offices led to the following conclusions :
(1) The M/s Sharp King Trading has only 2 one room warehouses, which are currently empty and do not have the storage capacity (250 square feet) of turnover Rs.85,25,52,144/-.
(2) The leave and license agreement is very recent, so it is not established if the warehouses were rented by M/s Sharp king in FY 2016-17, as no documentary proof regarding the same has been furnished.
(3) With respect to the address mentioned on all the ledger and invoices, M/s Sharp King Trading Pvt Ltd never existed at that address.
(e) The analysis of purchases (Para 4(h)) made by M/s Sharp King Pvt Ltd lead to the finding that every supplier had booked abnormally low transportation/ freight expenses against the sales made and most are directly dealing with the assessee(M/s Taparia Tools). This strongly raises the question, why are these suppliers of M/s Sharp King trading Pvt Ltd, not directly supplying to Taparia Tools, and accordingly reducing the cost of intermediary, which would make business sense and increase their profits. It proves that the suppliers of Mis Sharp King Trading Pvt. Ltd, M/s Sharp King Trading Pvt. Ltd. And Taparia Tools are engaged in paper circular transactions amongst themselves, thus, strongly pointing towards bogus purchases made by assessee (Taparia Tools) and is trying to provide paper trail for the same.
(f) The comparative figure of Turnover, Taxable income as per ITR, and Profit margin of M/s Taparia Tools Limited, M/s Sharp King Trading Pvt Ltd. and the suppliers of M/s Sharp King Trading Pvt Ltd, is given as under. As it can be seen, the profit margin booked by M/s Sharp King trading and its suppliers is abysmally low as compared to Taparia Tools, who is deriving profit of 3.69% from trading goods sale, and derives its 78.9% of Revenue from sale of Trading goods. It is evident from the data, that these entities are merely involved in paper circular transactions, as despite having high turnover, they are booking extremely low profit and low expenses given the quantum of turnover booked. It brings to question the fact that why would entity, with the sole intent of earning profit, book such miniscule profit, unless it is merely bogus entity.
Name of entity Turnover Taxable Income PBT/Turnover ₹3,72,16,07,000 ₹17,58,37,000 4.72% M/s. Taparia Tools (3.69% from sale of trading goods) ₹88,25,52,144/- ₹6,62,168 0.07% M/s. Sharp Kind Trading ₹92,54,79,714 ₹3,05,591 0.03% M/s. Someshwar enterprise Pvt. Ltd. ₹24,36,33,533 ₹1,68,362 0.069% M/s. Anuradha Vyapar Pvt. Ltd. ₹7,81,80,000 ₹3,16,000 0.4% M/s. Ferrum Alloys Pvt. Ltd. ₹9,89,98,584 ₹10,98,357 1.1% M/s. Accurate Metal Corporation ₹(-)3,35,765 NA M/s. Jasonath NO DATA Bright Steel Ltd. (g) The assessment order of M/s Sharp King Trading Pvt. Ltd. has rejected the books of accounts of it and has made an addition of Rs.2,55,76,564/-. Thus, proving that the purchases made by the assessee, M/s Taparia Tools Limited is bogus as well. Given below is screenshot of assessment order of M/s SharpKing Trading, wherein it has stated that the sales made by it are bogus. Accordingly, it is proved that the purchases made by M/s Taparia Tools from M/s Sharp King Trading is bogus.
(i) The assessee have only issued Bills related to sale. It has failed to produce that it has actually received the purchased items. (ii) From the facts discussed regarding bills of loading & unloading. It is again clear that the assessee failed to prove that it has actually delivered the goods at the doorstep of debtors/buyers.
6.1 Hence, on perusal of information available, submissions made by the assessee and above discussion, it is found that the assessee company's purchases worth Rs.87,64,74,079/- from M/s Sharp King trading Pvt. Ltd., is bogus purchase and said amount 100% is disallowable.
6.2. In the context of the case under hands, disallowance of 100% purchases as purported to be shown from M/s Sharp King Trading Pvt Ltd has also the backing of ratio laid down by Hon'ble Supreme Court. The Apex Court observed in the case of N.K. Proteins Ltd v. DY. CIT 2017 Tax Pub(DT) 1860 (SC): (2017)0 TAXMAN 0022 is very relevant here Where assessee filed SLP to appeal against the Judgment of the Gujarat High Court in N.K. Industries Ltd. v. Dy. CIT (2016) 292 CTR (Guj) 354 whereby it was held that addition on basis of undisclosed income could not be restricted to certain percentage when the entire transaction was found as bogus, the Supreme Court dismissed the SLP. Assessee filed SLP to appeal against the judgment of the Gujarat High Court in N.K. Industries Ltd. v. Dy. CIT (2016) 292 CTR (Guj) 354 whereby it was held that addition on basis of undisclosed income could not be restricted to certain percentage when the entire transaction was found as bogus the Hon'ble Supreme Court dismissed the SLP.
6.3. Therefore, on the basis of the findings of the facts as discussed above and also following the spirit of the Judgement of the Hon'ble High Court which was later confirmed by the Hon'ble Apex Court and considering all the circumstances it is held that the books of accounts maintained by M/s Taparia Tools Ltd is manipulated and unreliable. Accordingly, disallowance of expenses on account of purchase of Rs.87,64,74,079/- from M/s Sharp King trading Pvt. Ltd. is justified to the hilt.
6.4. Here, it may be mentioned that sometimes, it is presumed that if sales are there then purchases would have been made. The main aspect which has been overlooked while presuming so, is that when the actual purchases have not been made from the professed parties then in case sales are true, the purchases would have been made from other undeclared parties/entities and here the most important thing is that payments to said parties /entities cannot be said to be made from accounted money. Thus, aspect of unexplained expenditure u/s 69-C come into picture along with other aspects u/s 40A(3) etc. Thus, in the fitness of things, purchases as such are being disallowed in this case is completely justified.
6.5. Thus, in the case under hands, an addition on account of bogus purchases amounting to Rs.87,64,74,079/-is being made u/s 37(1) of the Act, and added to the total income of the assessee. Penalty u/s 270A(9) of misreporting of income is being initiated.
Section 37. General-(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 1 **and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head-Profits and gains of business or profession. (Addition of ₹87,64,74,079)”
4. Aggrieved assessee preferred appeal before ld.CIT(A) and along with the submissions which were made before the AO, reference was also made to the report of Directorate General of Goods and Service TAX (GST) Intelligence office, Nashik Zonal unit where it has been stated that materials have been supplied to the assessee by SKTPL. Ld.CIT(A) taking note of such report of GST Department and also taking note of other details submitted by the assessee held that the purchases made from SKTPL are not bogus. Relevant finding of ld.CIT(A) reads as under :
“(ii) Secondly, but most importantly, I don't agree with the AO's findings because of the following reasons. -
"As stated by the appellant, it is true that the AO has not proved any of the ingredients required to call a particular transaction as bogus/paper purchase. A bogus/paper purchase would comprise of the following elements essentially: - a) Issuing bogus bills/fake invoices. b) Obtaining account payee cheques. c) Depositing cheque in the bank account of beneficiary. d) Withdrawing cash by beneficiary. e) Returning back of cash after adjustment of outgoings, if any. None of these ingredients were proved by the AO, in order to prove that the purchases made are bogus. There is no circulation of cash which is the primary ingredient. In the present case, it is true that none of the above said ingredients have been proved or that any corroborative evidences have been brought on record to prove that the purchases from the said parties are bogus and that the cash has been received back by the assessee. The concept of "Follow the money" did not happen here." (iii) The Inspector's report which was reproduced by the AO in the assessment order after 5 years shows the existence of a small room with cartoon boxes scattered and arranged against the wall. It is important here to see the nature of business of the appellant as well as its seller which is basically tools which may not occupy lots of space. And many such business run without big offices/warehouses, to cut down the expenditure. These businesses depend on the turnover they do.
(iv) Further, the appellant also submitted regarding the existence of M/s Sharp King Trading Pvt. Ltd. as under:-
"We would like to inform your honor that during the search and seizure proceedings conducted by the Directorate General of Goods and Service Tax (GST) Intelligence office, Nashik zonal unit, one of the primary factor was to verify and evaluate the purchases made from sharp king. The said Hon'ble office after completing the proceedings have concluded vide their closure report dated 30th December 2021 that materials have actually been supplied to us by M/s Sharp King Trading Pvt. Ltd. and hence we request you to please consider the assessment without any prejudice and based on merits of our case.”
Based on this the existence of the above concern cannot be ruled out in the presence of report by another statutory and executive authority.
(v) Moreover, the appellant continues to have business transactions with the said concern.
(vi) It is also true that there was a fire accident in the premises of the appellant and therefore timely reconciliation was not possible.
(vii) And the percentage of profit declared by the appellant is arm's length with other traders and manufacturers in the same line of business for the past three years and the next three years and does not demonstrate any large scale booking of bogus expenditure.
(viii) If wholistically seen, the books would be very skewed as sales and stock also needs to be verified which is not done in this case.
(ix) The gaps in reconciliation pointed out by the AO are found to be miniscule.
(x) Further, the honoured precedents relied by the appellant are directly applicable to the instant case.
Thus, I clearly find that the entity called M/s Sharp King Trading Pvt. Ltd. is existing and the transactions between the appellant and the said concern are genuine. Thus, Grounds of appeal No. 2 to 6 raised by the appellant stand in favour of the appellant and are allowed.
In the result, the appeal stands Partly Allowed.”
5. Aggrieved Revenue is now in appeal before this Tribunal. Assessee has also filed Cross Objection in support of the finding of ld.CIT(A).
Ld. DR referring to the written submissions stated that no transportation bills have been filed by the assessee which could demonstrate that the goods have reached to the assessee’s premises. He further stated that even if the transportation costs have been borne by the supplier/vendor SKTPL even in that situation SKTPL could not furnish any transportation related documentary proof except a single bill of ₹300/-. He submitted that zero freight has been booked by SKTPL. Investigation has been carried out by Verification Wing by physically verifying the warehouses and the office of SKTPL from where it was noticed that the weighing capacity for both warehouses were found to be extremely low storage capacity of 250 sq.ft. as against huge turnover of the entity of approx. 87.65 crore. Reference also made to the financials of SKTPL where extremely low operating expenses and extremely low profits have been declared against the huge turnover. Reference also made to the assessment order in case of SKTPL where the AO has observed that SKTPL has only issued the bills related to the sales but actual delivery or sales could not be established, therefore SKTPL is not doing any genuine business. He further submitted that order of ld.CIT(A) is non speaking and ld.CIT(A) failed to consider that the finding of AO in respect of SKTPL clearly establish that the onus is on the assessee to rebut the finding of the AO with conclusive proof. As regards the GST closure report dated 30.12.2021 referred to by ld.CIT(A) in the impugned order, relevant part of the submissions of ld.CIT-DR reads as follows:
5.5 The Ld.CIT(A) has mentioned a closure report dated 30th December, 2021 of the GST authorities. However, no such GST closure report dated 30th December 2021 is on record. If this was additional evidence, then the Ld.CIT(A), as per rule 46A, ought to have forwarded the same to the AO for the comments. The failure of ld.CIT(A) to not follow the procedure laid down in Rule 46A renders the order illegal and liable to be quashed. It is seen that in the paper book submitted by the assessee, there are two documents- one dated 24.12.2021 (page no. 2356 of the asseesse's paper book) and other is dated 27.04.2023 (page nos 2357-2359). The document dated 24.12.2021 is Intimation regarding the closure of CGST Enquiry. It is signed by Superintendent, CGST & CX, Nashik. As per this letter, investigation was initiated against the assessee on the limited issue of mis-match of vehicles data as mentioned in 19 E- way Bills filed by M/s Sharpking Trading Co. Pvt. Ltd., Mumbai and M/s Krishna Upsana Mfg. Co. Pvt. Ltd., Mumbai with the data available on the E-way bill portal Further, in the very next para, it mentions that on the basis of explanation made by the assessee and its vendors were found that the goods have been supplied by M/s Sharpking Trading Co.Pvt. Ltd., Mumbai and M/s Krishna Upsana Mfg. Co. Pvt. Hence, the enquiry was closed by Commissioner, CGST & CX, Nashik. It is pertinent to mention here that the letter has been signed by the Superintendent, CGST & CX, Nashik. It is not signed by the Commissioner, CGST & CX, Nashik or on the behalf of Commissioner, CGST & CX, Nashik. Further, it is just a letter which has been issued on the request of the M/s. Taparia Tools Limited". It is not the closure report. The letter does not give any details regarding the scope and nature of the proceedings. It is pertinent to mention here that the letter mentions that investigation was limited to verification of mismatch of vehicles data. From this limited enquiry, the letter gives clean chit in respect of " goods supplied by vendors to the assessee". This clean chit when seen in context of the failure of assessee as well as SKT to produce any bills regarding the transportation raises more questions than it answers. Further, it is not clear that this letter was produced before the AO. If this was additional evidence, then the Ld.CIT(A), as per rule 46A, ought to have forwarded the same to the AO for the comments. The failure of Id.CIT(A) to not follow the procedure laid down in Rule 46A renders the order illegal and liable to be quashed.
5.6 The other document dated 27.0.2023 is the closure report by the ACST, Investigation-A, Mumbai. However, the closure report is in respect of suspicious ITC and does not mention M/s SKT or any other vendors of the assessee-company. Further, it not clear whether this closure report was presented before the AO. This is additional evidence. As per rule 46A, the Ld.CIT(A) ought to have forwarded the same to the AO for the comments. The failure of Ld.CIT(A) to not follow the procedure laid down in Rule 46A renders the order illegal and liable to be quashed..
5.7 Thus, in view of the above discussion, it is seen that the order passed by the Ld.CIT(A) is not a speaking order and in violation of provisions of section 250 and Rule 46A. It is pertinent to mention here that it is the duty of the CIT(A) to pass a speaking order and failure to do so would lead to violation of principle of natural justice. It would be pertinent to note here the relevant provisions of section 250(6). The same are reproduced for ready reference
250.
(6) The order of the (Joint Commissioner (Appeals) or the] Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. (emphasis added)
Thus, the Id.CIT(A) ought to have considered all the enquiries and analysis carried out by the AO and then decided the issue by way of speaking order assigning reasons for the decision. Reliance is placed on the decision of Hon. Allahabad High Court in Commissioner of Income-tax (Central), Kanpur v. Smt. Swapna Roy [2010] 192 Taxman 105 (Allahabad) (Annexure-2) where in the decision of Hon. Supreme Court in the case of Asstt. Commissioner, Commercial, Tax Department, Works Contract and Leasing Quota v. Shukla & Bros. 2010 (4) JT 35, has been quoted in which it was held by the Apex Court that it shall be obligatory on the part of the judicial or quasi-judicial authority to pass a reasoned order while exercising statutory jurisdiction. Reliance is also placed on the decision of Hon. Gujarat High Court in Rasiklal Ranchhodbhai Patel vs. Commissioner of Wealth-tax [1980] 121 ITR 219 (GUJ.) (Annexure-3) where in it has been held that :
It is settled law that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principal of natural justice which must inform every quasi-judicial process and this rule must be observed in its Proper spirit and mere pretence of compliance with it would not satisfy the requirement of law.
Therefore, the failure to give reasons, reasons which are substantial and not an apology for reasons, is now treated as necessary requirement for compliance with the principle of audi alteram partem.
Conclusion:
6.1 To Conclude, it is affirmed that a. Ld.CIT(A) grossly erred in not considering the detailed findings of the AO and investigation made by the VU in respect of the purchases made from M/s SKT. b. Ld.CIT(A) ought to have passed a speaking order as per law following the provisions of section 250 and Rule 46A. In view of the above it is prayed that the above submissions may kindly be taken on record and the order of the Ld.CIT(A) be quashed and disallowance made by the AO be confirmed.
On the other hand, ld. Counsel for the assessee apart from placing reliance on the finding of ld.CIT(A), also made reference to the written submissions and stated that the assessee has discharged its onus of proving the genuine purchases made from SKTPL by way of filing the purchase orders, purchase invoices, delivery challans mentioning Vehicle Number used for transportation and the Lorry Receipt No., Confirmation from SKTPL and ledger account and bank statement showing payments made to SKTPL through banking channel. Reference also made to the paper book running into 2492 pages which mainly includes copies of purchase invoices and delivery challans pertaining the transactions with the alleged vendor SKTPL. He also submitted that books of account have been verified and Investigated by MVAT and GST authorities through investigation wing and have not reported any discrepancy and infact GST authorities have held the purchases from SKTPL to be genuine and that AO has not rebutted any of the documentary evidences filed by the respondent. Further the entire trail of goods starting from initial import or manufacture of goods by third party including statement of lorry receipt, bill of entry etc. to sale of goods by respondent provide conclusive evidence of purchase of goods. Finding of AO alleging purchases to be bogus is mainly driven and extension of the assessment proceedings in case of SKTPL. Ld. AO has not considered the documentary evidence submitted by the respondent. He submitted that the Investigation carried out by the Verification Unit and the office premises of SKTPL, the same has been done on the address mentioned in the tax invoice for the period 2016-17. However, the AO could have very well identified the new address of SKTPL through Ministry of Corporate Affairs Website for physical verification and in absence of any such verification of the correct business place of SKTPL, the conclusion drawn by the AO is not acceptable. In support of its contention that the assessee has discharged its primary onus casted to prove the genuineness of purchases, then the AO without placing any contrary evidence/material against the assessee cannot make the addition for bogus purchases. Ld. Counsel referred and relied on the following decisions :
1. PCIT Vs.Jagdish Thakkar (2022) 145 taxmann.com 414 (Bombay HC) 2. CIT Vs. Nikunj Exim Enterprises Pvt. Ltd. (2013) taxmann.com 384 (Bombay HC) 3. Manoj Sharma Vs. ITO (2019) 103 taxmann.com 104 (Delhi Trib.)
Further, ld. Counsel for the assessee concluded his arguments praying for affirming the order of ld.CIT(A) stating the following:
“a. In light of the above submissions, it is prayed that the order passed by the Ld. CIT(A) be affirmed and the additions made towards bogus purchases be deleted on account of the following: Assessee has submitted contemporaneous documentary evidence which substantiates the receipt of goods from SKTPL and existence of the said entity.
The findings of the AO are devoid of merits and the analysis and verification done are unwarranted and arbitrary in nature. GST/MVAT authorities had done specific investigation in this regard and has accepted the purchases made from SKTPL and no negative inference has been drawn any time since AY 2017-18. Books of the respondent are audited under various laws and there are no negative inferences in this regard. Order passed by the CIT(A) is a well-reasoned order and be affirmed.
We have heard the rival contentions and perused the record placed before us. Revenue is aggrieved with the finding of ld.CIT(A) deleting the disallowance made by ld. AO for the purchases made by the assessee from M/s. Sharp King Trading Private Limited (in short ‘SKTPL’) amounting to ₹87,64,74,079. Ld. AO has made the said disallowance based on various observations including assessment proceedings carried out in the case of SKTPL where the books of SKTPL were rejected and it is observed that SKTPL is only engaged in issuing the sales bills but failed to produce any evidence whether it has actually received and transported the alleged purchased goods. One of the main reason for such observation by ld. AO of SKTPL was that the bills of loading and unloading were not filed and no evidence could be placed that how the goods were actually supplied at the doorstep of the SKTPL and thereafter being sent to its buyer, i.e. the assessee. In the instant appeal ld. AO has also made reference to some transport bills issued by Matoba Transport which has charged only ₹555/- for transporting the goods weighing 6.160 MT and also observing that the Vehicle which has loading capacity of 750 kgs only, how can it take the load of 1.760 MT. In all, the examination of the AO mainly revolve around the expenses incurred for actual transportation of goods purchased by assessee and in absence of such proof has held the alleged purchases as Bogus. His final observations in the summary indicates that neither the assessee could place any evidence which could show how the goods have been transported from SKTPL to its premises nor any evidence could be placed by SKTPL demonstrating the transportation of goods from its office premises to the assessee’s premises. For such non-availability of evidence proving the transportation of goods purchased by the assessee from SKTPL ld. AO has presumed that even if the sales are there then purchases would have been made from other parties/entities (other than SKTPL) and then payments to such parties would have been made from unaccounted money and therefore aspect of unexplained expenditure u/s.69C comes into picture along with other aspects of section 40A(3). However, ld. AO has finally made addition by disallowing the purchases u/s.37(1) of the Act.
We further observe that ld.CIT(A) while dealing with this issue has also referred to various details filed by the assessee and more importantly one of the specific detail is regarding the report of the GST Intelligence office dated 30.09.2021 as per which it is stated that the materials have actually been supplied to the assessee by SKTPL. Copy of this report has been placed by the assessee at page 43 of the paper book and the same reads as under :
Reference of the above stated closure report has been made by ld.CIT(A) in the impugned order and ld. DR has submitted that this report dated 24.12.2021 was not placed before ld.AO, before passing of the assessment order on 30.05.2023 and remand report ought to have been called from the ld. AO. Before us also, when the submissions of ld. DR were confronted to the assessee, Ld. Counsel for the assessee has made the following submissions in its reply dated 04.11.2025 :
“Sub: Submissions as directed during the course of hearing Respected Your Honours', This is in reference to the captioned matter which was heard on October 7, 2025. Your Honour had instructed to file the documents supporting the Closure letter dated 21.12.2021 for the enquiry conducted under GST law (filed in the paper book at Sr. no. 3-page no. 43, submitted on October 7, 2025). In reference to the same, we would like to submit the following documents, which corroborates the reference of the search being conducted on the Appellant in the Closure letter (supra).
1. Summons dated 03.09.2021 issued by the Office of the Commissioner of CGST & Central Excise, Nashik
2. Punchnama dated 03.09.2021 Your Honours' would note from the above, that a search was indeed conducted on the Appellant and due enquiries were also conducted. It was post this enquiry that the closure letter was issued by the relevant authorities. There is no doubt that the search was conducted, and the genuineness of the Closure letter should not be doubted. Your Honours' would further appreciate that post such search and relevant enquiries, there were no adverse inferences drawn as regards the purchases made from Sharp King Trading Co Pvt. Ltd. Without prejudice to the above, it is our earnest submission that even if any verification is required, the matter may be set aside to the file of the AO as the CIT(A) has already taken cognizance of the same and decided the issue in favour of the assessee. If the department needs further verification in context of the said document, the matter be set aside to the file of the AO and appreciate a specific direction to that effect of verifying the fact that the investigation was indeed conducted under the GST law and there was no negative inference drawn against the assessee.
Request Your Honours' to kindly consider the above submissions on record and it is our humble submission that the additions made be deleted.”
On going through the above submissions filed by ld. Counsel for the assessee it has been stated that summons have been issued by O/o. CGST and Central Excise, Nashik on 03.09.2021 to the assessee and search was indeed conducted on the appellant and due enquiries were also conducted. It is however fairly admitted that the information about such search proceedings carried out by GST Department and the closure report dated 24.12.2021 were not placed before the ld. AO and the assessee has no objection if the matter is set aside to the file of ld. Jurisdictional Assessing Officer for necessary verification. Along with the closure report dated 24.12.2021 in the enquiry conducted under the GST law assessee has furnished another letter dated 27.04.2023 issued for closure of the Investigation proceedings carried out on the assessee under GST law and the copy of the same is placed at pages 53 to 55 of the paper book. In this closure report, it is stated about verification of records for purchases from RC cancelled suppliers made during 2017-18 to 2021-22, and there being no adverse comment about purchases from SKTPL during F.Y. 2017-18 and other years, therefore such closure report dated 27.04.2023 is also an evidence to prove that genuine purchases have been made through SKTPL. It is also stated by ld. Counsel for the assessee that all the details of transportation of goods purchases from SKTPL which could not be furnished in totality before the AO, on account of the reason that the transportation charges were not borne by the vendor SKTPL however now the assessee has all the remaining details including delivery challans, lorry receipts etc. placed in the paper book running into 2492 pages which can also be verified.
Taking into consideration all the above discussion made hereinabove and also observing that certain important aspects about the search proceedings carried out by GST Department in the case of assessee, closure report, another report of the GST Investigation Wing carried out at the registered office of the assessee company about the verification of purchases from RC cancelled suppliers and that the liability has been discharged by the company in full vide its DRC dated 16.12.2022 and also considering the evidence filed by the assessee to prove the transportation of goods from SKTPL (vendor) to the assessee which remained to be examined by ld. AO, we deem it appropriate to restore all the issues raised on merits in the instant appeal of the Revenue back to the file of ld. JAO to carry out the proceedings for the limited purpose of examining the genuineness of purchases made from SKTPL in light of the details to be furnished by the assessee including additional evidence which ld. DR has stated to be additional evidence in nature and thereafter ld. JAO shall decide the same in accordance with law. Needless to mention that ld. JAO shall afford reasonable opportunity to the assessee. Grounds of appeal raised by the Revenue are allowed for statistical purposes.
Since we have allowed the appeal of the Revenue for statistical purposes the Cross Objection filed by the assessee are also allowed for statistical purposes.
In the result, both the appeal of the Revenue as well as Cross Objection of the assessee are allowed for statistical purposes as per the terms indicated above.
Order pronounced on this 10th day of December, 2025.