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Facts
The assessee, engaged in wholesale trading of chemicals, filed a return for AY 2018-19. The Assessing Officer (AO) reopened the assessment based on information that the assessee obtained bogus purchase accommodation entries from M/s. S. K. Enterprises amounting to Rs. 1,75,16,480/-. Despite the assessee providing various documents, the AO disallowed the entire purchases, treating them as unexplained expenditure.
Held
The CIT(A) upheld the AO's disallowance, holding that the assessee failed to prove the physical movement of goods and that the purchases were accommodation entries. However, the Tribunal, considering the settled judicial principle that entire purchases cannot be disallowed and that only profit embedded can be taxed, and noting the assessee's concession, restricted the disallowance to 2% of the impugned purchases, which amounted to Rs. 3,50,330/-.
Key Issues
Whether the entire purchases of Rs. 1,75,16,480/- from M/s. S.K. Enterprises are to be disallowed as bogus accommodation entries, or if only the profit element should be taxed. Also, whether the addition is liable to be taxed under section 115BBE.
Sections Cited
147, 144B, 142(1), 131, 133(6), 69C, 115BBE, 234B, 234C, 145
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SHRI MAKARAND V. MAHADEOKAR
(Assessment Year: 2018-19) Jitendra Rajkumar Agarwal Vs. Assessment Unit, (Proprietor of Shri Shiv Shakti Income Tax Department Enterprise), Jurisdiction AO: B-23, Upper Floor, Nirman Complex, Income Tax Officer, Opp. Havmore Restaurant, Ward-3(3)(2), Navrangpura, Ahmedabad-380009 Ahmedabad [PAN No.ABKPA65673B] (Appellant) .. (Respondent) Appellant by : Shri Sanjay R Shah, CA Respondent by: Shri Abhijit, Sr. DR Date of Hearing 13.11.2025 Date of Pronouncement 28.11.2025 O R D E R
PER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order dated 12.08.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] arising out of assessment framed for the assessment year 2018- 19 under section 147 read with section 144B of the Income Tax Act, 1961[hereinafter referred to as “the Act”] vide order dated 23.03.2024. Jitendra Rajkumar Agarwal (Proprietor of Shri Shiv Shakti Enterprise) vs. ITO Asst.Year –2018-19 - 2– Facts of the Case 2. The assessee is an individual engaged in the business of wholesale trading of chemicals such as Soda Ash, Soda Ash Dense, Sodium Tripolyphosphate and various industrial materials under the proprietorship concern Shri Shiv Shakti Enterprise. he assessee filed the return of income for A.Y. 2018-19 on 30.07.2018 declaring total income of Rs. 25,67,760/-. The Assessing Officer received information through the Insight Portal under CRU alleging that the assessee had obtained bogus purchase accommodation entries from M/s. S. K. Enterprises amounting to Rs. 1,75,16,480/- without actual movement or delivery of goods. Based on this information, the assessment was reopened by issuance of notice under section 148 read with section 147 of the Act.
During reassessment proceedings, the Assessing Officer issued notices under sections 142(1) and 131 calling for details of transportation, transporter names, addresses, PAN, transport bills, weighbridge slips, delivery challans and other evidences to establish physical delivery of goods. The assessee furnished purchase invoices, ledger accounts, purchase register, sales register, bank statements and names of transporters, and submitted that purchases were genuine. The assessee submitted that the goods were sold subsequently and the payments were made through banking channels. However, according to the Assessing Officer the assessee failed to furnish weighbridge slips and delivery challans, the assessee failed to furnish PAN of transporters, the addresses of transporters were found incomplete and Designated Jitendra Rajkumar Agarwal (Proprietor of Shri Shiv Shakti Enterprise) vs. ITO Asst.Year –2018-19 - 3– Verification Unit (DVU) could not serve notices under section 133(6), vehicle numbers contained discrepancies when verified through RTO database, and investigation suggested that the supplier was only issuing accommodation bills. Based on these findings, the Assessing Officer held that no movement of goods occurred from M/s. S. K. Enterprises to the assessee and concluded that the assessee engineered bogus purchases merely to inflate expenses and reduce taxable profit. The entire purchases of Rs. 1,75,16,480/- were treated as unexplained expenditure under section 69C and taxed under section 115BBE. The assessment was completed under section 147 read with section 144B determining total income at Rs. 2,00,84,240/-
4. The assessee challenged the reassessment and the entire disallowance before the CIT(A). The assessee contended that reopening under section 147 was bad in law. The assessee also contended that the purchases from M/s. S. K. Enterprises were genuine as complete documentary evidences were filed. It was also submitted that no adverse material was confronted or cross-examination provided to the assessee. The assessee contended that the audited books and stock records were accepted by the AO and corresponding sales were not disturbed hence taxing entire purchases results in double taxation and artificial income. Further it was agreed that even if disallowance is sustained, only gross profit element can be added. The assessee also relied upon purchase and sales registers, stock statements, inward and outward registers, sample invoices, and bank payment proofs. Jitendra Rajkumar Agarwal (Proprietor of Shri Shiv Shakti Enterprise) vs. ITO Asst.Year –2018-19 - 4– 5. The CIT(A) dismissed the appeal holding that the assessee failed to prove the physical movement of goods and concurred with the Assessing Officer that the purchases were accommodation entries. The addition of Rs. 1,75,16,480/- under section 69C read with section 115BBE was confirmed.
6. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:
1. The learned CIT(Appeals) erred in law and on facts in confirming invocation of provisions of section 147 of the Act and upholding the order passed by the learned Assessing Officer u/s.147 r.w.s. 144B of the Act. It is submitted that in the facts and circumstances of the case, there is no escapement of income, and hence, the invocation of provisions of sections 147 and 148 and the consequential order passed by the learned Assessing Officer as confirmed by the learned CIT(Appeals) u/s.147 r.w.s. 144B cannot be sustained. It is submitted that it be so held now. 2 (i). The learned CIT(Appeals) erred in law and on facts in confirming the disallowance of genuine purchase made by the Appellant from M/s. S.K. Enterprise for a sum of Rs.1,75,16,480/- and treating them as unexplained expenditure u/s.69C of the Act. It is submitted that the addition as confirmed by the learned CIT(Appeals) deserves to be deleted and the same may please be deleted.
(ii) The learned CIT(Appeals) failed to appreciate that the Appellant had led the evidences for the purchase as well as the sale relating to such purchases by producing relevant quantity records like inward register, outward register and tally of quantity of stock as well as other contemporaneous records before him justifying that the purchases are genuine. The learned CIT(Appeals) failed to consider this aspect while upholding the disallowance of genuine purchase of an amount of Rs.1,75,16,480/-.
3. Without prejudice to above, if at all, the purchase of Rs.1,75,16,480/- from M/s. S.K. Enterprise is considered to be non-genuine or bogus, the corresponding sales made by the Appellant against the said purchase should also be reduced from the total income of the Appellant, and if at all, the addition is to be sustained, the same can only be in respect of the gross profit margin of the Appellant on the said transaction. It is submitted that the learned CIT(Appeals) failed to deal with this ground in his appellate order. It is submitted that it be so held now.
Without prejudice to foregoings, the learned CIT(Appeals) erred in law and on facts in confirming the addition u/s.69C as unexplained expenditure and upholding the action of the learned Assessing Officer in taxing the same u/s.115BBE of the Jitendra Rajkumar Agarwal (Proprietor of Shri Shiv Shakti Enterprise) vs. ITO Asst.Year –2018-19 - 5– Act. It is submitted that in the facts and circumstances of the case, the provisions of section 69C as well as 115BBE are not applicable and if at all the addition is to be sustained, the same has to be assessed at a normal rate of tax and not u/s.115BBE.
The learned CIT(Appeals) erred in confirming charging of interest done by the learned Assessing Officer u/s.234B and 234C of the Act. It is submitted that in the facts and circumstances of the case, such interest is not chargeable and the same may please be deleted.
The appellant reserves the right to add, alter or amend any of the grounds of appeal.
The learned Authorised Representative (AR) reiterated submissions made before the lower authorities and emphasised that books of accounts are audited, stock tally and inward-outward movement records exist, payments were made through banking channels, corresponding sales were accepted by the Assessing Officer, there was no rejection of books under section 145, without purchases there could be no sales and entire disallowance leads to unrealistic and excessive taxation. The learned AR submitted that though the assessee maintains that purchases are genuine, without prejudice, the disallowance, if sustained, may be reasonably restricted to profit element embedded in purchases. The learned AR submitted that the gross profit margin of the assessee during the year was 1.57 percent and, upon query from the Bench, conceded that restriction of the addition to 2 percent of the impugned purchases may be accepted as an alternate contention.
With respect to the action of the Assessing Officer in subjecting the addition to tax under section 115BBE, the learned AR submitted that the purchases were duly recorded in the regular books of account and the Jitendra Rajkumar Agarwal (Proprietor of Shri Shiv Shakti Enterprise) vs. ITO Asst.Year –2018-19 - 6– payments were made through disclosed banking channels, and therefore, the alleged expenditure cannot be regarded as unexplained within the meaning of section 69C. It was thus contended that the provisions of section 115BBE, being applicable only to income assessed under specified deeming provisions where the source is not explained, have no application to the present case and the addition, if any, is liable to be taxed at normal rates.
The learned AR, at the time of hearing, did not press the grounds challenging the validity of reopening under section 147, and therefore those grounds are treated as not pressed and stand dismissed accordingly.
The learned Departmental Representative relied upon the assessment order and the order of the learned CIT(A) but did not raise any specific objection to the alternate plea for restricting the disallowance to 2 percent of the disputed purchases.
We have carefully considered the orders of the Assessing Officer and the CIT(A), submissions of the assessee, material available on record, and rival contentions.
The core dispute relates to absence of transportation evidences, weighbridge slips, PAN of transporters and inconclusive inquiries conducted by DVU. These circumstances raise doubt about physical Jitendra Rajkumar Agarwal (Proprietor of Shri Shiv Shakti Enterprise) vs. ITO Asst.Year –2018-19 - 7– delivery of goods; however, the existence of corresponding accepted sales indicates that the assessee indeed traded in goods.
In such circumstances, settled judicial principle is that entire purchases cannot be disallowed. Only profit embedded in such disputed purchases can be brought to tax to neutralize possible inflation of expenditure and prevention of revenue leakage.
The Coordinate Benches of the Tribunal have consistently held that even where suppliers are non-existent or unverifiable, only a reasonable percentage of purchases representing profit suppression is liable to be added.
In the present case, the assessee has already disclosed gross profit of 1.57 percent and during hearing voluntarily agreed to sustain disallowance at 2 percent of the impugned purchases. The learned DR did not object to such alternate contention.
Considering totality of facts, business nature, turnover, accepted sales, absence of rejection of books and fair concession of the assessee, we find it reasonable to sustain the addition at 2 percent of purchases of Rs. 1,75,16,480/- which works out to Rs. 3,50,330/-. Accordingly, the addition sustained by the Assessing Officer and confirmed by the CIT(A) is modified and restricted to Rs. 3,50,330/-. Jitendra Rajkumar Agarwal (Proprietor of Shri Shiv Shakti Enterprise) vs. ITO Asst.Year –2018-19 - 8– 18. On the issue of taxing the addition under section 115BBE, we note the assessee’s contention that the purchases were recorded in the regular books of account and the payments were made through banking channels, and therefore the deeming fiction under section 69C does not arise so as to trigger section 115BBE. However, in view of our decision hereinabove restricting the disallowance to 2 percent of the impugned purchases on estimation of profit element embedded therein, such addition does not fall within the scope of section 69C. Consequently, the question of applying the rate of tax prescribed under section 115BBE does not survive, and the Assessing Officer shall levy tax at normal rates on the income so sustained.
Since the learned AR, during the course of hearing, expressly stated that the grounds challenging the validity of reopening under section 147 were not being pressed, the same are treated as withdrawn and are accordingly dismissed as not pressed. No adjudication on merits is therefore required on these grounds.
The Assessing Officer is directed to recompute the income and consequential interest accordingly, while applying the normal rate of tax.