RAJ KUMAR GARG,BHIWANI vs. ITO WARD-1 BHIWANI, BHIWANI

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ITA 4364/DEL/2025Status: DisposedITAT Delhi29 January 2026AY 2021-225 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal observed that the Assessing Officer (AO) had made an addition of 25% of purchases alleged as bogus, which was sustained by the CIT(A) on the grounds that the purchases remained unverifiable and the assessee failed to establish their genuineness. The Tribunal noted that the profit declared by the assessee was less than the income estimated by the AO at 25%. However, it was also observed that the AO had not invoked the provisions of Section 145(3) of the Act. The Tribunal found the estimated profit rate of 25% to be excessive and not comparable with entities in the same line of trade. Therefore, the Tribunal deemed it appropriate to estimate the Gross Profit (G.P.) at 10% on the purchases alleged as bogus, considering the peculiar facts of the case. This estimation was directed to be treated as Income from Business or Profession. The Tribunal clarified that this estimation would not be taken as a precedent. With these directions, all grounds raised by the assessee were considered partly allowed. The Tribunal did not explicitly decide on the validity of the Section 143(2) notice or the charging of interest under Sections 234A, 234B, and 234C, but the overall outcome implies these were implicitly addressed by the partial allowance.

What were the facts?

The assessee, Raj Kumar Garg, filed its return of income for Assessment Year 2021-22 declaring a total income of INR 40,59,913/-. The case was selected for scrutiny, and the Assessing Officer (AO) assessed the income at INR 1,49,51,160/-. This assessment order, dated 23.12.2022, was passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961. The AO made an addition of INR 1,08,91,250/-, representing 25% of purchases amounting to INR 4,35,65,000/-, treating them as bogus due to alleged non-compliance with Section 133(6) notices by the sellers. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal via an order dated 15.05.2025. The assessee is now before the Income Tax Appellate Tribunal (ITAT).

What were the issues?

The Income Tax Appellate Tribunal (ITAT) had to decide the following questions: 1. Whether the AO erred in law by issuing a vague and invalid notice under Section 143(2) of the Income Tax Act, 1961, thereby vitiating the assessment proceedings ab initio. 2. Whether the CIT(A) erred in law by sustaining the addition of INR 1,08,91,250/-, being 25% of impugned purchases, treating them as bogus solely for the alleged non-compliance of Section 133(6) notices by the sellers. 3. Whether the CIT(A) erred in not appreciating that the mere non-production of vendors via video conference, in isolation, justifies treating genuine purchases as bogus, and whether adverse inference can be drawn without material contradiction in documentary evidence. 4. Whether the CIT(A) wrongly upheld the additions in an arbitrary manner without appreciating that the AO had not brought adverse material on record to refute the appellant's evidence. 5. Whether the CIT(A) erred in sustaining the ad hoc disallowance of 25% of purchases without rejecting the audited books of account and in the absence of such rejection, particularly when corresponding sales and closing stock were accepted. 6. Whether the CIT(A) wrongly upheld additions by ignoring that the obligation to file income tax returns lies with the selling parties, and their default does not warrant treating genuine purchases as bogus. 7. Whether the CIT(A) erred in sustaining additions based solely on assumptions without cogent evidence. 8. Whether the disallowance of purchases at 25% is arbitrary, irrational, and excessive, especially when the profit on such purchases was embedded in the declared gross profit. 9. Whether the CIT(A) erred in dismissing the appeal without affording a proper opportunity of hearing, violating principles of natural justice and the Faceless Appeals Scheme. 10. Whether the CIT(A) wrongly sustained the charging of interest under Sections 234A, 234B, and 234C. Assessee's Contentions: The assessee argued that the Section 143(2) notice was vague and invalid. They contended that purchases should not be treated as bogus merely due to non-compliance with Section 133(6) notices by sellers, especially when documentary evidence was provided and audited books were not rejected. The disallowance was arbitrary and excessive, and the obligation to file returns lies with sellers. They also argued for a violation of natural justice due to lack of proper hearing. The assessee relied on the fact that corresponding sales and closing stock were accepted. Revenue's Contentions: The revenue, through the AO and supported by the CIT(A), contended that the purchases remained unverifiable, and the assessee failed to establish the genuineness of the transactions. The addition was sustained based on the alleged non-compliance of Section 133(6) notices by the concerned sellers.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 144B,Section 133(6),Section 145(3),Section 234A,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI “A” BENCH: NEW DELHI

Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL

For Appellant: Shri Deepam Jain, Adv
For Respondent: Shri Khitesh Gupta, Sr.DR
Hearing: 27.11.2025Pronounced: 29.01.2026

Year : 2021-22] Raj Kumar Garg vs ITO Gali Nai Kalan Bichla Bazar Ward-1 Bhiwani, Haryana-127021 Bhiwani PAN-ABTPG0505A APPELLANT RESPONDENT Appellant by Shri Deepam Jain, Adv. Respondent by Shri Khitesh Gupta, Sr.DR Date of Hearing 27.11.2025 Date of Pronouncement 29.01.2026 ORDER

PER MANISH AGARWAL, AM :

1.

The present appeal is filed by assessee against the order dated 15.05.2025 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2020-21/10199691 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 23.12.2022 passed u/s 143(3) r.w.s. 144B of the Act pertaining to Assessment Year 2021-22.

2.

Brief facts of the case are that assessee has filed its return of income on 04.12.2021, declaring total income at INR 40,59,913/-. The case was selected for scrutiny assessment and notice u/s 143(2) followed by notices u/s 142(1) of the Act were issued from time to time. In response, assessee filed requisite details. Finally, the AO assessed the income of the assessee at INR 1,49,51,160/- vide assessment order dated 23.12.2022 passed u/s 143(3) r.w.s. 144B of the Act.

3.

Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 15.05.2025, dismissed the appeal of the assessee.

4.

Aggrieved by the order of Ld.CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:- 1. “That the Ld. AO had erred in law in issuing a vague, perfunctory, and invalid notice u/s 143(2) wherein no reason or particulars related to proceedings were provided and no specific information was called for from the appellant; thereby rendering it a mere formality violating the provisions of law which vitiated the jurisdiction and proceedings ab initio.

2. That the Ld. CIT(A) had erred in law in sustaining additions made by Ld. AO of Rs. 1,08,91,250/- being 25% of the impugned purchases of Rs. 4,35,65,000/- alleging it as bogus merely for alleged non-compliance of notice u/s 133(6) by the concerned sellers which is unjustified and liable to be quashed.

3. That the Ld. CIT(A) has failed to appreciate that mere non- production of vendors via video conference cannot, in isolation, justify treating genuine purchases as bogus and no adverse inference should be drawn in the absence of any material contradiction in the documentary evidence furnished by the appellant; as such the addition is unsustainable and liable to be set aside.

4. That the Ld. CIT(A) has wrongly upheld the additions of Rs. 1,08,91,250/-in an arbitrary and mechanical manner, without appreciating that the Ld. AO had not brought any adverse material on record to refute the evidences submitted by the appellant; hence, the addition is solely based on surmises and conjectures which is liable to be deleted.

5. That the Ld. CIT(A) has erred in law in sustaining the ad hoc disallowance of Rs. 1,08,91,250/- (25% of purchases amounting to Rs. 4,35,65,000/-) even though the Ld. AO did not reject the audited books of account and in the absence of such rejection, no disallowance of purchases can be made, particularly when corresponding sales and closing stock were accepted, hence, the order passed by Ld. AO is required to be quashed and the impugned additions are required to be deleted.

6. The Ld. CIT(A) has wrongly upheld the additions made by the Ld. AO ignoring the fact that the obligation to file income tax returns lies with the selling parties, and any default on their part do not warrants assumption of genuine purchases as bogus; hence, the additions are illegal and liable to be deleted.

7.

That the Ld. CIT(A) has erred in law in sustaining additions of Rs. 1,08,91,250/- which is unjustified as such addition solely based on assumptions and not supported by any cogent evidence; hence, the addition is bad in law and liable to be deleted.

8.

Without prejudice to the above grounds, the Ld. CIT(A) has failed to appreciate the fact that the disallowance of purchases @ 25% is quite arbitrary, irrational and excessive in nature particularly when the profit on such purchases had already embedded in the gross profit declared under the audited books, hence, the disallowance on estimation basis is vague, unjustified and unreasonable which is liable to be deleted.

9.

That the Ld. CIT(A) has erred in law in dismissing the appeal without affording a proper opportunity of hearing particularly through video conferencing as requested by the appellant which is in violation of principles of natural justice and Faceless Appeals Scheme as such the appellate order is vitiated and liable to be quashed.

10.

That the Ld. CIT(A) has wrongly sustained charging of interest u/s 234A, 234B and 234C of the Income Tax Act which is unwarranted and liable to be deleted.

11.

The appellant craves leave to add, amend or rescind any ground/grounds of appeal before or at the time of hearing of the appeal. In view of the eleven mentioned grounds, it is humbly prayed that the appeal of the appellant may kindly be allowed and additions made by the Ld. AO of Rs. 1,08,91,250/- illegal, arbitrary and without application of mind in utter violation of facts and law may kindly be quashed/set aside.”

5. Heard the contentions of both parties and perused the material available on record. In the instant case, AO has made the addition @ 25% of the purchases made of INR 4,35,65,000/- alleged as bogus which is sustained by Ld. CIT(A) by observing that purchases remained unverifiable and assessee has failed to establish the genuineness of the transactions. It is observed that the profit declared by the assessee is less than the income estimated by the AO @ 25% of the bogus purchases. Thus, looking to the entirety of the facts and after considering the submissions, we find that AO has not invoked the provision of section 145(3) of the Act. We further observed that profit estimated @ 25% is found to be excessive and not comparable with any entity involving in the same line of trade. Accordingly, we deem it appropriate that estimation of G.P @10% in the peculiar facts of the case, would be just and proper with a rider that the same shall not be taken as a precedent. Thus, we direct the AO to apply profit rate of 10% on the purchases alleged as bogus and further directed to treat this income as Income from Business or Profession. With these directions, all grounds raised by the assessee are partly allowed.

6.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 29.01.2026.

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