INCOME TAX OFFICER, WARD-50(1), NEW DELHI vs. THE SILK FACTORY, DELHI
Facts
The assessee, a fabric trading firm, was selected for scrutiny under CASS due to purchases from non-filers of Income Tax Returns compared to their GST turnover. The Assessing Officer (AO) found purchases totaling ₹21.83 Crores from 9 suppliers to be suspicious as most were non-filers, and their GST registrations were suspended or cancelled. The AO concluded these purchases were bogus and added the amount as unexplained expenditure under section 69C of the Act.
Held
The Tribunal found that the assessee had discharged the initial onus by providing substantial evidence like invoices, e-way bills, transport consignment notes, and stock details. The Ld. CIT(A) had also noted that the sales were accepted by the department. The Tribunal held that since sales and turnover were accepted, the purchases corresponding to these sales should also be accepted, and Section 69C of the Act could not be invoked. The suspicious circumstances of the suppliers were to be considered only after rejecting the assessee's books of accounts, which was not done.
Key Issues
Whether purchases made from suppliers whose GST registration was suspended or cancelled, and who were non-filers, can be added as unexplained expenditure when sales are accepted and the assessee has provided substantial documentary evidence for purchases?
Sections Cited
143(3), 144B, 133(6), 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the Revenue against the order dated
13.12.2024 of the National Faceless Appeal Centre (NFAC) Delhi
P a g e | 2 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’)
in DIN & Order No.ITBA/NFAC/S/250/2024-25/1071178200(1) arising out
of the appeal before it against the order dated 21.03.2024 passed u/s 143(3)
r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’)
by the Assessment Unit, Income Tax Department for Assessment Year 2022-
23.
Heard and perused the records. As from the submissions of ld. DR and
the material on record it comes up that the assessee is a Firm involved in
trading of fabrics. The case was selected under CASS for scrutiny on the
ground that the assessee had shown purchases from persons who were non
filers of Income Tax Returns as compared to their Turnover in GST
Return.The AO found that the assessee had shown purchases of Fabrics from
9 suppliers, totaling 21.83 Crores which was found suspicious for reasons all
the suppliers were Non Filers except Sri Narendra Kumar and Sri Kundan
Kumar. Sri Narendra Kumar was showing income only from salary and Sri
Kundan Kumar showed income of only 5.71 lakhs and did not reply to Notice
u/s 133(6) of the Act.Most of the supplier had their GST Neither suspended
or suo motto cancelled or cancelled on the request of the supplier. Many of
P a g e | 3 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) them had multiple GSTN in their names. Many of them were Transient
Companies meaning thereby that they had their GST registration made on a
particular date, showed crores of sale to the assessee on the same day or for
few days, and then requested for cancellation of GSTN, sometimes even
within a few days or a month.Most important, the GST Database showed that
almost all of themwere not dealing in fabrics (which was what the assessee
had claimed to have purchased from them). Notices issued u/s 133(6) by the
AO were not responded to, by all except one, Sri Manish Khurana of
Tirupathi Sales who said the someone had misused his PAN and Aadhar card
without his knowledge and that he had already filed a complaint in this
regard.
In view of the above findings, the AO concluded that the said purchases
shown from these suppliers were bogus, and added the amount u/s 69C of the
Act as unexplained expenditure.The ld. AO made addition of 100%
Purchases made from 10 parties being disallowed and capital introduced by
partner to the tune of Rs. 12 lakhs. Ld.CIT(A) concurred with the AO that the
purchases made by the assessee were bogus and fabricated. However, despite
such a conclusion, Ld CIT(A) proceeded to sustain disallowance of only 5%
P a g e | 4 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) of the total bogus purchases on the ground that as the AO had not doubted the
sales, complete purchases held as bogus cannot be doubted.Capital
introduced by partner was deleted. Accordingly department is in appeal
raising following grounds;
Ld. DR has submitted once the purchases have been proved fictitious, it
is not incumbent upon the appellate authority to restrict the disallowance, and
complete bogus purchases are required to be addedand reliance was placed on
following judicial decisions;
(i) N.K. Proteins (SC) 292 CTR 354
(ii) Kanak Impex (Bombay HC) 172 taxmann.com 283
(iii) Shree Ganesh Developers (Bombay HC)
(iv) Drisha Impex (SC)(August 2025) 177 taxmann.com 808
4.1 It was submitted that issue of bogus or fictitious purchases have to be
examined on facts of each case. In the submission filed ld. DR has submitted
that once a purchase has been considered asBogus, it is not in the jurisdiction
of the Assessing Officer or Judicial authorities to provide concessions by
P a g e | 5 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) considering only a percentage of purchases as disallowance. In all such cases,
the entire purchase is required to be disallowed.
4.2 Ld. DR submitted that bogus purchases can be of two types:
(i) No actual procurement of goods is made and the assessee
obtainsfabricated invoices to artificially inflate purchases and reduce
Gross Profit.
(ii) Actual purchases are made from grey market at lower rate and/or in
cash. And the assessee obtains fabricated invoices to artificially inflate
the cost of goods purchased so as to reduce Gross Profit.
4.3 It is incumbent on the assessee to prove conclusively that actual
purchases were made in cash/from grey market before he can make a plea for
only a percentage of bogus purchases to be added.
4.4 Ld. DR submitted that in the present case, on the basis of investigation
carried out by the AO, it was evident that the sellers were completely
fictitious. Hence purchases shown as made from such sellers were also bogus.
This fact has been accepted by Ld. CIT(A) himself.The onus now lies on the
assessee to prove that he had actually made purchases and has not merely
P a g e | 6 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) inflated the cost. This can be done by giving proof of purchases made from
grey market, like a Kaccha receipt. Or the assessee can furnish details of the
supplier from whom such purchases were made, and give source of cash
spent on making such purchases. In the absence of any such evidence, it
should not be presumed that the purchases were actually made from grey
market. It was submitted that it is important to note that in the present case
the assessee has not even made a claim that he had made such purchases from
the grey market. The only claim that has been made by the assessee and that
has also been accepted by Ld CIT(A) is that since the sales have been
accepted by the AO, the purchases must have been made. Ld. DR has
submitted that it is trite law that the party who makes the claim has to
substantiate it with evidence. Therefore it is incumbent upon the assessee to
prove that the said purchases were actually made from parties other than
those mentioned in its books. Once it is proved that the suppliers shown by
the assessee are fictitious, there can only be two situations: either no
purchases were made, or the purchases were made from persons other than
the fictitious ones. It is incumbent upon the assessee now to prove what has
actually happened in his case. It is not for Revenue, or appellate authority to
P a g e | 7 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) presume a scenario in the absence of any such claim made by the assessee or
any evidence to support the claim given. Ld CIT(A) has rendered his decision
based on the argument that once sales are not doubted, the purchases must be
accepted. However, a perusal of the Assessment order shows that no stock
register was produced before the AssessingOfficer, in the absence of which
quantity of purchases made and their correlation with sales cannot be proved.
It was also submitted that Ld. CIT(A) has confirmed addition of 5% of total
bogus purchases after giving a clear finding that the purchases of Rs 21.83
Crores discussed above were indeed bogus. The assessee has accepted this
order of Ld CIT(A) and has not filed any appeal against this conclusion and
confirmation of addition. This clearly proves that the assessee himself has
accepted that the said purchases were bogus. In view of such an acceptance,
and the fact that the assessee has neither made any claim that purchases were
made from alternate sources, nor has filed any evidence for the same, the
addition made by the Assessing Officer of full bogus purchases amounting to
21.83 Crores should be sustained.
Ld. AR has submitted that the Assessee has filed all the documents in
his possession to justify the claim of bonafide purchases from above said 10
P a g e | 8 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) parties, which clearly establishes the bonafide purchases and the said
documents are acknowledged to have been filed by the AO in para 3.2 at
internal page 2 of Assessment Order, where it is stated by AO as under:-
“the assessee furnished the copies of audited financial statements,
computation of income, details of bank accounts, copy of TDS returns,
details of month wise purchase and sales, details of opening andclosing
stock in value as well as in quantity, copy of ledger account of all
purchases and sales accounts, copy of form-26As etc.”
5.1 It was submitted that the AO in para 3.3 at internal page 4 of
Assessment Order, further acknowledged the fact about more evidences
being submitted by the assessee to substantiate the claim of purchases and
where it is stated by AO as under:-
“the assessee furnished the copies of invoices, the copy of ledger
account of said entity in the assessee's books of accounts, the copies of
ledger accounts, invoice copy, e-way bill and transport consignment
note, along with the bank statement. The assessee also furnished copy
of audited financial statement, copy of tax audit report and copy of
computation of income.”
P a g e | 9 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) 6. We find that the above stated documents clearly establishes that there
were substantial evidences on which assesse had claimed that purchases were
genuine and as assessee has discharged the initial onus of furnishing primary
evidence and in particular the invoice copy, e-way bill and transport
consignment note, month wise purchase and sales, details of opening and
closing stock in value as well as in quantity.The ld. CIT(A) has taken note of
above said documents and evidence which sufficiently prove purchases and
prove the receipt of stock by the assessee, which has been sold by the
assessee as per financial results and as per stock register furnished in value
and as well as in quantity.The fact of the matter is that stock register not only
reflects the value and quantity of stock but also reflects the party from whom
purchases made and to whom sales made. Certainly if sales and turnover is
accepted by department then goods purchased by the Assessee qua sales
made by him are also bound to be accepted and section 69C of the Act cannot
be invoked for deeming income. Where addition of purchase in total is
proposed resulting intoGP exceeding the sales department must justify the
addition with evidences not just suspicion that suppliers were Non Filers or
did not reply to Notice u/s 133(6) of the Act, that supplier had their GST
P a g e | 10 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) Neither suspended or suo motto cancelled or cancelled on the request of the
supplier. Many of them had multiple GSTN in their names. Many of them
were Transient Companies meaning thereby that they had their GST
registration made on a particular date, showed crores of sale to the assessee
on the same day or for few days, and then requested for cancellation of
GSTN, sometimes even within a few days or a month or that the GST
Database showed that almost all of themwere not dealing in fabrics (which
was what the assessee had claimed to have purchased from them). These
suspicious circumstances should be relied only after rejecting the books like
stock and sales and other corresponding expenditures. There is no allegation
of fabricated evidences being filed so to justify the contentions of ld. DR.
Thus the conclusion of ld. CIT(A) require no interference. The grounds have
no substance. The appeal deserves to be dismissed. Accordingly ordered.
Order pronounced in the open court on 09.01.2026
Sd/- Sd/- (Manish Agarwal) (Anubhav Sharma) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 09.01.2026 Rohit, Sr. PS
P a g e | 11 ITA No.987/Del/2025 The Silk Factory (AY: 2022-23) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI
