M/S JHS SVENDGAARD LABORATORIES LTD.,NEW DELHI vs. DCIT CC-31, NEW DELHI

That on the facts and circumstances of the case, the reassessment proceedings initiated are bad in law as the notice under section 148 of the Act dated 25.03.2022 was issued by the Jurisdictional Assessing Officer in violation of provisions of section 151A of the Act, read with Notification No. 18/2022 dated 29.03.2022, which should have been issued by National Faceless Assessment Centre under e-Assessment of Income Escaping Assessment Scheme, 2022.

The Ld. Assessee's Representative has not made any submission on Ground No. 1, accordingly the Ground No. 1 is dismissed as not pressed.

The Ld. Assessee's Representative arguing on Ground No. 2 & 3 submitted that, the case of the Assessee was reopened based on borrowed satisfaction without any direct or tangible nexus to the case of the Assessee and there was no live and rational nexus between information received and the belief of escapement of income formed by the A.O. The A.O. has not demonstrated the fact that the information relied upon by him has a direct, tangible and specific connection with Assessee’s transaction and the alleged escapement of income. Further submitted that the A.O. has relied on vague, incomplete and factually incorrect information and the A.O. made no effort to co-relate with the information to the actual business transaction of the Assessee. The Ld. Counsel has also taken us through the reasons recorded in the notice issued u/s 148A(b) of the Act and submitted that A.O. has merely reproduced information without verifying its accuracy or the relevance to the Assessee. The Ld. Counsel has also submitted that A.O. while relying Report of the Investigating Wing that the Assessee had entered into transaction with one Shri Jitender, proprietor of M/s Veekay Enterprises, however failed to mention whether the alleged transaction related to sale made by the Assessee or purchase made from the said concerned. Further submitted that there was no linkage between Shri Vikas Jain and Sh. Jitender from whom escapement is alleged in the information relied upon. The Ld. Counsel has also submitted that even the quantum of alleged transaction mentioned in the notice issued u/s 148A (b) of the Act was factually incorrect, thus sought for quashing the assessment order.

Per contra, the Ld. Department's Representative submitted that the proceedings u/s 147 of the Act was initiated based on the credible information received from the Investigation Wing which suggested that the Assessee had engaged in transaction that could be classified as accommodation entries. The Assessing Officer has applied his mind and issued notice u/s 148A(b) of the Act and framed the assessment by following the procedural frame work under the Act after conducting the enquiry, therefore, sought for dismissal of Ground No. 2 and 3 of the Assessee.

We have heard both the parties and perused the material available on record. Based on the information received from Investigation Wing, which suggested that the Assessee had engaged in transaction that could be classified as accommodation entries. The case of the Assessee reopened.After recording the reasons, a notice under Section 148A(b) of the Act came to be passed wherein A.O. reproduced the said information of the Investigating Wing, however, failed to verify the accuracy or relevance of such information to the Assessee. For the sake for ready reference the notice issued u/s 148A(b) of the Act is reproduced as under:-

As per the information received, it has been stated that certain cases were received from CBIC wherein the entities were involved in the practice of availing/issuing bogus sales/purchase bills. It has been reported that the transactions were being facilitated through chain of many entities of which Shri Vikas Jain (PAN- BLBPJ4780R). As per the Trail of these transaction many intermediary entities are involved in this practice. Data of purchase made by Shri Vikas Jain had been examined and it has been noticed that most of these entities from whom substantial purchases have been made are either non-filers or have declared negligible incomes. It has also been informed that out of these bogus purchases/sales, Shri Vikas Jain and other entity had made sales/purchases to beneficiary entities of which the assessee is one the beneficiaries whose transaction details is as bellow- S. Source PAN Source Information Value No PAN name F.Y 1 BLBPJ4780R Jitender 2017-18 Rs. 5,52,67,414/- From the above, it is evident that Shri Vikas Jain and other entity (Jitender) have acted as a conduits for bogus transaction and the assessee is one of the beneficiaries.

The above mentioned information has also been analyzed viz-a- viz the ITR and data available on record. After detailed analysis of the information received from the Investigation Wing and on examination of the records it is found that the assessee has not fully and truly disclosed the particulars of its income in the ITR for A.Y.. 2018-19. Hence, all the transaction carried out by the assessee company amounting to Rs. 5,52,67,414/- remained undisclosed. 7. Therefore, an amount of Rs.5,52,67,414/-appears to have escaped assessment for the A.Y. 2018-19 which needs to be brought to tax by issuing notice u/s 148 of the Income Tax Act. 1961."

As could be seen from the above, there was no live and rational nexus between the information received and the belief of escapement of income formed by the AO. It is well settled law that, the AO must demonstrate that the information relied upon has a direct, tangible, and specific connection with the Assessee’s transactions and the alleged escapement of income. Mere receipt of general or unverified information cannot, by itself, justify the reopening of assessment or sustain an addition. The "reason to believe" contemplated under Section 147 requires the AO to form an independent belief founded on relevant and verifiable material that bears a live link with the alleged undisclosed income. The reasons recorded in the notice issued under Section 148A(b) of the Act clearly reflects that the AO merely reproduced the generalized information without verifying its accuracy or relevance to the Appellant.

The notice issued under Section 148A(b) was based on a report from the Investigation Wing alleging that the Appellant had entered into transactions with one Shri Jitender, Proprietor of M/s Veekay Enterprises. However, the notice did not clarify whether the alleged transaction related to sales made by the Appellant or purchases made from the said concern. This ambiguity in the very foundation of the proceeding clearly reflects that the AO had not verified the underlying facts or examined the records to ascertain the actual nature of the transaction before recording his satisfaction. Further there was no Linkage between Shri Vikas Jain and Shri Jitender from whom escapement is alleged in the Information Relied Upon. The reasons recorded by the AO under Section 148A(b) of the Act itself hadinconsistency in identifying the parties allegedly linked to the impugned transaction. The information received from the Investigation Wing stated that certain entities, including one Shri Vikas Jain (PAN:

Further,even the quantum of the alleged transaction mentioned in the notice issued u/s 148A(b) of the Act notice was factually incorrect. The notice referred to a figure of Rs. 5.52 crore, whereas the Assessee’s actual recorded sales to M/s Veekay Enterprises were Rs. 5.21 crore. The AO made no attempt to verify the correct figures from the Assessee’s books of account or supporting records. This discrepancy further demonstrates that the belief of escapement was formed on unverified and unreliable material having no live nexus with the Assessee’s case. Thus, it is evident that the AO's belief was formed mechanically, without establishing any live, rational, or proximate connection between the information received and the alleged escapement of income. The proceedings initiated and additions made on such vague and unverified material are therefore invalid in law and cannot be sustained.Accordingly, we allow Ground No. 2 & 3 of the Assessee.

The Assessee has raised Ground No. 4 contending that ‘the reassessment proceedings initiated are bad in law as the notice under section 148 of the Act dated 25.03.2022 was issued by the Jurisdictional Assessing Officer in violation of provisions of section 151A of the Act, read with Notification No. 18/2022 dated 29.03.2022, which should have been issued by National Faceless Assessment Centre under e-Assessment of Income Escaping Assessment Scheme, 2022’. However, the Ld. Assessee's Representative fairly submitted that the Jurisdictional High Court in the case of T. K. S. Builders Pvt. Ltd. Vs. Income Tax officer, Wad-25(3), New Delhi in Writ Petition (C)

In ground No. 5, the Assessee has challenged the addition of Rs. 11,05,348/- being estimated commission at 2% on alleged bogus sales made to M/s Veekay Enterprises. The Ld. Counsel for the Assessee submitted that the Assessee furnished reply before the AO, supported by documentary evidences including tax invoices, GST returns, gate passes, transporter's receipts, confirmation of accounts and bank statements, clearly demonstrating that the sales to M/s Veekay Enterprises were genuine commercial transactions. Further submitted that the sales were duly accounted for in the books of account, reflected in the audited financial statements and accompanied by the collection and deposit of applicable GST. The A.O. without making any verification from the purchaser and without pointing out any defect in the documents, without there being any adverse material available on record, made the addition. The Ld. Assessee's Representative has also relied on the order of the Co- ordinate Bench of the Tribunal in the case of JMK Exports D. ACIT [2024] 161 taxmann.com 481 (Del. Trib.) (Third Member) and sought for allowing the Ground No. 5 of the Assessee.

Per contra, the Ld. Department's Representative submitted that the documents produced by the Assessee which are though voluminous, consists largely of self-generated documents and lacks independent verification, such as audited financials of the buyer, third party transport receipts or bank transaction filed directly linking the sales process to legitimate business activity. Thus, submitted that 2% commission is a pragmatic approach, relying on the order of the Ld. CIT(A), sought for dismissal of the Ground No. 5 of the Assessee.

We have heard both the parties and perused the material available on record. During the assessment proceedings Assessee produced the documentary evidence such as tax invoices, GST returns, gate passes, transporter's receipts, confirmation of accounts, and bank statements, clearly demonstrating that the sales to M/s Veekay Enterprises were genuine commercial transactions. It was the specific case of the Assessee that the above sales were duly accounted for in the books of account, reflected in the audited financial statements and accompanied by the collection bank deposit of applicable GST. However, AO did not carry out any verification from the purchaser, did not point out any defect in the documents, nor confronted the Assessee with any adverse material. Further, the findings of the AO, affirmed by the CIT(A) was based on suspicion and conjecture without any tangible material showing that the Assessee received any commission or engaged in accommodation transactions.

The Hon'ble Delhi Tribunal in the case of JMK Exports D. ACIT [2024] 161 taxmann.com 481 (Del. Trib.) (Third Member) held that once sales are duly supported by contemporaneous records such as sale bills, stock register, VAT/GST returns, and bank payments, and no discrepancy is found in the books of account, such sales cannot be treated as bogus merely because some purchasers did not respond to notices issued under sections 133(6) or 131 of the Act. The Tribunal observed that when sales are verifiable, duly reflected in statutory returns and even accepted by the VAT Department, treating them as unexplained cash credits under section 68 of the Act is unsustainable.

Further, it is an admitted position of the Revenue that the supplies were duly made by the Assessee, as neither the corresponding sales nor the books of account have been disturbed or rejected. The only addition made by the AO being a notional estimate of 2% commission has no legs to stand, as it is unsupported by any evidence or material on record. The A.O. proceeded entirely on presumption by estimating a 2% commission without identifying any corresponding flow of funds, receipt, or benefit to the Assessee. It is a settled law that no addition can be made on account of a notional or assumed income and only real income that has actually accrued or arisen can be brought to tax.

The Ground No. 6 is against the Addition of Rs. 88,95,892/- made by the A.O. on account of bogus purchases from M/s Royal International. The Ld. Assessee's Representative submitted that the above said addition has been made based merely on assumptions and presumptions without any supporting material or inquiry and contended that there was no information received from the Investigation Wing regarding any alleged bogus purchases, nor was there any allegation that M/s Royal International was engaged in providing accommodation entries. The AO on his own, concluded that the purchases were not genuine without bringing on record any tangible material or conducting any independent verification.

Further submitted that during the relevant year, the Appellant had purchased goods aggregating to Rs. 5.73 crore from M/s Royal International, however, the AO arbitrarily selected only Rs. 88.95 lakh out of the total purchases for making addition, while accepting the remaining purchases of identical nature from the same supplier as genuine, finding fault with the inconsistent approach of the A.O. submitted that, once the nature of goods, supplier, and mode of transaction are uniform, selective disallowance of a portion of purchases has no rational or legal basis. Further submitted that the Assessee furnished complete documentary evidence before the AO to substantiate the genuineness of the purchases. These included purchase invoices, purchase orders, delivery challans, goods receipt notes, transporter's receipts, and proof of payment through regular banking channels. The purchases were duly recorded in the books of account, reflected in the audited financial statements and corresponded to the quantitative details of consumption and production. The AO did not point out any discrepancy in the stock register, consumption pattern, or sales corresponding to such purchases. Thus, the Ld. Assessee's Representative relying on the order of the Co-ordinate Bench of the Tribunal in the case of The Hon'ble Delhi Tribunal in Sushil Kumar v. ACIT [2025] 176 taxmann.com 957 (Del Trib.), sought for allowing the Appeal.

Per contra, the Ld. Department's Representative submitted that the A.O. received the investigation input that Sh. Gagan Singh’s operations were not commensurate with the scale of transactions reported, suggesting a lack of economic substance, u/s 37 of the Act the onus on the Assessee to prove the genuineness of the expenses including the identity of payee, actuality of transaction and its business purpose. As the Assessee has failed to substantiate its claim, the Lower Authorities have rightly made/upheld the disallowance u/s 37 of the Act. Thus, relying on the findings and the conclusion of the orders of the Lower Authorities, the Ld. Department's Representative sought for dismissal of Ground No. 6 of the Assessee.

We have heard both the parties and perused the material available on record.

It is not in dispute that there was no information received from the Investigation Wing regarding any alleged bogus purchases, nor was there any allegation that M/s Royal International was engaged in providing accommodation entries. The AO concluded that the purchases were not genuine.During the relevant year, the Assessee had purchased goods aggregating to Rs. 5.73 crore from M/s Royal International. However, the AO selected only Rs. 88.95 lakh out of the total purchases for making the disallowance, while accepting the remaining purchases of identical nature from the same supplier as genuine. This approach demonstrates that the conclusion of the AO is not based on any objective or verifiable material, but merely on suspicion and conjecture. Once the nature of goods, supplier, and mode of transaction are uniform, in the absence of any contrary material brought on record, the selective disallowance of a portion of purchases has no rational or legal basis.

In order to substantiate the genuineness of the purchase, Assessee produced purchase invoices, purchase orders, delivery challans, goods receipt notes, transporter's receipts, and proof of payment through regular banking channels. The purchases were duly recorded in the books of account, reflected in the audited financial statements and corresponded to the quantitative details of consumption and production. The AO did not point out any discrepancy in the stock register, consumption pattern, or sales corresponding to such purchases.

The observation of the AO while making the above addition was that there existed a difference in the HSN code between the invoices issued by M/s Royal International and the internal classification adopted by the Appellant. It was the case of the Assessee that such a difference is purely technical and does not affect the nature, description or authenticity of the goods purchased. Further contended that the applicable GST rate under both HSN codes was identical.

Further, the said supplier, M/s Royal International, was a registered dealer under the GST law during the relevant period and the transactions were duly reported in the GST returns of both parties.

Similarly, the Hon'ble Allahabad High Court in M/s Kesarwani Traders v. State of U.P. (Writ Tax No. 1235/2025, dated 18.08.2025) held that when the movement of goods is supported by valid tax invoices, e-way bills, and transport documents, the transaction cannot be disbelieved merely because the supplier's GST registration was later cancelled. The Court categorically held that where the buyer acts bona fide and maintains proper records, no adverse inference or denial of ITC is warranted.

The Hon'ble Gujarat High Court in CIT v. Nangalia Fabrics (P.) Ltd. [2013] 40 taxmann.com 206 (Guj.) has also held that once purchases are supported by bills and bank payments, disallowance cannot be made merely because the supplier's status is questioned later.

In the case in hand, there is no allegation or finding that the supplier was a non-existent entity, that goods were not received, or that any portion of payment flowed back to the Assessee. The AO failed to conduct even a basic verification from the supplier or examine the detailed evidence submitted. The CIT(A), while upholding the addition, merely repeated the conclusions of the AO without dealing with the evidences or factual explanations placed on record.

In view of the above discussions, we find merit in the Ground No. 6 of the Assessee, accordingly, we delete the selective disallowance of Rs. 88.95 lakh out of total purchases of Rs. 5.73 crore made by the A.O. and allow the Ground No. 6 of the Assessee.

In the result, Appeal of the Assessee is allowed.