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

1 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘E’ NEW DELHI) BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No. 3454/DE/2025 (A.Y. 2018-19) M/s JHS Svendgaard Vs. DCIT Laboratories Ltd. B1/E-23, Central Circle-31, New Mohan Cooperative Delhi Tuhglakabad, Badarpur, New Delhi New Delhi PAN: AABCJ5766G Appellant Respondent Assessee by Sh. Gaurav Jain, Adv and Sh. Tarun Chanana, Adv Revenue by Ms.Amisha S. Gupt, CIT (DR) Date of Hearing 09/10/2025 Date of Pronouncement 07/01/2026 ORDER PER YOGESH KUMAR, U.S. JM: The present appeal is filed by the Assessee against the order of

the Commissioner of Income Tax (Appeals)-30, New Delhi [‘Ld. CIT(A)’

for short] dated 31/03/2025 pertaining to Assessment Year 2018-19.

2 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

3 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

business of manufacturing of tooth paste and brushes for the year

under consideration. The case of the Assessee was reopened and an

assessment order came to be passed on 31/03/2023 under Section

147 of the Income Tax Act, 1961 ('Act' for short) by computing the

total income of the Assessee at Rs. 1,00,01,240/- by making addition

of Rs. 11,05,348/- being 2% of total alleged bogus sale as commission

received and Rs. 89,95,892/- on account of alleged bogus purchase

thereby disallowed the same under Section 37 of the Act.

preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order

dated 31/03/2025, dismissed the Appeal of the Assessee. As against

the order of the Ld. CIT(A) dated 31/03/2025, Assessee preferred the

present Appeal on the grounds mentioned above.

on Ground No. 1, accordingly the Ground No. 1 is dismissed as not

pressed.

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

4 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

the proceedings u/s 147 of the Act was initiated based on the credible

5 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

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:-

"Credible information in the above mentioned case relating to escapement of income for the financial year 2017-18 relevant to the A.Y. 2018-19 has been received in category of High Risk Transaction CRIU/VRU Information on Insight Portal of the department from the ITO(Ine.), Unit-7. Delhi. A perusal of the information received suggests that the assessee has, during the year, taken accommodation entries amounting to Rs.5,52,67,414/- in the form of non-genuine/bogus sales/purchase in its book of account.

6 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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,

7 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

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

8 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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:

BLBPJ4780R), were involved in issuing or availing bogus invoices.

However, in the very same table forming part of the reasons, the name

mentioned against the transaction of Rs. 5,52,67,414/- was of

"Jitender." The reasons further go on to state that "Shri Vikas Jain

and other entity (Jitender)" acted as conduits for bogus transactions.

The said contradiction within the recorded reasons shows that the AO

did not verify even the basic facts before forming a belief of

escapement. The two names Vikas Jain and Jitender are entirely

distinct individualsand no material has been brought on record to

establish any connection between either of them and the Assessee,

which also give strength to the argument of the Assessee's

Representative and also demonstrates that the belief of escapement

was formed mechanically by the A.O. and without any live or rational

nexus to the actual facts of the Assessee’s case.

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

9 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

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)

No. 1968/2023 dated 28/10/2024, above issue has been decided

against the Assessee. Recording the submission of the Ld. Assessee's

Representative, the Ground No. 4 of the Assessee is dismissed as

meritless.

10 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

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

11 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

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.

No evidence has been brought on record to demonstrate flow of funds,

receipt of cash, or any other form of benefit accruing to the Assessee.

12 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

Such estimated addition made in a mechanical manner, lacks any

factual or legal foundation and deserves to be deleted.

[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.

It emphasized that the burden shifts to the AO to disprove the

genuineness once the assessee produces cogent documentary evidence

and mere suspicion or unverified third-party statements cannot justify

the addition.

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

13 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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 Hon'ble Supreme Court in CIT D. A. Raman & Co. [(1968) 67 ITR

11 (SC)] categorically held that income-tax cannot be levied on

hypothetical or potential income and that the charge is confined to

real income earned by the assessee. In view of the above, we find

merit in Ground No. 5 of the Assessee and the addition made by the

A.O. which has been confirmed by the Ld. CIT(A) is liable to be

deleted.

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.

14 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

15 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

available on record.

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

16 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

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.

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.

17 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

Therefore, in our opinion, there was no question of revenue loss or tax

evasion. A mere difference in classification cannot be treated as

evidence of bogus purchase when there is no contrary

materialavailable and the rate of tax and the nature of goods remain

the same.

registered dealer under the GST law during the relevant period and

the transactions were duly reported in the GST returns of both parties.

The Appellant had also claimed input tax credit (ITC) in respect of

these purchases, which was duly reflected in its GST filings and has

not been disputed or disallowed by the GST authorities. It is a settled

principle that a bona fide buyer cannot be penalized for any

procedural or classification difference arising from the supplier's end,

particularly when the purchases are supported by valid documents,

payment through banking channels and are otherwise genuine and

verifiable. The Hon'ble Delhi Tribunal in Sushil Kumar v. ACIT [2025]

176 taxmann.com 957 (Del Trib.) held that when purchases are

supported by proper bills, banking payments, and duly reflected in

GST returns with ITC claimed and allowed, such transactions cannot

be disbelieved merely on suspicion. The Tribunal also observed that

the fact that some suppliers were inactive on the GST portal or had

not filed returns cannot be a ground for making additions in the

18 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

hands of the purchaser, as there is no legal obligation on the buyer to

ensure the supplier's tax compliance.

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.

[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.

Similarly, the Mumbai Tribunal in Geolife Organics v. ACIT [2017] 58

ITR(T) 297 (Mum.) observed that where the purchases are backed by

delivery and payment evidence and the consumption of goods is

accepted, the same cannot be treated as bogus. Further, the Delhi

Bench in ACIT v. My Paper Merchants Pvt. Ltd. (ITA No.

226/Del/2024, dated 20.08.2025) reiterated that additions made on

assumptions, without verification or tangible material, are

unsustainable.

19 ITA No. 3454/Del/2025 M/S JHS Sevendgaard Laborotories Ltd. Vs. DCIT

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.

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.

Order pronounced in the open court on 07th January, 2025.

Sd/- Sd/- (S. RIFAUR RAHMAN) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 07.01.2026 R.N, Sr.P.S*