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Facts
The assessee filed returns of income for AYs 2018-19 to 2020-21. During a search and seizure operation related to bogus purchase bills, it was found that the assessee was a beneficiary. The Assessing Officer (AO) made additions on account of alleged bogus purchases. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal, directing the application of a profit rate on such purchases.
Held
The Tribunal held that the CIT(A)'s finding that purchases from parties managed by Sanjay Jain were bogus was based on facts. However, the Tribunal found the 12.5% profit rate to be high and directed the AO to apply an 11% profit rate after adjusting for GST. The revenue's grounds of appeal were dismissed.
Key Issues
Whether purchases made from parties found to be providing accommodation entries can be treated as bogus, and if so, what is the appropriate method of taxation (full disallowance vs. profit rate).
Sections Cited
153A, 143(3), 250, 127, 139(1), 133(6), 132(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
O R D E R
PER MANISH AGARWAL, AM:
The captioned cross appeals are filed by the assessee and Revenue against three separate orders of Ld. Commissioner of Income Tax (Appeals)-30, New Delhi [“Ld. CIT(A) in short”] u/s 250 of the Income Tax Act, 1961 [“the Act in short”], all are dated 24.02.2025 against the orders of the Assessing Officer u/s 153A r.w.s
to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT 143(3) of the Income Tax Act, 1961 (“the Act” for short) for Assessment Years 2018-19, 2019-20 & 2020-21 respectively.
Since, all the appeals filed by the assessee as well as Revenue contained impugned issues which are interlinked with each other, therefore, all the appeals are taken together and decided through the common order.
During the course of hearing, the assessee vide letter dated 10.11.2025 has taken one additional ground of appeal wherein assessee has challenged the assessment order on ground of validity of approval granted by the PCIT u/s 153D as the same being mechanical and thus invalid. Before us the Ld. AR of the assessee has not pressed the additional grounds of appeal, therefore, the same is dismissed.
Brief facts of the case are that assessee is an individual filed his return of income on 27.09.2018 declaring total income of Rs.2,18,13,670/-. A search and seizure operation was carried out in respect of the beneficiary of accommodation entry of bogus purchase bills provided by Sanjay Jain group of which assessee is one of the beneficiaries. Accordingly, case of the assessee is centralized in terms of the orders passed u/s 127 of the Act dated 01.09.2021. Thereafter notice u/s 153A was issued on 18.11.2021, in response to which return of income was filed by the assessee on 01.04.2022 declaring the same income as were declared in the return filed u/s 139(1) of the Act. Thereafter, various notices were issued from time to time and after considering the notices and submissions made by the assessee, AO passed the order by making additions of Rs.45,25,415/- being purchases made from various
to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT entities related to Sh. Sanjay Jain. Further addition of Rs.34,33,460/- is made for the purchases related to one M/s. Canon Fasteners and addition of Rs.1,07,31,832/- is made on the basis of chart found from the possession of one Sh. Harsh Gupta.
6. Against the said order, the assessee filed the appeal before the Ld. CIT(A) who though had confirmed the fact that assessee is one of the beneficiary of bogus accommodation entry of purchases, however, has directed the AO to apply profit rate of 12.5% on the purchases of Rs.45,25,415/- made from the parties related to Sh. Sanjay Group. Against this order, the assessee is in appeal by taking the following grounds of appeal:
1. Ground No.1:- On the facts and circumstances of the case, the order passed by Ld. CIT(A) is bad both in eyes of law and on facts.
2. Ground No.2:- That the Ld. CIT(A) has erred in law and on facts in confirming the disallowance at 12.5% of the total purchases from certain vendors.
Ground No.2.1:- That the Ld. CIT(A) has erred in law and on facts in ignoring the facts that the appellant has already offered for tax, the gross profit earned on such purchases.
4. Ground No.:-3- That the Ld. CIT(A) has erred in law and on facts by making an addition of Rs.6,18,115/- on account of GST on the impugned purchases, which was never claimed as an expenses.
5. Ground No.4:- That the Ld. CIT(A) has erred in law as well as on facts by making the addition by solely relying on the third-party statement.
Ground No.5:- That the appellant reserves the right to add, modify, alter, amend of delete any of the grounds.”
The Revenue is in appeal by taking the following grounds of appeal:-
1. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-30, New Delhi has erred in deleting the disallowance ofRs.1,07,31,832/- made by the Assessing Officer on account of unexplained purchases, without appreciating the facts that alleged sellers from whom the assessee claimed to have made to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT above purchases had meagre income in their ITRS and their financials did not support the transactions claimed to have been made with the assessee. Also, the assessee during the course of assessment proceedings failed to discharge the burden of proving their creditworthiness and genuineness of the transactions.
2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-30, New Delhi has erred in law in deleting the disallowance ofRs.34,33,460- made on account of unverifiable purchases, ignoring the fact that the entities from whom the transactions claimed to have been made, were found to be nonexistent or untraceable during inquiries conducted under section 133(6) of the Income Tax Act, 1961 by the AO during the course of assessment proceeding. Besides, the assessee failed to produce the parties or substantiate the actual movement of goods relating to claimed transactions.
3. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-30, New Delhi has erred in law by not considering the fact that mere production of invoices, bank statements and confirmations, without actual verification of delivery of goods or existence of parties, is insufficient to prove the genuineness of purchases.
4. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-30, New Delhi has erred in law in deleting the addition to the extent of Rs.39,59,739- out of total addition of Rs.45,25,415/-made on account of bogus purchases by applying the G.P. rate & ignoring the incriminating material and corroborative evidence seized during the search, including statements under section 132(4), WhatsApp chats, and Tally data evidencing the use of accommodation entries.
5. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-30, New Delhi has erred in estimating the disallowance at 12.5% of the alleged bogus purchases without any legal or factual basis, and in contravention of binding precedents which mandate full disallowance in cases of fraudulent/bogus transactions.
6. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-30, New Delhi has erred in applying the principle of taxing only the profit element in bogus purchases despite clear and direct evidence of sham transactions. Once a transaction is proved to be fictitious, the entire expenditure is liable to be disallowed.
7. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-30, New Delhi has erred in disregarding the fact that the purchases in question were made from entities controlled by known accommodation entry providers, as admitted by them in sworn statements, and corroborated by documentary evidence. to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT 8. That the appellant craves leave to add, alter or amend any ground or grounds on or before the date of hearing of appeal.
In all the grounds of appeal, the assessee has challenged the application of the profit rate of 12.5% on the purchases alleged as bogus made from the parties related to Sh. Sanjay Jain. The revenue in its Grounds of appeal Nos. 4 to 8 has challenged the action of ld. CIT(A) in applying the profit rate of 12.5% as against the addition of total bogus purchases as made by the AO.
9. Before us, the Ld. AR of the assessee submits that the assessee has filed all evidences to prove the genuineness of the purchase which includes ledger accounts, bank statements, E-way bills and other particulars. He submits that the books of accounts of the assessee were rejected though the consumption of material purchases in execution of the contracts was not disputed by the AO, therefore, no addition could be made on account of purchases held as bogus. He prayed accordingly.
10. In the alternate it is prayed by ld. AR for the assessee that the G.P. rate applied by Ld. CIT(A) 12.5% is higher and purchases held as bogus includes the amount of GST paid, therefore, the amount of GST which is adjusted against input credit available, should be reduced from the gross value of alleged bogus purchases for applying the profit rate. In this regard, ld. AR submits that the AO has reduced the amount of GST deposited through challan only and not reduced the amount of GST claimed through input ledger, therefore he requests that the amount of alleged bogus purchases should be further reduced by the amount of GST adjusted against the input credit available for applying profit rate. Ld. AR also prayed that the profit rate of 12.5% as applied by ld. CIT(A) deserves to be suitably reduced to a reasonable rate on such alleged bogus purchases after further reducing the amount of GST adjusted
11. On the other hand, the Ld. Sr. DR vehemently supports the order of the AO and submits that when the assessee was found to be engaged in taking accommodation entries in the shape of bogus purchases, entire amount of purchases deserves to be held as undisclosed income of the assessee and, therefore, he prayed for restoration of the addition made by the AO on this account.
12. Heard both the parties and perused the materials available on record. In the instant case, we find that the Ld. CIT(A) has considered all the aspects with respect to the purchases made from the parties alleged as the bogus/non-existent. The Ld. CIT(A) in para 9 of the order has discussed all the factors and then reached to the conclusion that the assessee has made purchases from various parties managed and controlled by Sh. Sanjay Jain, therefore, such purchases could not be accepted as genuine purchases. However, ld. CIT(A) has directed the AO to apply G.P Rate of 12.5% on such purchases held as bogus. In our considered opinion, action of Ld. CIT(A) in holding the purchases made from the parties managed and controlled by Shri Sanjay Jain as bogus is based on the appreciation of facts of the case, therefore, we restrained ourselves to interfere such findings of ld. CIT(A).
Now coming to issue of reasonable GP rate, we find that assessee has declared G.P rate of 8.71% as against which ld. CIT(A) has directed to applied additional G.P. rate of 12.5% on such alleged bogus purchases which has resulted into the G.P rate of more than 20%. It is also seen that the amount of GST which was claimed against the input credit was also part of such bogus purchases and was not reduced from the to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT value of bogus purchases before the application of profit rate of 12.5%. Accordingly, we direct the AO to reduce further the amount of GST which was adjusted from the input credit available, as the amount of bogus purchases should be net of GST paid through challan or claimed adjusted against the input credit available to worked out the correct amount of bogus purchases. Further in our view that the G.P rate of 12.5% seems to be high looking to the GP rate declared by the assessee and nature of his business. Therefore looking to the overall facts and circumstances of the case, we direct the AO to apply the G.P. rate of 11% on the net sales (as reduced by the amount of GST paid/ claimed as adjusted) and the AO is further directed to reduce the G.P. already declared by the assessee and made the addition of the remaining amount. Accordingly, all the grounds of appeal taken by the assessee are partly allowed and grounds of appeal No.4 to 8 of the revenue are dismissed.
Ground of appeal No.1, taken by the revenue is with respect to the deletion of addition of Rs.1,07,31,832/- made by AO on account of purchases made from the parties who had declared lower income.
Grounds of appeal No.2 & 3 taken by the revenue are regarding deletion of addition towards the purchases of Rs.34,33,460/- made from the parties which were found to be non-existent or non-traceable.
16. Heard both the parties and perused the material available on record. It is seen that the Ld. CIT(A) while deleting these additions has made elaborate discussion in para 8 and 10 of his order. The observations of the Ld. CIT(A) in para 8 with respect to the deletion of the addition of Rs.1,07,31,832/- is reproduced as under: to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT “8. Ground nos.2 and 5: The Appellant has challenged the disallowance of purchases to the tune of INR 1,07,31,832/- which was made on account of law-income disclosure by the vender namely M/s Kusum Cement and M/s SVR Enterprise during the period under consideration. 8.1 The Appellant has highlighted that the Assessing Officer has made error while passing the order and mentioned the incorrect figures of transactions which are corrected as under: - S. No. Particulars Amount (INR) 1. Kusum Cement 60,00,112 (erroneously taken by the AO instead of Rs.15,00,411/-, being the actual sum) 2; SVR Enterprise 47,31,720 Total Amount 1,07,31,832/- 8.2 The Appellant has vehemently submitted that the Ld.AO has not considered the submissions made by above entities in which all the relevant documents called for has been submitted including ledgers accounts showing sales, ITR, Financial Statements, bank Statements, copy of GST/VAT filed by above entities and E-Way bill for each invoice for material supplied by them which can demonstrate the genuineness of transactions. 8.3 The Assessing officer has duly stated in the order itself that the above details were submitted by the parties in question und same are perused but has not drawn any inference on the sanctity of the evidence placed on record by the parties as well as the Appellant. 8.4 The Assessing officer has made the disallowance of INR 1,07,31,832 merely by stating that the parties has disclosed low-income in their ITR, whereas no inference was drawn on the evidence placed on record. Further the Appellant has placed on record that all the transactions are made through proper banking channel and Ld.AO has erred by making addition on the basis of creditworthiness and low income in their ITR. 8.5 In the aforementioned facts and circumstances, it would be relevant to place the findings of the Hon'ble jurisdictional Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. of 2015 dated 12th August 2015 (Del.), in which it was held as under: "The sole basis for creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court." to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT 8.6 The facts of the present case are identical and based on the findings of the Hon'ble Jurisdictional High Court, in Vrindavan Farms Private Limited (Supra), the disallowance of INR 1,07,31,832 is required to be deleted as the sole basis for such disallowance was only the low-income disclosure in ITR by the parties and such reasons shall not be considered as justified for the challenging the creditworthiness of the parties, accordingly the present ground nos.2 and 5 are allowed.”
17. Further while deleting the addition of Rs. 34,33,460/-, the Ld. CIT(A) has made following observations in para 10 of the order.
Ground no.4 The Appellant has challenged the addition of INR 34,33,460 made on account of purchases made from AK International based on the inquiry conducted and found out that the business of AK International is unsatisfactory. 10.1 The Assessing officer has issued the notice under section 133 (6) of the Act to the various parties of the Appellant and M/s AK International was not found at the address mentioned on the PAN. The Assessing officer has made the addition of INR 34,33,460 to the returned income of the Appellant based on the non- response of notice issued under section 133 (6) of the Act. 10.2 In order to verify the transactions made with AK International, the Appellant has placed on record the Invoices, bank statement highlighting the payments and confirmation from parties, GST registration of AK International which also depicts the current registered address. 10.3 In addition to the above, the Appellant has clarified that Sh. Amit Kumar Goyal is the proprietor of M/s AK International with its office located at Sirki Walan, 2879, F/F Gali Jajam Puria, Hauz Qauzi, Chawri bazar, North Delhi -110006 and Kh. No. 950, Ground Floor, Village Rithala, North West Delhi - 110085. Whereas, the inspection was carried out at 52 GB road, new Delhi -110006. Clearly, the inspection was carried out at the wrong address. 10.4 It is clearly coming out that the Ld. AO has not drawn any inference on the documents placed on record by the Appellant rather relied upon the inquiry report which was conducted on the wrong address. 10.5 In the above facts and circumstances, the decision of Hon'be ITAT Delhi Bench, in the case of Karam Chand Rubbor fndustcies (p) ltd. Vs. ACIT (ITAT Delhi), has made the finding as under: “4.4.16 The non-availability of a party at the given addresses could be one of the grounds for initiation of investigation The transaction could be finally held as bogus only after material facts disproving the contents of the to1672/Del/2 to 2873/Del/2025 Surender Gupta vs. DCIT documents etc. are established. In the present case, AO has failed to bring on record any material facts disproving the facts submitted by the assessee. The initial onus have been duly discharged by the assessee by submitting duly audited books of accounts and various documents. It was for the AO, to have brought on record any evidences to disprove the contents of the books of accounts and documents. Failure of the assessee to produce the parties for verification or making immediate payments can't be grounds for making disallowances. They could only lead to a suspicion that the purchases could be bogus. But nothing more. However, suspicion cannot be the sole ground for disallowing the purchases Hence the disallowance of purchases is hereby deleted. Ground on the issue is allowed. Hence, based on the factual matrix and requisite evidence placed on record by the Appellant the addition of INR 34,33,460 is be deleted, and accordingly ground no.4 is allowed, 18. Before us, Revenue has failed to controvert the findings given by the Ld. CIT(A) who has followed the judgments of the Hon’ble Jurisdictional High Court in the case of Vrindavan Farms Pvt. Ltd. and others in of 2015 dated 12th August, 2015 (Del.) and further the judgment of the Tribunal in the case of Karam Chand Rubber Industries (P) Ltd. vs. ACIT (ITAT Delhi). Thus, in view of these facts, and by respectfully following the judgements of hon’ble Jurisdictional high court, we find no error in the order of the Ld. CIT(A) who has rightly deleted the addition. Accordingly, we uphold the order of Ld. CIT(A) in this regard. Grounds of appeal Nos. 1 to 3 of the revenue are thus dismissed.
In the result, the appeal of the assessee is partly allowed and of the Revenue is dismissed as discussed hereinabove.
Now coming to the remaining cross appeals of the assessee and of the revenue [ in (Assessee’s Appeal) and 2872/Del/2025 (Revenue’s Appeal) for AY 2019-20 and (Assessee’s Appeal) and 28723Del/2025 (Revenue’s Appeal) for AY 2020-21.
Admittedly facts involved in both the appeals are identical and the AO has made the similar allegations for making the additions and ld. CIT(A) also made similar observations for partly allowed the appeal of the assessee as that of the facts of AY 2018-19 in IAT No. 1670/Del/25(Assessee’s Appeal) and (revenue’s appeal).
Before us, both the parties have relied upon the submissions made in AY 2018-19. As admitted, the facts are identical thus by following our observations as made in AY 2018-19 herein above, we direct the AO to apply Gross profit rate of 11% on the amount of bogus purchases made from the parties managed and control by Shri Sanjay Jain as reduced by the amount of GP already declared by the assessee. AO is further directed to reduce the amount of GST adjusted from input credit available from the amount of alleged bogus purchases for application of the GP rate as directed herein above. With these directions both the appeals of the assessee are partly allowed and of the revenue are dismissed.
In the final result all the appeals of the assessee in to 1672/Del/2025 for AY 2018-19 to AY 2020-21 are partly allowed and of the Revenue in to 2873/Del/2025 for AY 2018-19 to AY 2020-21 respectively are dismissed. Order pronounced in the open Court on 24.12.2025.