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Facts
The assessee, proprietor of M/s Inertia International, filed a return for A.Y. 2014-15 declaring income of Rs. 13,36,170/-. Reassessment proceedings were initiated based on a Tax Evasion Petition alleging higher profits. The Assessing Officer added Rs. 96,65,965/- as 2.5% net profit on alleged bogus purchases of Rs. 3,86,63,830/-, completing the assessment at Rs. 1,14,95,918/-. The CIT(A) upheld the addition, leading to the current appeal before the Tribunal.
Held
The Tribunal observed that the Tax Evasion Petition and the Assessing Officer's orders lacked specific details and a clear basis for arriving at the alleged bogus purchases figure. It further noted that in identical circumstances for A.Y. 2013-14, reassessment was quashed, and for A.Y. 2015-16, the issue was dropped. Finding the addition of Rs. 96,65,965/- on account of profit from alleged bogus purchases to be wholly unjustified and without basis, the Tribunal deleted it.
Key Issues
Whether the reassessment proceedings under Section 147/148 were valid given jurisdictional concerns and time limits, and whether the ad-hoc addition on account of profit embedded in alleged bogus purchases was justified when sales were undisturbed and the basis for the addition was vague, especially considering similar outcomes for other assessment years.
Sections Cited
250, 147, 144B, 148, 149(1), 148A(b), 148A(d), 149, 143(3), 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: SHRI VIMAL KUMAR & SMT. RENU JAUHRI
This appeal is filed by the assessee is preferred against the order of the Ld. CIT(A), National Faceless Appeal Centre (for short, NFAC), passed in DIN & Order No. ITBA/NFAC/S/250/2025-26/1077784466(1), for A.Y. 2014-15, u/s 250 of the Income Tax Act, 1961(hereinafter referred to as, “Act”), order dated 25.06.2025. The Assessment was framed by AO u/s 147 r.w.s.144B of the Act, vide order dated 24.05.2023.
1 | P a g e “(a) That on the facts and in the circumstances of the case, the disallowance and/OR denial of claims and/OR Iosses, imposition of tax with reference thereto, the quantification of tax liability, has been grossly unjustified, erroneous and unsustainable and necessary direction may be given to the ('Ld. AO') to give appropriate relief in accordance with law.
(i) That on the facts and in the circumstances of the case, the order passed by the Ld. AO u/s 147 of the Act dated 24-05-2023 is illegal, perverse and bad in law. 1.2 That on the facts and in the circumstances of the case, the Ld. AO has grossly erred in passing the order u/s 147 r.w.s. 144B dated 24-05-23 without considering the detail/submissions/reply filed by the appellant from time to time. (b) That on the facts and in the circumstances of the case, the CIT(A) erred in confirming the order of the Ld. AO erred in reopening the assessment u/s 148 of the Act since the time limit for issuance of notice u/s 149(1) had elapsed. (c) That on the facts and in the circumstances of the case, the order passed u/s 148, 148A(b), and 148A(d) of the Act by the Jurisdictional AO (JAO) instead of the Faceless AO (FAO) is contrary to the Faceless Assessment Scheme rendering the reopening of proceedings void and illegal. (d) That on the facts and the circumstances of the case and without prejudice to the ground taken herein above, the Ld. AO has grossly erred in reopening the assessment u/s 148 of the Act since the alleged transaction is outside the purview of section 149 as same is not covered under the definition of assets. (e) That on the facts and the circumstances of the case and without prejudice to the ground taken herein above, the order 5 passed u/s 147 of the Act is illegal, bad in law and hence need to be quashed as evidence produced based on which it has been alleged that income has escaped assessment were insufficient. (i) Without prejudice to the above, it may be noted that all the material on the basis of which the Ld. 2 | P a g e ARVIND JAIN VS. ITO WARD 5(1)(1), UTTAR PRADESH AO had reasons to believe that the income had escaped assessment was available on record at the time of completion of assessment u/s 143(3) of the Act.
(f) That on the facts and the circumstances of the case and without prejudice to the ground taken herein above, appellant has not entered into any such alleged transaction. (i) That on the facts and the circumstances of the case and without prejudice to the ground taken herein above, that addition should be restricted to profit element embedded on alleged transaction. (ii) That on the facts and the circumstances of the case and without prejudice to the ground taken herein above, it may be noted that CIT(A) has erred in confirming the actions of the Ld. AO in disallowing purchases without disturbing sales.
(g) That on the facts and the circumstances of the case and without prejudice to the ground taken herein above, no addition had been made in appellant's own case. (h) That on the facts and in the circumstances of the case, interest u/s 234A. 234B & 234C levied amounting to Rs. 6,702/-, Rs.42,61,573/- & Rs. 7,892/- respectively should be consequentially reduced.
(i) That the appellant craves to add, amend, modify, rescind, supplement, OR alter any of the grounds stated here-in- above, either before OR at the time of hearing of this appeal. ”
Brief facts of the case are that the assessee is a proprietor of the concern M/s Inertia International, engaged in the export and trading of home furnishing items. Return declaring income of Rs. 13,36,170/- was filed for A.Y. 2014-15 on 30.11.2014. Subsequently, a Tax Evasion Petition 3 | P a g e ARVIND JAIN VS. ITO WARD 5(1)(1), UTTAR PRADESH (TEP) was received against the assessee stating that he had earned profit of Rs. 3,00,00,000/- for F.Y. 2012-13, Rs. 4,00,00,000/- for F.Y. 2013-14 and Rs. 2,50,00,000/- for F.Y. 2014-15. Based on this information, a notice u/s 148 of the Act was issued by the Ld. AO on 09.04.2021. In accordance with the directions of the Hon’ble Supreme Court, this notice was treated as a show-cause notice and, after considering assessee’s reply dated 16.06.2022 an order u/s 148A(d) was passed by the Ld. AO holding that the assessee had under-reported his income to the tune of Rs. 3,86,63,830/-. Notice u/s 148 was accordingly issued on 28.07.2022. After considering the submissions of the assessee, during the course of assessment proceedings, Ld. AO added an amount of Rs. 96,65,965/- on account of net profit computed @ 2.5% of the total bogus purchases to the tune of Rs. 3,86,63,830/-. Assessment u/s 147 r.w.s 144B was accordingly completed at an assessed income of Rs. 1,14,95,918/-.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), raising several legal grounds along with the ground on merit relating to ad-hoc addition made on account of gross profit relating to alleged bogus purchases. Vide order dated 25.06.2025, Ld. CIT(A) dismissed the assessee’s appeal. Further aggrieved, the assessee has filed an appeal before the Tribunal.
4 | P a g e ARVIND JAIN VS. ITO WARD 5(1)(1), UTTAR PRADESH 4. Before us, Ld. AR has submitted that the Ground No. 3 relating to the jurisdictional issue of order passed u/s 148 by JAO instead of FAO was not being pressed. Further, with regard to the merits of the addition, Ld. AR has submitted that the assessee had not entered into any such alleged bogus purchase transactions and the lower authorities were not justified in disallowing purchases without disturbing the sales declared by the assessee. It has further been submitted that the assessee had maintained proper books of accounts which have not been rejected by the Ld. AO. The assessee purchased goods worth Rs. 5,26,74,714/- during the year which were duly recorded in the audited books of account. During the assessment proceedings, the assessee had also submitted party wise purchase ledgers and the bank statements evidencing the payment to such parties. The net profit ratio of 1.59% declared by the assessee was the same as per normal industry standards. Ld. AR has further pointed out that the case of the assessee was re-opened on the basis of the same TEP even for AYs 2013-14 and 2015-16. In AY 2013-14, the re-opening was quashed by the order of the Co-ordinate Bench in ITA No. 5173/DEL/2025. Further, for A.Y. 2015-16 also the case was re-opened based on the same TEP but, after considering the detailed submissions of the assessee, the Ld. AO had dropped the issue and completed the assessment at returned income.
On the other hand, the Ld. DR vehemently supported the orders of the lower authorities and submitted that the Ld. AO after due examination of 5 | P a g e ARVIND JAIN VS. ITO WARD 5(1)(1), UTTAR PRADESH the replies submitted by the assessee had pointed out several deficiencies such as non-maintenance of stock records, unverifiable valuation of closing stock as well as non-furnishing of crucial documents such as copies of purchase bills with GST details, transport records and other evidences for demonstrating physical movement of goods. Under these circumstances, the Ld. AO treated the purchases as non-genuine and applied a profit rate of 25% to make an addition of Rs. 96,65,965/- from the impugned bogus transactions. She has, therefore, argued that the addition of Rs. 96,65,965/- deserves to be upheld.
We have heard the rival submissions and carefully perused the material available on record. It is noted that the TEP based on which the case was re-opened did not contain any details except the lump sump figure of Rs. 4,00,00,000/- alleged to be the actual profit of the assessee during the year under consideration. Based on this TEP, the Ld. AO, after reducing the returned income of Rs. 13,36,170/- from the figure of Rs. 4,00,00,000/-, treated the balance amount of Rs. 3,86,63,860/- as bogus purchases. No details or break-up of this amount alleged to be bogus purchases has been mentioned in the assessment order. We find no basis for arriving at this figure either in the order u/s 148A(d) or in the assessment order.
6.1 It is pertinent to mention to note that for under identical circumstances, the re-assessment made for A.Y. 2013-14 has 6 | P a g e ARVIND JAIN VS. ITO WARD 5(1)(1), UTTAR PRADESH been quashed by the Coordinate Bench vide order dated 24.09.2025. Further on similar facts and circumstances for A.Y. 2015-16, the Ld. AO has after re-opening examined the allegation in the TEP and not made any addition to the returned income
In view of the above facts and circumstances, we, hereby, delete this addition of Rs. 96,65,965/- made on account of profit from alleged bogus purchases, being wholly unjustified and without any basis.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 23-12-2025.