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Facts
The assessee, a government contractor, purchased cement from Jain Cement Udyog. The Assessing Officer (AO) disallowed the entire purchases, treating them as bogus based on information that Jain Cement Udyog was managed by an entry provider. The assessee appealed, arguing that the purchases were accounted for and supported by documentation, and that the AO had not rejected their books of account.
Held
The Tribunal found that the assessee had furnished sufficient evidence to substantiate the genuineness of the purchases, and the lower authorities had not brought any adverse material to counter these evidences, relying solely on third-party information. The Tribunal held that a 100% disallowance was not justified.
Key Issues
Whether disallowance of entire purchases as bogus is justified without rejecting books of account and based solely on third-party information. Whether a partial disallowance is appropriate to mitigate revenue leakage.
Sections Cited
147, 148, 148A, 151, 149, 151A, 69C, 115BBE, 145
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee is directed against the order of ld. CIT(A) / NFAC dated 10.09.2025 for A.Y. 2019-20. The assessee has raised following grounds of appeal:
“1. The reassessment proceedings and consequent reassessment both are invalid and without jurisdiction as the said assessment has been initiated and completed without complying with legal requirements of the provisions of section 147, 148, 148A, 151, 149 and 151A of the Income Tax Act therefore such assessment is void ab initio and liable to be quashed.
2. The Ld. CIT appeal has erred both in law and on facts in the case in upholding the addition on account of aggregate purchases of Rs. 13,01,2016/- made from entities allegedly controlled by Sh Sanjay Jain as bogus purchase in terms of provisions of section 69C rws 115BBE of the Act ignoring the fact that the above provisions has no applicability as the purchases are duly accounted in books of account and above addition has been made without rejecting books of account under section 145 of IT Act.
3. The Ld. CIT appeal has erred both in law and on facts in the case in upholding the addition on account of aggregate purchases of Rs. 13,01,2016/-made from entities allegedly controlled by Sh Sanjay Jain as bogus purchase in terms of provisions of sec 69C rws 115BBE of the Act
ignoring the fact that the appellant has submitted all relevant documents in evidence of purchase and therefore, such additions are merely based on suspicion, surmises and conjectures which are unsustainable in law.
4. The appellant craves leave to add, delete, modify amend the above grounds of appeal with the permission of the Hon’ble appellate authority.”
Rival submissions of both the parties have been heard and record perused.
The learned Authorised Representative (ld. AR) of the assessee submits that assessee is a Government Contractor and executed certain Civil contracts of Delhi Government during the relevant period. The assessee purchased cement from Jain Cement Udyog. The assessing officer made addition by disallowing purchases of cement shown from Jain Cement Udyog on the basis of information that Jain Cement Udyog was managed by Sanjay Jain, who was entry provider. The assessing officer disallowed the entire purchases from Jain Cement Udyog by taking view that such purchases are bogus purchases. The books of account of assessee which are duly audited were not rejected. The assessing officer made addition solely on the basis of third party statement. The execution of civil contract of State Government is not in dispute; such work is not possible in absence of consumption of cement. There is no independent evidence for making such addition. No investigation of facts was not carried out by the assessing officer. The ld. AR of the assessee submits that his entire purchases is genuine he has furnished sufficient evidence to substantiate the genuineness of purchases including of Form-H. The ld AR for the assessee prayed for deleting the entire addition. In alternative submission, the ld. AR of the assessee submits to avoid the prolonged litigation with department; some token disallowance on adhoc basis may be made. To support his submission, the ld. AR relied upon the decision of Delhi Bench in LS Contractors vs DCIT in wherein the additions were made on similar information and on appeal before Tribunal the addition of alleged non-genuine purchases were restricted to 6%.
Though, the ld AR of the assessee filed other case laws, but none of such case laws were relied by him.
On the other hand, the learned Senior Departmental Representative (ld. Sr.
DR) for the revenue supported the order of assessing officer, the ld. Sr. DR for the Revenue submits that assessing officer made addition on the basis of information which were based on sufficient evidence calculated by Investigation Wing in a search action on Sanjay Jain and his group. The assessee is one of the beneficiary of purchases shown from Sanjay Jain Group. The entity namely Jain Cement Udyog is managed by Sanjay Jain, the ld. Sr. DR for the revenue prayed for confirming the order of ld. CIT(A).
I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I find that case of assessee was reopened on the basis of information in the insight portal with assessing officer that search action was carried out by Investigation Wing on 29 premises related to Sanjay Jain and his associate, who were providing bogus transaction. During assessment, the assessing officer noted that the assessee has shown purchases of cement from one of the entities namely Jain Cement Udyog, which was managed by Sanjay Jain.
The assessing officer issued show cause notice to the assessee to substantiate the purchases. The assessing officer recorded that despite issuing various show cause notices, the assessee failed to respond such notices. The assessing officer made addition on the basis of information available with him and disallowed purchases of Rs. 13,01,216/- shown from entity managed by Sanjay Jain. Aggrieved by the action of assessing officer, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee stated that he is in the business of construction activity. The assessee during the assessment furnished various reply, copies of which was filed before ld. CIT(A). The assessee also raised various other legal objections. On merit, the assessee submitted that vide reply dated 19.04.2023, the assessee furnished sufficient document to support the purchases which includes ledger account of party, tender/ work order form Government agency, invoices, bank statement and Form H. It was contended that entire purchases cannot be added. No discrepancies were pointed out in the books of assessee which were duly audited. The assessee also relied on various case laws. The ld. CIT(A) after considering the submission of assessee held that assessee has not proved the movement of goods with evidence either during assessment or appellate proceedings. The ld. CIT(A) by referring the decision of Bombay High Court in PCIT vs Kanak Impex (India) Ltd. upheld the addition made by assessing officer.
No doubt that during assessment, the assessee has not made complete compliance. However, before ld. CIT(A), the assessee categorically stated that his purchases are genuine. The assessee also furnished ledger account of party invoices and bank statement including Form H under Delhi Cement (Licensing & Control Order). The Form H contained the vehicle number and number of cement bag. The assessee also furnished the work order issued by Delhi Jal Board, Government of NCT, Delhi.
Undisputedly, the assessee is engaged in the execution of civil contract wherein cement is one of the raw materials for execution of such civil contract. No comments were made by ld CIT(A) on such various evidences furnished by assessee nor remand report was obtained from assessing officer. I find that assessing officer made addition solely on the basis of information of third party. No independent investigation was carried out by ld. AO or ld. CIT(A). I find that consumption of material is not verified or disputed by assessing officer. In the income tax proceedings, when the assessee has discharged primary onus and furnished certain evidence, which are not countered by lower authorities, in such circumstances entire purchases cannot be disallowed. Considering the facts that the assessing officer is not able to bring any adverse material against the evidences furnished by assessee and he only rely on the information in the insight portal, there is no justification of disallowance of 100% purchases. In my considered view only a reasonable percentage of purchases to avoid the possibility of Revenue leakage is sufficient to meet the ends of justice.
Thus, considering the overall facts of the case, I am of the view that 6.00% of purchases shown from Jain Cement Udyog would be sufficient to avoid the possibility of revenue leakage. Thus, the assessing officer is directed accordingly. In the result, ground no. 2 & 3 of the appeal is partly allowed.
I find that assessee has raised a specific ground of appeal against reopening under section 147, issuance of notice under section 148 and other procedural aspect of reassessment however; no specific submission was made during the hearing. Therefore, ground no. 1 is treated as not pressed and dismissed as such.
In the result, appeal of the assessee is partly allowed.