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Facts
The assessee, engaged in business as a contractor and trader, declared income and filed returns. The AO disallowed purchases amounting to Rs. 3,36,88,080/- from four parties, treating them as bogus creditors. The CIT(A) partly allowed the appeal, confirming the disallowance for these purchases.
Held
The Tribunal held that the assessee had provided sufficient evidence to establish the identity and creditworthiness of the four suppliers. The AO accepted the purchases and trading results, and the provisions of Section 68 were not applicable for unexplained credit.
Key Issues
Whether the disallowance of purchases from four parties, treated as bogus creditors, is justified when the assessee has provided substantial evidence of genuineness.
Sections Cited
143(3), 250, 143(2), 131, 46A, 68
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Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR U.S & SHRI MANISH AGARWAL
Year : 2012-13] Shiv Hari Singla, vs ITO, H.No.665, Sec-17, Ward-1(1), Faridabad, Haryana-121002. Faridabad PAN-ACBPS4477N APPELLANT RESPONDENT Appellant by Shri Tarandeep Singh, Adv. & Shri Sandeep Yadav, Adv. Respondent by Shri Manish Gupta, Sr.DR Date of Hearing 29.05.2025 Date of Pronouncement 27.08.2025 ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by the assessee against the order dated 12.02.2020 passed by Ld. Commissioner of Income Tax (A), Faridabad [“Ld.CIT(A)”] in Appeal No.10216/2015-16 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 27.03.2015 passed u/s 143(3) of the Act pertaining to Assessment Year 2012-13.
Brief facts of the case are that assessee is an individual and filed his return of income on 31.03.2013, declaring total income of INR 13,37,910/-. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued on 23.09.2013. The assessee was engaged in the business of contractor in MES where the assessee was providing installation, erection and maintenance of Air Conditioning System to MES and also to private parties besides trading in items relating to air conditioning systems. The Page | 1 total sales for the year before us was declared at INR 6,44,87,306/-. The AO accepted trading result declared however, on verification of the books of accounts, it was observed that assessee shown sundry creditors of INR 9,06,59,009/- as on 31.03.2012 which were very high thus, the AO proceeded to examine these creditors. After verification, AO short-listed four parties to whom notices were issued u/s 131 of the Act which were returned unserved. During personal visit by the Inspector, it was found that either the shop found closed or no shop was available at the given address. Thereafter, the AO discussed the outcome of enquiries made in respect of each of the party in para 2.6 of its order and held these four parties as bogus and unexplained creditors and total outstanding in their names at INR 3,36,88,080/- was added as income from undisclosed source in the hands of the assessee. Besides this, other petty additions were also made. Accordingly, total income of the assessee was assessed at INR 3,62,25,707/-.
Against this order, assessee preferred an appeal before Ld. CIT(A) who vide impugned order dated 12.02.2020 partly allowed the appeal wherein purchases from four entities was held as bogus and relief was allowed in respect of other additions made by the AO.
4. Aggrieved by the said order of Ld.CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:- 1. “That, on the facts & circumstances of the case and in law, the CIT(A) was not justified in confirming the disallowance of entire purchases of Rs.3,36,88,080/-made from 4 parties mentioned in the order. The findings of CIT(A) are perverse & rather based on surmises & conjectures and in ignorance of the relevant facts on record and also contrary to the legal position declared by courts.
2. Without prejudice to above, the entire sales being found to be genuine, the AO as well as CIT(A) ought to have allowed the cost of purchases relatable to such sales as declared by various hon'ble Courts as well as by the hon'ble Tribunal.
3. That, on facts of the case, the CIT(A) was not justified in partly restoring the issue of disallowance of interest for fresh determination.
The appellant craves to add or modify the grounds of appeal, if required.” Ground of appeal No.3 is not pressed hence, dismissed. 5.
The remaining Ground of appeal Nos. 1 & 2 are with respect 6. to the addition of INR 3,36,88,080/- confirmed by Ld.CIT(A) towards the balance outstanding in the name of four creditors held as paper entities.
7. Before us, Ld.AR submits that during the course of assessment proceedings, assessee produced books of accounts which were examined by the AO and found no defects in the same. It was submitted by Ld.AR that during the course of assessment proceedings, details regarding purchases were filed alongwith affidavits of the parties however, the AO failed to appreciate the same and made making the additions. He further submits that during the appellate proceedings, assessee filed more details to establish the identity and creditworthiness of the creditors in terms of the application under Rule 46A filed before ld. CIT(A) on 23.08.2016. Ld. CIT(A) admitted the evidences so filed and remand report was called for from the AO. During the remand proceedings, assessee filed relevant details to establish the identity and creditworthiness of these creditors. As per ld. AR, AO made direct enquiries from the creditors who had filed response and relevant details during the remand proceedings before the AO on 06.10.2016. Thereafter, the Remand Report was submitted on 09.02.2018 wherein the AO again alleged the creditors as bogus. On supply of the copy of the said remand report a re-joinder was submitted by the assessee on 12.03.2018. Before us, Ld.AR of the assessee filed a chart wherein relevant details as filed before the lower authorities and available in Paper Book is tabulated as under:-
Party Ledger Ledger A/c Invoices Affidavit of Creditors VAT Return & Form ST-38 VAT A/c in of ‘A’ in creditors- have Number (evidencing returns of books of books of Notrized replied to movement of creditors ‘A’ creditors notices u/s goods) + verified by 133 invoices AO filed by creditor Karthik Pages 29 Pages Pages 31 Pages Notice @ 06771938513 Page 143 Notice @ Enterprises to 3 139 to to 42 137 to page Pages 167 to to 166 page 142 138 327/reply 182 338/reply @ page @ page 339 330 of PB Aradhna Pages 11 Pages 84 Pages 13 Pages 82 Notice @ 06971937821 Page 89 to Notice @ Trading to 12 to 88 to 28 to 83 page Pages 121 to 120 page Co. 298/reply 136 321/reply @ page @ page 299 324 Khan Pages 43 Pages Pages 44 Pages Notice 07450400398 Pages 274 Notice @ Enterprises 185 to to 52 183 to @page Pages 199 to to 375 page 189 184 358/reply 209 372/reply @ page @ page 359 373 of PB Columbian Pages 53 Pages Pages 54 Pages Notice @ 07510400947 Pages 218 Notice @ Sales 214 to to 66 212 to page to 225 page 217 213 376/reply 388/reply @ page @ page 377 389 to 391
It is submitted by Ld.AR that despite filing the details as tabulated above, Ld. CIT(A) had confirmed the additions by holding these four creditors parties as paper entities. Ld.AR further submits that trading results declared by the assessee was not doubted nor the stock registers and books of accounts produced were doubted. However, the creditors were doubted which is contrary to the facts that purchase made from these parties forming part of total purchases declared in trading accounts were never questioned thus, the action of the lower authorities holding these parties as paper entities as bad in law. The Ld.AR prayed for the deletion of additions made.
On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of lower authorities and submits that both the lower authorities i.e. AO & Ld. CIT(A) examined the factual matrix of the case and assessee was provided sufficient opportunity during remand proceedings also to establish these four creditors as genuine. The assessee has failed to discharge the burden casted upon him to prove the creditworthiness of the parties and therefore, the additions have rightly been made. Ld. DR further submits that Ld.CIT(A) has discussed the issues of all the four parties in details in its order in para 14.1 to 15 of the order and thereafter, concluded that these four parties were non-existent and paper entities. Accordingly, Ld. Sr. DR requested for the confirmation of the additions made.
Heard the contentions of both the parties and perused the material available on record. From the orders of the lower authorities, we find that the assessee had submitted part details before AO and remaining details were filed before Ld. CIT(A) with respect to sundry creditors appearing in the balance sheet to establish their identity and creditworthiness. It is further seen that during remand proceedings, all these parties made compliances before the AO and filed necessary replies. It is also seen that assessee made purchases from these parties which were not doubted as trading results declared by the assessee, were accepted by the AO. As is evident from the chart reproduced above, the assessee had filed all the plausible evidences in support of the purchases made and to prove the genuineness of these suppliers. The assessee has produced stock register wherein day-to-day purchases and sales were recorded, which were never doubted. Assessee filed the copies of invoices issued by these parties and further, filed their VAT returns wherein they declared the sales made to assessee. It is also seen that assessee had filed Form ST-38 to support the contention of movement of goods from suppliers and carried with goods during transportation. Assessee further field confirmations and affidavits of these parties. By filing all these details, in our considered opinion, burden casted upon the assessee was duly discharged. It is further seen that the AO made enquiries from Haryana State VAT Department who also affirmed that VAT returns filed by the assessee are verified. The assessee has filed the affidavits of all the supplies wherein they have confirmed the supplies to the assessee and such affidavits remained uncontroverted. It is also a matter of fact that part-payments were also made to these creditors at later stage. The details filed by the assessee to establish the genuineness of these parties is discussed as under:- M/s Aradhana Trading Co: The purchases made from this party during the year under consideration was of Rs.1,61,78,384/- and the balance outstanding Page | 6 was disallowed. In order to prove the genuineness of the purchases, the following documents were filed alongwith the affidavit:
- The PAN of Shri Banti proprietor of M/S Aradhna Trading Company (BEPPB0238F) and his AO i.e. Ward 5(1)((1) Gautam Budh Nagar Noida, was intimated to the AO.
- Confirmed copy of ledger a/c of the supplier in the books of the assessee for period from 01.04.2011 to 31.03.2012 and from 01.04.2012 to 31.03.2013.
- Confirmed copy of ledger a/c of the assessee in the books of the supplier for the period from 01.04.2011 to 31.03.2015.
- Copies of all the invoices.
- Copy of outward challan for each bill in proof of movement of material purchased.
- Copy of Vat return of the supplier in proof of purchases made by the assessee duly reported by the supplier to the VAT department as sales made by them to the assessee.
- Copy of Vat return filed by the assessee with VAT department in proof of purchases made by him from the supplier It is further seen that the supplier was available at the shop when inspector visited the shop who served notice to him and was duly responded to u/s 133(6) of the Act by the supplier confirming the transactions and the ledger accounts, bills etc. were already filed by the assessee. It is further seen that partial payments were made through banking channel after 31.03.2012 and the copy of bank a/c of the assessee was also filed.
M/s Kartik Enterprises: The purchases made from this party during the year under consideration were Rs.1,19,43,829/- and the balance outstanding was disallowed. In order to prove the genuineness of the purchases, the following documents were filed alongwith the affidavit:
- Confirmed copy of ledger a/c of the supplier in the books of the assessee for the period from 01.04.2011 to 31.03.2012 and from 01.04.2012 to 31.03.2013.
- Confirmed copy of ledger a/c of the assessee in the books of the supplier for the period from 01.04.2011 to -31.03.2015.
- Copy of all the invoices issued.
- Copy of outward challan for each bill in proof of movement of material purchased.
- Copy of Vat return of the supplier in proof of purchases by the assessee duly reported by the supplier to the VAT department as sales made by it to the assessee.
- Copy of Vat return filed by the assessee with VAT department in proof of purchases made by him from the supplier.
It is further seen that the supplier was available at the shop when inspector visited the shop who served notice to him and was duly responded u/s 133(6) of the Act by the supplier confirming the transactions. Copies of the ledger accounts, bills etc. were already filed by the assessee. It is further seen that partial payments were made through banking channel after 31.03.2012 and the copy of bank a/c of the assessee was also filed. It is also stated by the assessee that supplier sued for the recovery of the outstanding amount and served a recovery notice on the assessee, copy of which was also filed before the lower authorities.
M/s Khan Enterprises: The purchases made from this party during the year under consideration were of Rs 28,03,019/- and the balance outstanding was disallowed. In order to prove the genuineness of the purchases, the following documents were filed alongwith the affidavit:
- Confirmed copy of ledger a/c of the supplier in the books of the assessee for the period from 01.04.2011 to 31.03.2012 and from 01.04.2012 to 31.03.2013.
- Confirmed copy of ledger a/c of the assessee in the books of the supplier for the period from 01.04.2011 to 31.03.2015.
- Copy of all the invoices issued.
- Copies of Vat return filed by the assessee with Sales Tax department in proof of purchases made by him from the supplier.
It is further seen that the supplier was available at the shop when inspector visited the shop who received notice served by the inspector and was duly responded u/s 133(6) of the Act by the supplier confirming the transactions. Copies of the ledger accounts, bills etc. were already filed by the assessee. It is further seen that complete payment was made through banking channel after 31.03.2012 and the copy of bank a/c of the assessee was also filed.
M/s Columbia Enterprises: The purchases made from this party during the year under consideration were Rs 27,62,848/- and the balance outstanding was disallowed. In order to prove the genuineness of the purchases, the following documents were filed alongwith the affidavit:
- Confirmed copy of ledger a/c of the supplier in the books of the assessee for the period from 01.04.2011 to 31.03.2012 and from 01.04.2012 to 31.03.2013.
- Confirmed copy of ledger a/c of the assessee in the books of the supplier for the period from 01.04.2011 to 31.03.2015.
- Copy of all the invoices issued.
- Copies of Vat return filed by the assessee with Sales Tax department in proof of purchases made by him from the supplier.
It is further seen that the supplier was available at the shop when inspector visited the shop who received notice served by the inspector and was duly responded u/s 133(6) of the Act by the Page | 10 supplier confirming the transactions. Copies of the ledger accounts, bills etc. were already filed by the assessee. It is further seen that complete payment was made through banking channel after 31.03.2012 and the copy of bank a/c of the assessee was also filed.
Hon'ble Delhi High Court in the case of CIT Vs. Anurag Agarwal reported in (2010) 2 DTLONLINE 134 (DEL) IN vide order dt 22.07.2009 held as under: "As there was no case for disallowance for corresponding purchases no addition could be made under section 68 in as much as it is not in dispute that the creditors outstanding related to purchases and the trading results were accepted by the AO. We are, therefore, of the opinion that no substantial question of law arises for consideration in this case. The appeal is accordingly dismissed."
Hon'ble Bombay High Court in the case of CIT-1, Mumbai Vs Nikunj Exim Enterprises (P.) Ltd. (2013) 216 Taxman 171 in similar circumstances observed in para 7 as under: "7. We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30-04- 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were infact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as CIT(A) have disallowed the deduction of Rs.1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is a well reasoned order taking into account all the facts before concluding that the purchases of Rs.1.33 crores was not bogus. No fault can be found with the order dated 30- 04-2010 of the Tribunal."
The Co-ordinate ITAT, Delhi 'C' Bench order in the case of M/S Hind Globe Links Vs ITO, Ward 28(4), New Delhi in under similar facts observed if purchases made from the parties in whose names, balances were outstanding have been accepted but the AO only doubted the genuineness the outstanding balance at the year end in the name of those parties for the reason that they were not produced before him was incorrect. The bench further observed in para 18 at page No 66 of the order as under : "….in the instant case, the AO accepted the trading results and explanation for fall in GP rate furnished by the assessee, so there was no reason for doubting the outstanding balance in the name of the sundry creditors when the purchases made from them were duly accepted as genuine. In our opinion, the Id CIT(A) was not justified in confirming the addition made by the AO." In para 21 at page No 68 of the order the coordinate bench further observed "In our opinion the said addition was not justified because the provisions of section 68 of the Act relates to "cash credit", however the amount in question was on account of outstanding balance of the creditors and the purchases from these creditors has been accepted by the AO."
In the case of Gheru Lal Bal Chand Vs The State of Haryana And Other in Civil Writ Petition No. 6573 of 2007, the Hon'ble Jurisdictional Punjab and Haryana High Court observed that for default of seller, the purchaser cannot be punished i.e. if purchases are not in doubt, no adverse inference can be drawn against the purchaser and he is not responsible for any misdeed of the seller.
Ld. CIT(A) in para 15 of the order had accepted that material purchases from these parties were consumed however, it was alleged by Ld.CIT(A) that such purchases were made from elsewhere and only bills were procured from these parties. Such observations of Ld.CIT(A) appears to be made on assumption and no material was brought on record to controvert the submissions made by assessee.
From the above discussion, following conclusion could be drawn:
(i) AO doubted the creditors against the purchases and made the addition of the entire amount outstanding against the purchases at the year end with these four creditors , however, he did not point out any mistake in the books of account maintained by the assessee in regular course of business and not doubted method of accounting employed regularly.
(ii) The AO did not alleged any suppressed sale nor doubted the purchases and accepted the material so purchased as consumed.
(iii) The AO did not rebut the contention of assessee that liability against the purchase had been paid in the succeeding year in some cases and in other case the creditor had already sued against the assessee for the recovery.
(iv) When AO accepted the purchases and the trading results and has not disturbed the profit declared, there was no occasion to doubt the corresponding outstanding against such purchases.
(v) The allegation of ld. CIT(A) that the assessee might have purchases the goods from somewhere though accepting the consumption of the said material, purely was assumption without any supporting evidences. Page | 13
In view of these facts and circumstances of the case, in our considered opinion, assessee has been able to establish the existence i.e. identity of the four suppliers alleged as bogus and also their creditworthiness was established more particularly when the purchases made from them was treated as genuine thus, provisions of section 68 could not be invoked to hold the outstanding balance against such purchases as unexplained. Accordingly, we direct the AO to delete the addition.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 27.08.2025.