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Facts
The assessee, engaged in trading raw material for CPVC pipes, filed an income return declaring ₹7,69,120/-. The AO reopened the case alleging bogus purchases of ₹2,09,39,760/- from M/s. R.K. Polymers and added 12.5% of this amount as unexplained expenditure. The CIT(A) sustained a part of this addition at 3.04%.
Held
The Tribunal held that the assessee had provided sufficient evidence, including invoices, e-way bills, and bank statements, to substantiate the purchases. The revenue failed to provide any evidence to disprove the genuineness of the purchases. Therefore, the addition made by the AO and sustained by the CIT(A) was deleted.
Key Issues
Whether the addition on account of alleged bogus purchases as unexplained expenditure was justified, given the documentary evidence produced by the assessee.
Sections Cited
147, 144B, 69C, 148A, 148, 68, 69D, 234A, 234B, 234C, 271AAC(i), 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
O R D E R
The appeal in AY 2019-20 arises out of the order of the ld. National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC‟, in short] in Appeal No. ITBA/NFAC/S/250/2024- 25/1073454900(1) dated 19.02.2025 against the order of assessment passed u/s 147 r.w.s. 144B of the Income-tax Act, 1961 dated 31.03.2016 (hereinafter referred to as „the Act‟) by NFAC, Delhi (hereinafter referred to as „ld. AO‟).
Though the assessee has raised several grounds before us, the only effective issue to be decided in this appeal in Ground Nos. 1 to 12 are as to whether the ld NFAC was justified in confirming the addition made on account of purchases as unexplained expenditure u/s 69C of the Act in the facts and circumstances of the instant case.
I have heard the rival submissions and perused the material available on record. The assessee, an individual, filed his return of income for assessment year 2019–20 on 24.10.2019 declaring total income of ₹7,69,120/-. The assessee is engaged in the business of trading of raw material for CPVC pipe Deepak Pawar industries since 2016 under the name and style of “Deepjyoti Enterprises”. The case of the assessee was sought to be reopened and show cause notice u/s 148A of the Act was issued on 21.03.2023, wherein it was alleged that assessee had made a bogus purchase of ₹2,09,39,760/- from M/s. R.K. Polymers during the year under consideration and accordingly, this sum had escaped assessment in the hands of the assessee. An order dated 31.03.2023 was passed u/s 148A(d) of the Act and case of the assessee was reopened vide issuance of notice u/s 148 of the Act. In response to the said notice, the assessee filed his return of income on 14.09.2023 declaring total income of ₹7,69,120/- being the same income as was declared by him originally. The assessee in the course of assessment proceedings submitted sample copies of invoices raised on M/s. RK Polymers through e-Way bills and bank statement evidencing the payment made to the said supplier by the assessee in support of his claim. The assessee further submitted that the purchases made from M/s. RK Polymers duly shown by the assessee and details of mapping of each purchase with the corresponding sales were also furnished. The ld AO proceeded to accept the sales shown by the assessee. Since, the sales were not doubted, the ld AO resorted to estimate the profit element embedded in the value of purchase from M/s. RK Polymers as tainted and bogus and accordingly made addition u/s 69C of the Act, treating the same as unexplained expenditure and made an addition of ₹26,17,470/- (12.5% of 2,09,39,760/-).
The ld CIT(A) sought to disturb the profit element of 12.5% considered by the ld AO. He proceeded to adopt the gross profit shown by the assessee for the year under consideration, immediately preceding previous year and immediately succeeding financial year. The average of such gross profit was 2.54%. The ld CIT(A) observed that assessee had indeed made purchase from the grey market and the savings in the grey market was estimated to be 0.5% by ld CIT(A). Accordingly, the total profit element embedded in the value of purchase was worked out at 3.04% (average of GP 2.54% + grey market profit of 0.5%). This Deepak Pawar profit percentage of 3.04% was applied on the value of disputed purchase from M/s. RK Polymers at ₹2,09,39,760/- and addition of ₹6,36,568/- was sustained by the ld CIT(A). The ld CIT(A) categorically gave a finding that proceedings u/s 69C of the Act which was applied by the ld AO cannot be applied at all in the instant case. The ld CIT(A) also held that the enhanced rate of profit u/s 115BBE of the Act also cannot be made applicable in the facts and circumstances of the instant case as the addition is not in the nature referred to in Sections 68 to 69D of the Act.
I am of the considered opinion that the assessee has furnished the sample copies of purchase invoices together with the e-Way bills and the bank statement evidencing the fact of payment made to the suppliers by account payee cheque. The revenue was not able to bring on record any material or evidence to show that there had been cash withdrawal in the account of M/s. RK polymers, which had surfaced back to the assessee after the receipt of cheque from the assessee. No evidence has been brought on record by the revenue to prove that assessee had indeed made purchase of goods in grey market by paying cash and substituted the same by showing purchase from M/s. RK Polymers. The assessee had even produced e-Way bills evidencing the delivery of goods from the suppliers. Hence, there is no question of disbelieving the purchase made by the assessee at all. Accordingly, no amount of addition could survive in the facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee on merits are hereby allowed.
Since, the relief is granted to the assessee on merits, the legal grounds raised by the assessee vide Ground Nos. 6 to 16 need not be gone into and they are left open.
With regard to chargeability of interest u/s 234A of the Act, the AO is directed to examine whether the assessee had filed the return of income within
The chargeability of interest u/s 234B of the Act is consequential.
With regard to interest u/s 234C of the Act, it is well settled law that same shall be charged only on the returned income and not on the assessed income.
Accordingly Ground No. 21 raised by the assessee is allowed for statistical purposes.
Ground No. 22 challenging the levy of penalty u/s 271AAC(i) of the Act would have no legs to stand in view of the order of the ld CIT(A) that section 115BBE of the Act is not applicable and also in view of the aforesaid finding given by me on merits. Ground No. 22 is hereby allowed.
Ground Nos. 1, 23, 24 raised by the assessee are general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 27/08/2025.