AKASH DEEP SETHI,DELHI V. INCOME TAX OFFICER, DELHI

CO 26/DEL/2025

AI Insights

The case involves Akash Deep Sethi, who is engaged in the manufacture and processing of copper wire, and the Income Tax Officer (ITO) concerning the assessment year 2021-22. The ITO scrutinized the assessee's returns, particularly focusing on the genuineness of business purchases. Despite multiple opportunities, the assessee only partially complied with the requests for information, leading the AO to suspect the genuineness of the transactions and add 25% of the total turnover as net profit. The CIT (A) later reduced this addition to 2.46% of the turnover, reflecting the average gross profit rate over three years. Both parties appealed to the Tribunal, which upheld the CIT (A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 708339 (ITAT-DELHI)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-07-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2021-2022
• Other Referred Cases: Pro CIT V. Shapoorji Pallonji and Co. Ltd., Deputy Commissioner of Income-tax v. Rajeev G. Kalathil, Belmarks Metal Works v. ITO, Clarity Gold (P.) Ltd. v. Pro CIT, Pooja Paper Trading Co (P.) Ltd. v. ITO, Madhukant B. Gandhi v. ITO, CIT v. Premkumar B. Rathi, CIT v. Simit P. Sheth
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR ARORA
• Assessee Lawyers: VED JAIN
• Keywords: Business income; Question of law; Unexplained expenditure; Rejection of books of accounts; Bogus purchase; Onus to prove; Accommodation entries; Bogus
• Section: 143(3); 142(1); 131; 133(6); 139; 145

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’: NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER and SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.4973/DEL/2024 (Assessment Year: 2021-22) Income Tax Officer, vs. Akash Deep Sethi, Delhi. B-236, Derawal Nagar, Model Town, Delhi – 110 009. (PAN : ABYPS8933P) CO No.26/Del/2025 (in ITA No.4973/DEL/2024) (Assessment Year: 2021-22) Akash Deep Sethi, vs. Income Tax Officer, B-236, Derawal Nagar, Delhi. Model Town, Delhi – 110 009. (PAN : ABYPS8933P) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ved Jain, Advocate Shri Aman Garg, CA Ms. Kirti, CA REVENUE BY : Shri Ajay Kumar Arora, Sr. DR Date of Hearing : 27.05.2025 Date of Order : 16.07.2025 O R D E R PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi 2 ITA No.4973/DEL/2024 CO No.26/Del/2025 [hereinafter referred to as ‘ld. CIT (A)] dated 27.06.2024 for Assessment Year 2021-22. The assessee has also filed cross objections against the aforesaid order of the ld. CIT (A). 2. Brief facts of the case are, assessee filed its return of income on 12.01.2022 declaring total income of Rs.13,14,900/-. The assessee is engaged in the business of manufacture and processing of copper wire under the name and style of Akash Cable Tech. The case of the assessee was selected for scrutiny to verify the genuineness and correctness of business purchases including expenses. Accordingly, notices u/s 143(2) and 142(1) were issued and served on the assessee. Further several notices and opportunities were given to the assessee, however assessee has complied only on two occasions filing part information. During assessment proceedings, AO observed that assessee declared total turnover of Rs.18,22,42,977/- and claimed purchase expenses of Rs.17,39,39,757/-. Since the issue under consideration was selected to verify the genuineness and correctness of the expenses claimed by the assessee. Based on the certain information submitted by the assessee, the AO verified the details submitted by the assessee on test check basis to the purchases made by the assessee for the value of more than Rs.10 lakhs. Further in order to verify the genuineness of the transaction, notice u/s 133(6) was issued to 12 parties and details of the parties are reproduced at page 4 of the assessment order and he collected the details on the basis of GSTR. He 3 ITA No.4973/DEL/2024 CO No.26/Del/2025 observed that none of the parties responded to the notices issued u/s 133(6) of the Act. Further assessee was also issued notice u/s 142(1) of the Act to file the details in respect of purchases and further intimated to the assessee that why 25% of the total turnover as net profit of the business as against the net profit declared by the assessee of Rs.13,10,411/- In response, assessee has submitted as under :-  The assessee is an individual who is carrying on mainly business of manufacturing and processing of copper wire under the name and style of M/s Akassh Cable Tech. Further, the registered office of the proprietorship firm is situated at 13/22/7, Gali No.9, Pipal Wali Gali, Village Samaypur, New Delhi - 110042. However, the assessee has also sold mask, amla oil etc. during the pandemic period.  The raw material i.e. copper rod is procured from various suppliers and thereafter the process of - manufacturing viz drawing of copper wire is undertaken resulting in manufacturing of copper wire and scrap.  The assessee have filed return of income for the assessment year under consideration under section 139 of the Income tax Act, 1961 on 12.01.2022 vide Acknowledgement No. 921825610120122. It is further submitted that the books of accounts has been duly maintained in the regular course of business and audited as per the provisions of the section 44AB of the Income Tax Act, 1961.  The case of the assessee was selected for assessment proceedings under section 143(3) of the Income Tax Act, 1961 and notice under section 143(2) was issued vide notice dated 27.06.2022 and 28.06.2022.  The notices under section 142(1) of the Income Tax Act, 1961 dated 04.10.2022 and 10.11.2022 were issued which were replied on 14.10.2022 and 07.12.2022. The notice dated 02.122022 as per the provisions of the Income Tax Act, 1961 was issued to show cause why the book results of the assessee should not be rejected and after rejection of the book result, the profit of the business should not be estimated @ 25% of the total turnover. At the outset it is respectfully submitted that the additions proposed are fundamentally misconceived, misplaced and not based on correct appreciation of facts and circumstances.  It is respectfully submitted that I have filed my return of income under section 139 of the Income tax Act, 1961 on 12.012022 vide Acknowledgement No. 4 ITA No.4973/DEL/2024 CO No.26/Del/2025 921825610120122. It is further submitted that the books of accounts has been duly maintained by me in the regular course of business and audited as per the provisions of the section 44AB of the Income Tax Act, 1961. Copy of audited financial statement along with form 3CD, Form 10lE and acknowledgement of income tax return is being enclosed herewith as Annexure - 1.  I have no control over the suppliers, however, I am trying to contact all eleven parties for requesting to cooperate with the Income Tax Department. In respect of 133(6) which were not complied by the eleven alleged parties namely Inderjeet, Amit Kumar, Karanjeet Singh, Sumrita, Rahul Bansal, Sunil Sharma, Gobind, Rohtash, Hindustan paper Machinery Industries, Karan Kumar and Rajnandini Metal Limited, I am enclosing following documents to prove the genuineness of purchase as Annexure - 2.  Details of Parties containing Name, Address, PAN, GSTIN and address as available in our records.  Copies of Bills in respect of Purchase made.  Copy of GR I Transport Receipt I Bilty.  Copy of bank statement highlighting the payment made to suppliers.  Copy of Form GSTR 2A reflecting the counter filing status of purchases.  Copy of ledger confirmation of the above alleged parties. 3. After considering the same, the AO rejected the same and proceeded to sustain the addition @ 25% of the total turnover as net profit of the assessee with the following observations :- “1. Filling of Return of Income and following the prescribed method of accounting could not convert the claim of bogus purchases into genuine one. To establish the correctness and genuineness of the purchases, the assessee has to submit the supporting documentary evidences including requesting the concern persons to file the requisite details. 2. Merely filling of bills/vouchers etc., the claim of purchases could not be established as genuine specially when the notice u/s 133(6) of the LT. Act were issued and most of the persons have not filed any reply to the notices. The onus always lies upon the assessee to request the suppliers to file the details. 3. On the basis of PAN and GST registration no., the claim of purchases could not be treated as genuine specially in absence of details called for u/s 133(6) of the LT. Act. Due to non-compliance of the notice u/s 133(6) of the I.T. Act, the claim of purchases from that parties .could not be treated as genuine. 5 ITA No.4973/DEL/2024 CO No.26/Del/2025 4. Moreover the claim of purchases from the parties are more than Rs.10,00,000/- and in some cases it is of Rs.1,00,00,000/- and above but they have not filed their Return of Income. As such it is important to verify the genuineness of the claim of the assessee. No doubt as per the stock register, the assessee has claimed purchases and simultaneously declared sale as income in its books of accounts but even the genuineness of the claim of purchases are still pending w.r.t. to rate of purchases. The assessee may purchases goods from other parties on lower rate and introduced the bills of other parties on higher side which affects the profitability of the business.” 4. Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. After considering the detailed submissions and findings of the AO, ld. CIT (A) gave partial relief to the assessee by restricting the disallowance to the extent of 2.46% of the turnover instead of 25% of the gross turnover as under := “5.4. The appellant has maintained in his reply that assessing officer has committed a legal error by disallowing the purchases and questioning the books maintained and audited u/s 145 solely based on non-compliance u/s 133(6) of the Income Tax Act. The appellant has failed to prove the genuineness or creditworthiness of the parties either during the assessment proceedings or during the appellate proceedings. The fact remain that none of the 11 parties have filed their ITR as no such detail of ITR has been filed either during the assessment proceeding or appellate proceeding. During the appellate proceeding the appellant has further maintained that out of the 11 alleged parties, the appellant had no transaction with 2 of them. However during the assessment .proceeding in the entire reply given before the assessing officer this fact has not been mentioned by the appellant even once. The appellant has in his reply before the assessing officer repeatedly stated that he will try to bring confirmation from all the 11 parties. 5.5 In view of the above findings it is clear that the appellant has indulged in purchase from the parties who had doubtful credentials. The appellant has alleged in his Ground of appeal that \"The Learned Assessing Officer (AO) has committed a significant error in issuing the order under section 143(3) and drawing conclusions without sufficient material evidence on record, and without issuing summons under section 131 to the alleged parties or suppliers. It is argued that the AO has improperly shifted the burden onto the assessee to produce or request the suppliers to furnish details of notices or replies, based on which the AO disallowed the purchases, including the maintained books of accounts. The AO's failure to issue summons under section 131 and to adequately verify the reasons for non-receipt of replies demonstrates a lack of due diligence in the assessment process. The AO is vested with the authority to exercise further 6 ITA No.4973/DEL/2024 CO No.26/Del/2025 powers for verification under the law, including the issuance of notices under section 131 of the Income Tax Act. 5.6 The A.O. cannot make additions on account of purchases without carrying out independent enquiry and affording opportunity to Assessee to controvert statement made by the seller. The Hon'ble Apex Court in the-case of Pro CIT V. Shapoorji Pallonji and Co. Ltd. [2022] 141 taxmann.com 509/2~8 Taxman 661 held that merely on suspicion bases on information received from sales Tax authority, assessing officer could not make addition on account of bogus purchases without carrying out independent enquiry 'and affording opportunity to Assessee to convert statements made by seller. 5.7 In the present case the assessing officer has conducted independent enquiry by issuing notice u/s 133(6) of the Income Tax Act and in reply to the notice not even one of the parties had filed any reply. Hence the conclusion drawn by the assessing officer is correct that the appellant might have purchased goods from other parties on lower rate and introduced the bills of other parties on higher side to reduce the profitability of the business. 5.8 In the given circumstances since the sale of the appellant is not doubtful it can be concluded that unless some purchases are made there cannot be corresponding sale. But the question arises regarding income which is embedded in such bogus purchases or alternatively what percentage of purchases can be treated as unexplained expenditure, this involves guess work. The correct approach in such case is to estimate suppressed profit element embedded in the amount of such bogus purchases. In the case of Deputy Commissioner of Income-tax v. Rajeev G. Kalathil [2014] 51 taxmann.com 514/[2015] 67 SOT 0052 (Mumbai) in which case the Assessing Officer disallowed the entire expenditure incurred by the assessee on purchases as it was one of the beneficiaries of bogus hawala bills, as per information available with the Assessing Officer. The CIT (Appeals) held that when sales were accepted, then corresponding purchases could not be disallowed. He held that profit element embedded in the purchases only could be added and not the entire purchase amount and upheld the addition up to 2% of the purchase amount as profit element embedded in purchases and deleted the balance addition. The ITAT, on revenue appeal, in the above case held that the assessee had been declaring gross profit between 5% to 8% and since purchases were made from grey market the corresponding profit element would be higher and estimated further 3% of the purchases amount on traded profit embedded in the purchase amount. The High Court in revenue's appeal declined to interfere in the order of the ITAT and upheld the attribution of 5% profit on such alleged bogus purchase. (Emphasis supplied). 5.9 Furthermore in the case of Belmarks Metal Works v. ITO [IT Appeal No. 5198 (Delhi) of 2018, dated 5-3-2020] where in the Tribunal upheld the addition to the extent of profit 'element embedded in bogus purchases and deleted the balance addition. The Tribunal held that the source of purchases made was not outside the books of account and corresponding sales were not disputed. The Assessing 7 ITA No.4973/DEL/2024 CO No.26/Del/2025 Officer has not rejected books of account. Therefore, there was suppression of gross profit on purchases. 5.10 In the present case the assessing officer has not given any basis for estimating the net profit at 25% of the turnover. In a manufacturing concern the gross profit is generally between 2 to 4%. In the present case the appellant has been earning gross profit of 2.46% during the A.Y. 2021-22. The figures for 3 years are as follows: Particulars AY 2020-21 AY 2021-22 (year under consideration) AY 2022-23 Total Sales 12,78,05,582 18,22,42,976 27,32,95,262 Total Purchases 11,82,22,219 17,39,39,756 26,10,43,099 GP 2.92% 2.246% 2.20% NP 0.70% 0.72% 0.70% 5.11 Thus even if average gross profit of 3 years is taken it comes to 2.52%. Thus the best way to estimate gross profit for current year would be to take the gross profit which has been declared by the appellant himself for the year under consideration which is 2.46%. The total turnover for the current year is Rs.18,22,42,977/-, thus applying the rate of 2.46% on turnover the gross profit comes to Rs. 44,83,177/-, out of this the appellant has already declared net profit of Rs.13,14,900/- during the year under consideration. The benefit of Rs.13,14,900/- is given to the appellant hence the addition made should come to Rs.31,68,277/-. 5.12 The present position is strengthened by the following case laws: 5.12.1 Where during the course of the search it was admitted by the owners, who were doing business in semi-precious stones, that turnover was bogus and was enhanced for obtaining higher bank finance, during post-search investigation no cooperation was extended, the assessee failed to reconcile the differences in the value of stock found at the time of search and the stock as per books, the finding of the AO that either fake purchase bills were introduced so as to increase stock or the sales were reduced, and on that basis books were rejected, application of higher GP rate was held justified.[refer-Clarity Gold (P.) Ltd. v. Pro CIT [2019] 102 taxmann.com 421 (Raj.)]. 5.12.2 The assessee, trading in paper and paper products, found indulging in hawala business without actual transaction. The AD disallowed entire purchases of Rs.4.17 Crores u/s. 69C. The CIT(A) applied GP rate of 3.67% on bogus purchases, whereas the Tribunal enhanced the disallowance to 12.5% of bogus purchases. It was held that no substantial question of law arose. [refer- Pooja Paper Trading Co (P.) Ltd. v. ITO [2019] 104 taxmann.com 95/264 Taxman 260 (Bom.); 8 ITA No.4973/DEL/2024 CO No.26/Del/2025 Pro CIT v. Synbiotics Ltd. [2019] 106 taxmann.com 316/265 Taxman 34 (Gujarat) (Mag.) (where GP rate of 25% of bogus purchases was applied)]. 5.12.3 In cases where on the basis of statements of alleged suppliers it was found that no supplies were made to the assessee, it was held that purchases were bogus but on the presentation of quantitative tally of the opening stock, purchases, sales and closing stock, it was further held that \"unless some purchases are made there cannot be corresponding sale\" and, therefore, application of higher net profit rate of 5%, in a manner similar to section 44AF, could be justified. [refer- Madhukant B. Gandhi v. ITO [IT Appeal No. 1950 (Mum.) of 2009, dated 23-2-2010]]. In CIT v. Premkumar B. Rathi [2015] 59 taxmann.com 203/232 Taxman 638/377 ITR 447 (Guj.), the assessee, who was dealing in edible oils, on semi-whole sale basis, failed to prove the genuineness of purchases of Rs.2 crores (approx.) made from five parties. The AO made addition of ' 25% of such unexplained purchases which was reduced to 10% by the Tribunal. Even though, the High Court did not approve non-speaking order passed by the Tribunal, it confirmed the Tribunal's order on net profit rate on the ground that GP rate declared that year was better than earlier years. It may be noted that in this case the AO himself did not make addition of entire bogus purchases but restricted himself to a percentage thereof. The Hon'ble Gujarat High Court followed its own decision in CIT v. Simit P. Sheth [2013] 38 taxmann.com 385/219 Taxman 85 {Mag.)/356 ITR 451, where purchases were not found to be bogus but were made from parties other than those mentioned in books of account, it was held that not entire purchase price but only profit element embedded in such purchases could be added to income of assessee. 5.13 Thus ground 2 to 8 of the appellant are rejected but his gross profit is worked out at 2.46%. The total turnover for the current year is Rs.18,22,42,977/-, thus applying the rate of 2.46% on turnover the gross profit comes to Rs.44,83,177/-, out of this the appellant has already declared net profit of Rs.13,14,900/- during the year under consideration. The benefit of Rs.13,14,900/- is given to the appellant hence the addition made should come to Rs. 31,68,,277/-.” 5. Aggrieved the Revenue is in appeal before us and assessee has filed cross objections in support of the findings of the ld. CIT (A), raising following grounds of appeal :- “Revenue’s Appeal 1. On the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC has erred restricting the gross profit to 2.46% of the total turnover and restricting the addition Rs.31,68,277/-, without appreciating the fact that the assessee has made purchase am parties who are either non-filer or reflected a substantially lower turnover in the ITR as compared to the turnover shown in GST return. 9 ITA No.4973/DEL/2024 CO No.26/Del/2025 2. On the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC has ignored the fact that after rejection of books of accounts, there was no option but to estimate the profit of the business and accordingly, the profit of the business was estimated @ 25% of the total turnover wherein the assessee had declared the turnover of Rs.18,22,42,977/- and by applying the rate of NP of 25% of the total turnover, the net profit was, arrived at Rs.4,55,60,744/- as against the Net Profit of Rs. 13,10/411/- declared by the assessee and the same was disallowed and added to the total income of the assessee. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not providing opportunity to Assessing Officer under Rule 46A to give comments/counter the issues raised.” “Cross Objections 1. (i) That, on the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and law in upholding the action of the AO in rejecting the books of accounts of the assessee despite the fact that not a single error or mistake has been pointed out in the books of accounts of the assessee. (ii) That, on the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and law in upholding the rejection of the books of accounts in the absence of any evidence of any sales or purchases outside the books of accounts. 2. (i) On the facts and circumstances of the case, the learned CIT(A), NFAC has erred both on facts and in law in confirming the addition of Rs. 31,68,2771- by arbitrary applying the net profit rate of 2.46% on the total turnover. (ii) That, on the facts and circumstances of the case, the Ld. CIT(A) has erred in applying the net profit rate of 2.46% on the total turnover of the assessee over and above 2.46% Gross Profit Rate declared by the assessee. (iii) That the abovesaid addition has been sustained rejecting the detailed submissions and explanations along with the evidences brought on record by the assessee in this regard. 3. (i) That, on the facts and circumstances of the case, the various judgments referred and relied upon by the CIT(A) are distinguishable and not applicable to the present case as in all these Judgments there were adverse material in the form of admission either by the assessee himself regarding accommodation entries/hawala business or the adverse statement of the suppliers. (ii) That, on the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and law by ignoring the fact that in the present case there is absolutely no adverse statement by anyone nor any adverse report of any investigation authority in respect of any of the suppliers from whom the assessee has made purchases during the year. 10 ITA No.4973/DEL/2024 CO No.26/Del/2025 4. That, on the facts and circumstances of the case, the Ld. CIT(A) has indulged into surmises and conjectures in holding that the appellant assessee might have purchased goods from other parties on lower rate and has introduced the bills of other parties on higher side. That the above finding is perverse in the absence of any material or evidence on record to this effect.” 6. At the time of hearing, ld. DR of the Revenue brought to our notice detailed findings of the AO and submitted that none of the parties from whom assessee has made purchases responded to the notices issued u/s 133(6) of the Act and further submitted that none of these parties are traceable. Even the assessee has not filed any details in support of the purchases made from these parties. Therefore, he heavily relied on the detailed findings of the AO. 7. On the other hand, ld. AR of the assessee submitted as under :- “A. The AO alleged that the assessee made substantial purchases from multiple parties who are Either did not file Income Tax Returns (ITRs) for A.Y. 2021–22, Filed non-business ITRs, or Reported a much lower turnover in their ITRs compared to their GSTR-1 returns. • The allegation of the assessing officer that assessee has made purchases from those suppliers who are either non-filler or work reported lower turn- over. This allegation is without any basis. On the contrary, the assessee has submitted complete details in respect of each of the supplier placed at PB Page 138-349. • The assessing officer as issued notice under section 133(6) and each of the notice had been duly served as there is no allegation that any of the notice has come back unanswered or supplier was not available at the given address. • The assessing officer has made wild allegation without bringing any material to support the allegation. • On the contrary, the assessee has filed GSTR-2A which clearly shows the filing status of the supplier placed at PB Page 162-164. • PAN and GST Registration Establishes Supplier Identity 11 ITA No.4973/DEL/2024 CO No.26/Del/2025 Each of the suppliers had valid PANs issued by the Income Tax Department and GST registrations granted by the concerned tax authorities. These registrations are issued only after proper due diligence and verification by respective departments. Hence, it is incorrect and legally impermissible to question the existence or legitimacy of these suppliers, especially in the absence of any contrary evidence. • Genuineness of Transaction Evidenced by Proper Documentation It is relevant to mention the fact that the assessee has fully complied with the statutory obligations by maintaining proper books of accounts, which were audited under section 44AB of the Income Tax Act. The auditor did not raise any qualifications or adverse remarks. This indicates that the financial statements, including purchases, were maintained as per accounting standards and tax law. Further, the assessee submitted comprehensive documentary evidence for each purchase transaction, including:  Goods Receipt (GR) notes and E-way bills  Transporter details and delivery challans  Bank statements showing payments via proper banking channels  Ledger confirmations from suppliers  GSTR-2A matching purchase entries B. Non-Compliance with Notices under Section 133(6):- Notices issued under section 133(6) to 11 suppliers did not yield any response implied that the purchases were not verifiable. • The Assessing Officer has drawn an adverse inference on the genuineness of purchases solely based on the non-response of 11 suppliers to notices issued under Section 133(6) of the Income-tax Act, 1961. It is respectfully submitted that such an inference is both legally unsustainable and factually flawed, for the following reasons: i. Non-response by Third Parties Cannot Lead to any Disallowance Section 133(6) empowers the AO to obtain information from third parties, but the mere non-receipt of replies does not invalidate the transactions between the assessee and such parties. ii. Onus Discharged by the Assessee The assessee, in response to the show cause notice and statutory requisitions, provided extensive and credible documentation in support of the purchases, including: • Tax Invoices bearing GST and PAN details; • Transport documents (e.g.,e-way bills, bilty, goods receipts); • Bank payment proofs, evidencing payments through NEFT/RTGS; 12 ITA No.4973/DEL/2024 CO No.26/Del/2025 • Ledger confirmations and supplier-wise purchase registers; • GSTR-2A data, confirming the input tax credit and supplier filings. Once such documentation is placed on record, the initial burden of proof cast upon the assessee under general principles of taxation stands discharged. • In support of the above facts and contentions, assessee placed reliance on the judgement of HON’BLE SUPREME COURT PASSED IN THE CASE OF ORISSA CORPORATION PVT. LTD. V. CIT, (1986) 159 ITR 78 (SC)wherein hon’ble Apex Court held that when the assessee furnishes complete particulars of the transactions and makes payments through proper banking channels, the failure of the recipients to respond to departmental notices cannot be a valid ground to treat the transaction as bogus. Relevant findings are extracted as under: In Sreelekha Banerjee v. CIT [1963] 49 ITR 112, this court held that if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money was and to prove that it was not income. The Department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of an income nature, the Department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot by merely rejecting good explanation unreasonably, convert good proof into no proof. In CIT v. Daulatram Rawatmull [1964] 53 ITR 574 (SC), the principles governing reference under section66 of the 1922 Act, similar to section 256 of 1961 Act were discussed and it was held that the High Court has no power under section 66(2) of the Indian Income-tax Act, 1922, which is in parimateria with section256(2) of the Act, to call upon the Appellate Tribunal to state a case, if there was some evidence to support the finding recorded by the Tribunal, even if it appears to the High Court that on reappreciation of the evidence, it might arrive at a conclusion different from that of the Tribunal. In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the 13 ITA No.4973/DEL/2024 CO No.26/Del/2025 file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. • Further reliance has been placed on the following judgements of various courts:  THE COMMISSIONER OF INCOME TAX-I VERSUS M/S NIKUNJ EXIMP ENTERPRISES PVT LTD, 2013 (1) TMI 88, BOMBAY HIGH COURT  CONTINENTAL CARBON INDIA LTD VERSUS ITO DELHI, 2011,ITAT DELHI  ASSTT COMMISSIONER OF INCOME TAX VERSUS VS M_S SWASTIK ROADLINES PVT LTD, 2013 (8) TMI 108, ITAT AGRA  OFFICE OF THE ITO- 31 (1) (5) MUMBAI VERSUS M_S GOLD FINGER, 2018 (5) TMI 1319, ITAT MUMBAI • Accordingly, in line with the above ruling, the mere non-availability or non-verification of suppliers in the instant case does not, by itself, establish that the purchases were bogus, especially when supported by uncontroverted documentary evidence. C. The AO further alleged that despite being granted multiple opportunities, the assessee failed to provide necessary documents. • The allegation that the assessee failed to provide the necessary documents despite multiple opportunities is factually incorrect and devoid of merit. The assessee fully cooperated during the assessment proceedings and furnished all requisitioned details, including: o Acknowledgement of Income-tax return dated 12.01.2022 – at PB Pg 1 o Audited Financial Statements – at PB Pg 2-6 o List of suppliers along with PAN and GSTN – at PB Pg 24 o Detail of purchases made during the F.Y.2020-21 – at PB Pg 25-39 14 ITA No.4973/DEL/2024 CO No.26/Del/2025 o Detail of sales made during the F.Y.2020-21 – at PB Pg 40- 57 o Confirmation of Accounts of debtors – at PB Pg 58-63 o Stock register - Quantitative wise detail of stock for F.Y. 2020-21– at PB Pg 64-78 o Details of bank accounts maintained by the assessee – at PB Pg 79 o Bank Statement for period 01.04.2020 to 31.03.2021  ICICI Bank – at PB Pg 80-125  Bank reconciliation – at PB Pg 126  Punjab National Bank – at PB Pg 127-129 o Details of suppliers along with address – at PB Pg 138 o Bank statement of the assessee highlighting the payments made to suppliers – at PB Pg 139-161 o Form GSTR 2A reflecting the counter filing status of suppliers – at PB Pg 162-164 o Ledger confirmation of the following suppliers along with invoices/bills (GR/BILTY) – at PB Pg165-339  Bharat Alloy and Metal Traders(Proprietor Inderjeet)  Brime Traders (Proprietor Karan Kumar)  Ganesh Trading Co.(Proprietor Rahul Bansal)  Hindustan Paper Machinery Industries(Firm)  OM Sales Corporation.(Proprietor Karanjeet Singh)  Rajnandini Metal Limited  Sankalp Traders (Proprietor Govind)  Shipra Overseas(Proprietor Rohtash)  Swastik Enterprises (Proprietor Sunil Sharma)  Viswas Enterprise (Proprietor Amit Kumar) o Detail of expenses for F.Y.2020-21 – at PB Pg 340-349 • All submissions were made timely in response to notices under Sections 142(1) and the Show Cause Notice dated 02.12.2022. These are already placed on record before the Ld. CIT(A) and form part of the Paper Book. • Therefore, the observation that documents were not provided is contrary to the record and cannot form the basis for adverse inference against the assessee. D. The AO rejected the books of accounts under section 145(3) without pointing out any specific defect or discrepancy in the books of the assessee. • The Assessing Officer failed to point out any specific defect, discrepancy, or inconsistency in the books of account maintained by the assessee. The books were: - Regularly maintained in the normal course of business, 15 ITA No.4973/DEL/2024 CO No.26/Del/2025 - Duly audited under Section 44AB by an independent chartered accountant, • In the present case, the Assessing Officer (AO) rejected the books of account of the assessee without pointing out any specific defects and proceeded to make an arbitrary addition. It is a well-settled principle of law that even after rejecting the books, the AO cannot make an addition without a reasonable and justifiable basis. The estimation of profit must be grounded in past profit trends, comparable cases, and industry standards, rather than an ad-hoc percentage. Several judicial precedents, emphasize that once books of account are regularly maintained, audited, and supported by documentary evidence, their rejection must be backed by cogent reasoning. Mere suspicion or general observations cannot justify an arbitrary addition. Reliance has been placed on the following judgements of various courts:  ITO, WARD 58 (2) NEW DELHI VERSUS NEERAJ KUMAR PROP. M/S NEERAJ METAL AND (VICE- VERSA) 2025 (2) TMI 290 - ITAT DELHI  GORJA STEEL PROCESSORS VERSUS DCIT,2024, ITAS NO.2905 TO 2907/DEL/2022  SUNIL GARG VERSUS DCIT, CENTRAL CIRCLE-II, FARIDABAD HARYANA, 2025 (1) TMI 905 - ITAT DELHI, DATED: - 16-1-2025  SHRI KAMAL SHARMA VERSUS DCIT, CENTRAL CIRCLE-II, FARIDABAD, 2024 (10) TMI 1628 - ITAT DELHI, DATED.- OCTOBER 24, 2024” 8. Further with regard to cross objections, he submitted as under :- “9. The Ld. CIT(A), while adjudicating the appeal, did not accept the Assessing Officer’s estimation of net profit at 25% of turnover, holding that such a high rate was arbitrary and unsupported by industry norms. 10. However, the Ld. CIT(A) was of the view that the assessee had not fully discharged the onus of proving the genuineness of purchases from certain suppliers. 11. Accordingly, the Ld. CIT(A) chose to estimate the gross profit at 2.46% of the declared turnover—based on the assessee’s own historical gross profit trend. On applying this rate to the declared turnover of ₹18.22 crore, the CIT(A) arrived at a gross profit of ₹44,83,177/-. After giving credit for the net profit of ₹13,14,900/- already disclosed by the assessee in the return, the Ld. CIT(A) sustained the balance addition of ₹31,68,277/-. 12. In this regard, it is being submitted that while sustaining the above addition, ld. CIT(A) placed reliance upon the various judgments which are 16 ITA No.4973/DEL/2024 CO No.26/Del/2025 distinguishable and not applicable to the present case as in all these judgments there were adverse material in the form of admission by the onus regarding accommodation entries/hawala business and the adverse statement of the supplier. 13. It is important to point out that the Ld. CIT(A) at page 22 in para 5.8 of its order, CIT(A) duly accepted that “since the sale of the appellant is not doubtful it can be concluded that unless some purchases are made there cannot be corresponding sales.” 14. However, while sustaining above addition CIT(A) placed reliance on the following judgements: • DCIT versus Rajeev G. Kalathil [2014] 51 taxmann.com 514/ [2015] 67 SOT 0052 (Mumbai) In this judgement AO disallowed the entire expenditure incurred by the assessee on purchases as it was one of the beneficiaries of bogus hawala bills, as per the information available with the AO. In the present case of the assessee, these is no information available with the AO. Further, assessee is not engaged in any beneficiaries of bogus hawala bills. • BELMARKS METAL WORKS, C/O SARKAR & ASSOCIATES VERSUS ITO, WARD-32 (2), NEW DELHI In this case also, information was received from the Investigation Wing which was based on information forwarded by Maharashtra VAT Department that the assessee has availed Hawala entry of bogus bill purchases in the financial year 2010-11 based on this information, reopening has been done u/s.148.Again, it is not the case of the assessee. • HIGH COURT OF RAJASTHAN Clarity Gold (P.) Ltd.v.Principal Commissioner of Income-tax, Central Circle-1, Jaipur, [2019] 102 taxmann.com 421 (Rajasthan) As mentioned by the CIT(A) in para 5.12.1 at Pg 24 of its order it was admitted by the owners, who were doing business in semi-precious stones, that turnover was bogus and was enhanced for obtaining higher bank finance. In this judgement also there is admission by owner itself, therefore this judgement is also not applicable in the present case of the assessee. • POOJA PAPER TRADING CO. PVT. LTD. VERSUS INCOME TAX OFFICER-4 (3) (1), MUMBAI -In this judgement assessee found indulge in hawala business without actual transaction as mentioned by CIT(A) in para 5.12.2 at Pg 24 of its order and there is no such allegation in the case of the assessee. 17 ITA No.4973/DEL/2024 CO No.26/Del/2025 • SHRI MADHUKANT B. GANDHI VERSUS THE INCOME TAX OFFICER WARD 25 (1) (3) MUMBAI –It was held in para 5.12.3 at page 25 of CIT(A) order that on the basis of statements of alleged suppliers it was found that no supplies were made to the assessee. In the present case of assessee, facts are different. • COMMISSIONER OF INCOME-TAX-I VERSUS SIMIT P SHETH, 2013 (10) TMI 1028 - GUJARAT HIGH COURT, Dated: - 16-1-2013– In this case, Assessing Officer observed that the purchases were not made by the said three parties, viz., Bhavna Trading Co., M/s. Minaxi Enterprise and Arun Industrial Corporation, but believed that the appellant-assessee had made the purchases from other parties in the open market (other than those mentioned in the books of account). 15. Your honors, in the present case there is absolutely no adverse statement or any adverse report of any investigation in respect of any of the suppliers from whom the assessee has made purchases during the year. Facts of the above referred cases are completely different from the facts of the assessee. Therefore, addition based on the gross profit (GP) rate is inappropriate in the case of the assessee and liable to be deleted. No addition could be made when purchases were supported by proper documentation and payments were made through banking channels 1. Ld. CIT(A) at page 22 in para 5.8 of its order, held that sale of the appellant is not doubtful it can be concluded that unless some purchases are made there cannot be corresponding sales 2. It is well established principle of law that no addition can be made where purchases are duly recorded in regular books of account, supported by valid and authenticated purchase invoices/vouchers, payments were made through banking channel, particularly when the corresponding sales against these purchases are not doubted. Furthermore, in the present case, the purchases made are duly reflected in the assessee’s Form GSTR-2A, clearly evidencing that the respective suppliers have filed their GST returns acknowledging their transactions. Reliance has been placed on the following judgements of various courts:  PR. COMMISSIONER OF INCOME TAX, SURAT-I VERSUS TEJUA ROHITKUMAR KAPADIA 2017 (10) TMI 729 - GUJARAT HIGH COURT Dated: - 18-9-2017 3. It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was 18 ITA No.4973/DEL/2024 CO No.26/Del/2025 found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises.  ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-2, GHAZIABAD AND OTHERS VERSUS VIJAY KUMAR GOEL AND OTHERS 2015 (6) TMI 763 - ITAT DELHI ITA No. 670/Del/2013 16. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the AO made the addition merely on the basis of statement of one Sh. Surendra Kumar Sharma, Proprietor of M/s Riddhi Siddhi Enterprises which was later on retracted and it was stated that he was not indulged in providing the entries to the assessee or to any other person. The AO did not provide any opportunity to the assessee to cross examine Sh. Surendra Kumar Sharma. In the present case, it is also noticed that the turnover of the assessee was accepted by the Trade Tax Department and it is not the case of the AO that proper books of accounts were not maintained by the assessee in regular course of business or the same method of accounting was not followed consistently. The ld. CIT(A) examined the bank accounts as well as books of accounts of the assessee and categorically stated that the purchases as well as the sales were through banking channel and there was no cash deposit in the bank account of the assessee. In the present case, the AO has not pointed out any defects in the books of accounts, therefore, the ld. CIT(A) was fully justified in deleting the addition made by the AO on account of alleged bogus purchases particularly when the GP rate declared by the assessee was progressive and was accepted by the AO. As regards to the additions sustained by the ld. CIT(A) by applying the net profit rate of 5% of the alleged unverifiable purchase. We are of the view that when the ld. CIT(A) himself accepted the trading results of the assessee and also held that the payment for purchases of material had been made through banking channel, GP rate declared by the assessee was progressive then there was no occasion to make the addition by applying the net profit rate of 5% by considering the purchases of ₹ 1,39,70,618/- as unverifiable. We, therefore, by considering the totality of the facts as discussed herein above delete the addition sustained by the ld. CIT(A). 17. In the result, the appeal of the Department is dismissed and Cross Objection of the assessee is allowed.” 9. Considered the rival submissions and material placed on record. We observe that the case of the assessee was selected for scrutiny in order to verify the documents and correctness of purchases including expenses. During assessment proceedings, AO has issued 133(6) notices to 12 suppliers of the assessee and none of the parties has submitted any details. When the issue 19 ITA No.4973/DEL/2024 CO No.26/Del/2025 was raised by issue of notice u/s 142(1), assessee has submitted basic documents like bills and vouchers etc. to claim the genuineness of the purchases. The AO rejected the basic documents and due to non-response of the suppliers, he doubted the genuineness of the transaction and further observed that the parties have supplied worth of goods between Rs.10 lakhs and Rs.1 crore, they have not filed any return of income and also not responded to the various notices. Accordingly, he treated the above purchases as non-genuine and proceeded to add 25% of the turnover as gross profit earned by the assessee. We observe that after considering the facts available on record, ld. CIT (A) treated the purchases as non-genuine by relying on the turnover of the assessee for AYs 2020-21, 2021-22 and 2022- 23. He observed that the average gross profit declared by the assessee for three years is at 2.52%. He observed that during the year under consideration, the assessee himself has declared GP of 2.46% of the total turnover and observed that assessee has declared net profit of Rs.13,14,900/- during the year under consideration, by relying on several case laws, he sustained the addition of 2.46% of the gross turnover as net profit as must have earned by the assessee. Since the assessee has declared Rs.13,14,900/-, he sustained the addition to the extent of Rs.31,68,277/-. From the facts available on record, we observe that no doubt, the purchases seem to be non- genuine based on the findings of the lower authorities. However, the 20 ITA No.4973/DEL/2024 CO No.26/Del/2025 assessee has also declared sales which were not doubted by the AO. Without there being any purchases, the assessee would not have achieved the sales. Therefore, we are inclined to accept the findings of the ld. CIT (A). However, we observe that ld. CIT (A) after analyzing the financial data of three years from AYs 2020-21 to 2022-23, he observed that assessee has declared average GP of 2.46% and also accepted that assessee has declared 2.46%, that being the case, he should have proposed the addition to that extent of different between 2.46% to 0.72%, however, he proposed 2.46% net GP considering the factual matrix in this case. After going through the facts on record, the various ITAT Benches have proposed addition in the case of bogus purchases in and around GP of 5%. In the given case, assessee has already declared 2.46% as GP and ld. CIT (A) has sustained the addition of 2.46% which is in line with the overall percentage of 5%. Therefore, we do not see any reason to disturb the findings of ld. CIT (A). Accordingly, the grounds raised by the Revenue are dismissed. 10. In the result, the appeal filed by the Revenue is dismissed and at the same time, the cross objections filed by the assessee are also dismissed. Order pronounced in the open court on this 16th day of July, 2025. Sd/- sd/- (CHALLA NAGENDRA PRASAD) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16.07.2025/TS 21 ITA No.4973/DEL/2024 CO No.26/Del/2025 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "