INCOME TAX OFFICER, PARWANOO V. AJAY KADIAN, KALA AMB (SIRMOUR)

ITA 660/CHANDI/2024

AI Insights

The case involves an appeal by the Income Tax Officer against the decision of the Commissioner of Income Tax (Appeals) regarding the assessment year 2021-22. The primary issues in the appeal were the addition of alleged bogus purchases and the addition of unexplained cash and time deposits. The assessee, engaged in the production of lead ingots from recycled batteries, had transactions with various suppliers, some of whom were found to be non-responsive to verification notices. The Assessing Officer initially made substantial additions to the assessee's income based on these findings. However, the CIT(A) reduced these additions significantly, which led to the revenue's appeal to the Tribunal. The Tribunal's decision favored the assessee, emphasizing the need for a balanced approach in assessing the genuineness of business transactions.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840507 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2021-2022
• Appeal Filed On: 28-05-2024
• Other Referred Cases: M/s Ganesh Dass Piara Lal Jain (ITA No.83/Chd/2023)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARRY RIKHY LD
• Assessee Lawyers: MANAV BANSAL LD
• Keywords: Bogus purchase; Bogus
• Section: 143(3); 68; 133(6)

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHANDIGARH PHYSICAL HEARING BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं. / ITA No.660/CHANDI/2024 (िनधाŊरण वषŊ / Assessment Year: 2021-22) ITO SCO 35F, HPMC Road Sector-2, Parwanoo (H.P.) - 173220 बनाम/ Vs. Shri Ajay Kadian Block-O, RAS Industries, Trilokpur Road Kala, Amb. Sirmour (H.P.) 173030 ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. BNDPK-3045-A (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎकीओरसे/ Appellant by : Sh. Harry Rikhy (Advocate) – Ld. AR ŮȑथŎकीओरसे/Respondent by : Sh. Manav Bansal (CIT) - Ld. DR सुनवाईकीतारीख/Date of Hearing : 16.02.2026 घोषणाकीतारीख /Date of Pronouncement : 24.02.2026 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2021-22 arises out of an order of learned Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 29-03-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) of the Act on 26-12-2022. From grounds of appeal, it is quite evident that the issues that fall for our consideration are – (i) Addition on account of alleged bogus purchase; & (ii) Addition of cash deposit and time Printed from counselvise.com 2 deposit. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. 2. Addition of Alleged Bogus Purchases 2.1 The assessee’s case was scrutinized to examine the purchases. The assessee is stated to be engaged in production of lead ingots through recycling of waste lead acid batteries. In support of purchases, the assessee furnished financial statements, bank account details, list of sundry creditors, purchase register, ledger extracts etc. To verify the purchases, notices were issued u/s 133(6) to 36 parties most of which remained non-responsive. Only 6 parties responded. These suppliers were mainly non-filers. Pursuant to investigation in the case of another group entities by the name M/s Stalwart Alloys India Pvt. Ltd., a list of suppliers was received who allegedly passed input tax credit to M/s Stalwart Alloys India Pvt. Ltd., without actual supply of material. Out of 199 suppliers as identified therein, 11 suppliers had supplied goods to the assessee also and accordingly, Ld. AO doubted the purchases so made by the assessee. The inspector of DDIT (inv.) had made physical enquiries in 5 such cases and addresses of these suppliers could not be traced. On these facts, Ld. AO show-caused the assessee to prove the genuineness of the purchases so made. The assessee contended that purchases were made through bank transfers. The cheques were given to various persons who had given complete details including KYC in the bank account. There was no obligation on the assessee to ensure fulfillment of tax obligations by the suppliers. The assessee furnished copies of Printed from counselvise.com 3 invoices as issued by the suppliers. However, going by the outcome of 133(6) notices and field enquiries of DDIT(Inv.), Ld. AO made addition of 37.40 Lacs with respect to 5 parties. The parties who responded to 133(6) notices were accepted. On the remaining purchases, Ld. AO estimated addition of 25%. The addition thus made on account of alleged bogus purchases aggregated to Rs.11.17 Crores. 2.2 The Ld. CIT(A), after due consideration of assessee’s elaborate written submissions, noted that the assessee reflected turnover of Rs.44.03 Crores with purchase of Rs.42.95 Crores. The Gross Profit (GP) rate was 2.45%. The basic raw material for the assessee was lead which is extracted from discarded and disposal of old batteries which is usually sourced from Kabadis (dealer selling waste material). These vendors were mostly street vendors who would collect waste material from door to door and from certain shops dealing in the same. The assessee has to deal with number of such people who keep on moving from one place to another and from city to city. The assessee had duly taken their respective GST numbers and the payments to the suppliers were through baking channels. The Ld. AO did not question the ledger entries and the bank statements as furnished by the assessee during the course of assessment proceedings. Non- response to the notices by suppliers would not automatically lead to a conclusion that the purchases were not genuine. The suppliers had filed their respective GST / VAT returns and GST department did not deny input tax credit to the assessee for the purchases so made. There was no adverse finding in regard to input tax credit. The sales Printed from counselvise.com 4 to the assessee were reflected in the respective GST returns of the suppliers. When the sale was not found to be bogus, the entire purchases could not be treated as bogus. The addition so made by Ld. AO would yield GP rate of 27.72% which was very abnormal. Reference was made to the decision of Chandigarh Tribunal in the case of M/s Ganesh Dass Piara Lal Jain (ITA No.83/Chd/2023) discarding addition in this manner. Finally, Ld. AO was directed to estimate the addition @2.45% on these purchases. Aggrieved the revenue is in further appeal before us. 2.3 From the facts, it emerges that the assessee is engaged in production of lead ingots through recycling of waste lead acid batteries. The nature of assessee’s business is that the basic raw material is lead which is extracted from discarded old batteries. This raw material is usually sourced from Kabadis (dealer selling waste material) who are mostly street vendors. The vendors would collect waste material from door to door and from certain shops dealing in the same. The assessee has to deal with number of such people who keep on moving from one place to another and from city to city. The assessee reflected turnover of Rs.44.03 Crores with purchase of Rs.42.95 Crores. The sales turnover has been accepted but the purchases have been doubted primarily because of the fact that the notices sent u/s 133(6) did not yield satisfactory response. The same could be explained by the fact that the vendors are moving vendors and may not be available at the given addresses at the time of enquiries which has large time gap from the date of purchases so Printed from counselvise.com 5 made by the assessee. Nevertheless, the assessee has furnished requisite documents with respect to these purchases which include purchase invoices, financial statements, bank account details, list of sundry creditors, purchase register, ledger extracts etc. The payments to the suppliers are through banking channels only. The Ld. AO has not questioned the ledger entries and the bank statements as furnished by the assessee during the course of assessment proceedings. Non-response of the suppliers would not automatically lead to a conclusion that the purchases were not genuine. The suppliers have filed their respective GST / VAT returns and GST department has not denied input tax credit to the assessee for these purchases. There is no adverse finding in regard to input tax credit. The sales to the assessee have been reflected in the respective GST returns of the suppliers. It is quite logical that there could not be any sales without actual purchase of material. When the sales are accepted, entire purchases could not be treated as bogus. The addition so made by Ld. AO would yield abnormal GP rate of 27.72% as against regular GP rate of 2.45% as reflected by the assessee. In fact, an assessment has been framed by Ld. AO on identical lines for AY 2022-23 wherein the assessee’s purchases were subjected to scrutiny. In this year, Ld. AO has doubted the purchases and finally applied GP rate of 2.45% as reflected by the assessee during AY 2021-22. Therefore, the adjudication of Ld. CIT(A) in applying GP rate of 2.45% could not be faulted with. The same find our concurrence. The corresponding grounds of appeal stand dismissed. Printed from counselvise.com 6 3. Addition of Cash Deposit & Time Deposit 3.1 The assessee deposited cash of Rs.30.32 Lacs in two bank accounts. The same was added u/s 68 for want of proper explanation from the assessee. Similarly, the assessee had made time deposit with HDFC Bank for Rs.70 Lacs which was likewise added to assessee’s income u/s 68. 3.2 Upon further appeal, Ld. CIT(A) observed that the assessee had furnished all bank statements. The deposits were sourced out of earlier withdrawals. The assessee would withdraw cash to meet expenses and the excess cash is deposited back. The assessee had withdrawn Rs.68,76,200/- from HDFC Bank and Rs.10,46,105/- from PNB. After utilizing the major amount, the excess cash of Rs.30.32 Lacs was re-deposited. All the withdrawals and deposits were within 5 to 6 days of each transaction. Similarly, the time deposit of Rs.70 Lacs was sourced out of withdrawal on 10-03-2021 and FDR was withdrawn prematurely on 12-03-2021 i.e., after two days only. Therefore, the sources were explained. Finally, the twin additions as made by Ld. AO were deleted against which the revenue is in further appeal before us. 3.3 On this issue, it could be seen that the assessee has made ample withdrawals before re-depositing the cash in the bank accounts. The assessee has maintained regular books of accounts and all the bank accounts form part of the regular books. No shortage of cash has been observed in the cash book. The source of cash deposits are Printed from counselvise.com 7 amply substantiated by the fact that the assessee has made withdrawals for meeting the expenditure and left-over cash has been re-deposited within a short period of time. The FDR is also sourced out of earlier cash withdrawals and FDR has been liquidated prematurely within two days only. The assessee has furnished the bank statements during assessment proceedings which have not been disputed. Therefore, these twin additions have rightly been deleted by Ld. CIT(A). We order so. 4. In one of the ground, the revenue has assailed deletion of adhoc 10% disallowance of certain expenses. However, upon perusal of para 6.3.3 of the impugned order, it could be seen that this addition has been sustained by Ld. CIT(A) and this ground has been dismissed. Therefore, there could be no occasion for the revenue to be aggrieved on this score. 5. In the result, the appeal of the revenue stand dismissed. Order pronounced on 24th February, 2026. -Sd- -Sd- (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 24.02.2026 आदेश की Ůितिलिप अŤेिषत /Copy of the Order forwarded to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH Printed from counselvise.com "