ITO, WARD-1(2), SILIGURI V. BINOY AGARWAL, SILIGURI

ITA 1584/KOL/2024

AI Insights

The case involves an appeal by the Revenue against the order of the CIT (A) which had deleted the addition made by the Assessing Officer (AO) regarding alleged bogus purchases amounting to 4,38,61,650 during the assessment year 2021-22. The assessee, engaged in trading of furnishing items, had transactions with certain suppliers which the AO deemed non-genuine due to incomplete details and discrepancies in PAN data. However, the CIT (A) found the purchases to be genuine based on various evidences including sales to a Semi-Government Department and the fact that the suppliers reported these transactions in their tax returns. The Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 824898 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2021-2022
• Appeal Filed On: 25-07-2024
• Other Referred Cases: Bhartiya International Ltd. vs. Dy CIT, Rajat Bhimsen Arora vs. Asstt. CIT, Leelaben Kantilal Parekh vs. ITO, Sun Steel Ltd. vs. ITO, Max Flex and Imaging Systems Ltd. vs. Principal Commissioner of Income-tax, Tirupati Earth Neerprima JV vs. Principal Commissioner of Income-tax, Hitesh Mody (HUF) vs. Principal Commissioner of Income-tax, Yog Oil Traders vs. Principal Commissioner of Income-tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PANKAJ PANDEY
• Assessee Lawyers: SIDDHARTH AGARWAL; FILING AN AFFIDAVIT
• Keywords: Business income; Unexplained expenditure; Bogus purchase; Principle of natural justice; TDS; Accommodation entries; Bogus
• Section: 142(1); 69C; 37

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.1584/KOL/2024 (Assessment Year: 2021-22) ITO Aaykar Bhawan, Paribahan Nagar, Matigara, Siliguri, Dist- Darjelling, Siliguri, West Bengal-734010 Vs. Binoy Agarwal, Beside Dr. Nayak Nursing Home, Sevoke Road, Siliguri-734001, West Bengal, (Appellant) (Respondent) PAN No. AMJPA1221C Assessee by : Shri Siddharth Agarwal, AR Revenue by : Shri Pankaj Pandey, DR Date of hearing: 12.11.2025 Date of pronouncement: 02.01.2026 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 03.06.2024 for the A.Y. 2021-22. 2. The issue raised by the Revenue in ground nos. 1 and 2 is against the order of ld. CIT (A) deleting the addition as made by the AO on account of bogus purchases of ₹4,38,61,650/-. 2.1. The facts in brief are that the assessee is in the business of trading in furnishing items and during the year filed the return of income on 01.03.2022, declaring total income of ₹1,33,64,769/-. The case of the assessee was selected for scrutiny and the notice u/s 143(2) and 142(1) of the Act along with questionnaire were duly Printed from counselvise.com Page | 2 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 issued and served upon the assessee. The ld. AO during the course of assessment proceedings, noted that the assessee has not furnished the complete details of suppliers such as names ,addresses, PANs and amount of purchases etc. Therefore, the same were not verifiable. The ld. AO further noted that certain suppliers from whom the assessee had made purchases, there were several deficiencies/ defects in the PAN Data of the suppliers etc. Accordingly, the ld. AO analyzed the transactions of purchases and issued show cause notice to the assessee as to why the purchases made from four parties namely, Madegowda Vijayakumar prop. Of M/s Fast Deal Corporation of ₹2,25,00,000/-, Subodh Kumar of ₹1,94,33,085/- and Kamal Bajaj of ₹19,28,565/- and Manokamna Enterprise of ₹12,44,998/- aggregating to ₹4,38,61,650/- should not be treated as non genuine and consequently treated the same as not genuine and accordingly, added to the income of the assessee in the assessment framed. 2.2. In the appellate proceedings, the ld. CIT (A) deleted the additions by observing and holding as under:- “5.2.1 The appellant has filed a consolidated reply on the above grounds of appeal. The appellant has submitted that \"the AO had given 04 days time to file reply against Show Cause Notice (SCN) which is improper and against the natural justice. The facts that GSTIN Returns of Assessee & dealer reflects purchases a sum of Rs. 2,25,00,000/- from Fast Deal Corporation wherein assessee has also claimed ITC therein and payment to the supplier was made through bank channels and fact that purchases from one Subodh Kumar amounting Rs. 1,94,33,085/- and from Kamal Bajaj amounting Rs. 19,28,565/- do not reflect in the aseessee's GSTIN retums and he did not claimed any ITC therein nor the said purchase was recorded in the books of accounts. Moreover, the fact that the assessee has also filed an affidavit (ANNEXURE-2 ) before the AO for non-purchase of any goods from said Subodh Kumar & Kamal Bajaj, and the fact that the AO has not intimated the assessee the evidences with him for supply of goods by said Subodh Kumar and Kamal Bajaj inspite of request of the assessee, consequently, the addition made for Rs. 4,38,61,650/- is liable to be deleted and the addition so made is without application of judicial mind. Printed from counselvise.com Page | 3 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 Further, the whole purchases on the guise of Bogus Purchase cannot be added to income of the assessee wherein the AO does not doubt the sales of the assessee (the assessee has made his total sales to Semi-Government Department, The Gourkha Hill Council, Darjeeling), the following judgements support the same facts Genuineness of Purchases- Since the goods purchased by the assessee from the supplier has been sold and correspondingsales have been accepted. AO was not justified in treating the said purchases as bogus Impugned disallowance deleted Bhartiya International Ltd. vs. Dy CIT 227 TTJ (Del-1) 807 It is settled legal position that there cannot be any sales without having corresponding purchases. It has been held that there cannot be sales without purchases, at most purchases from other parties only-margin of profit added-L/H Rajat Bhimsen Arora vs. Asstt. CIT (Surat) 224 TTJ 509, Leelaben Kantilal Parekh vs. ITO (Mumbai SMC) 227 TTJ 257ITO vs. Sun Steel Ltd. Further More, In one hand the supply made by said Fast Deal Corporation, the AO does not believe the figures filed by the said party in GSTIN Portal ie GSTR- 1 and on other hand the AO believes the return filed in GSTIN by said Subodh Kumar & Kamal Bajaj which is contradictory and highly unjustified and against the natural justice. No purchases was made from Subodh Kumar & Kamal Bajaj and the same was declared by the Assessee by filing an Affidavit and submission of Purchase Register in hearing to Ld. AO. It is worthwhile to note that the assessee has not purchased goods from five parties and accordingly declared in his affidavit (ANNEXURE-2) but the department chooses to make addition of aforesaid two parties, viz Subodh Kumar and Kamal Bajaj only which shows the non-application of judicial mind.\" 5.2.2 The appellants claim that he has made sale to Semi-Government Department, The Gourkha Hill Council, Darjeeling) and since his sale has not been doubted thus without rejecting the books of accounts of the appellant addition on bogus purchase cannot be made. 5.2.3 During the course of assessment proceedings the appellant had submitted copy of 1. Cash Book 2. Journal 3. Bank Book 4. Ledger account for payment of commission and contract work. 5. Party e-way bill/invoice and e-way bills 6. List of suppliers etc. Printed from counselvise.com Page | 4 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 5.2.4 Inspite of above confirmations addition has been made in the case of the appellant. 5.2.5 In the case of Principal Commissioner of Income-tax v. Max Flex and Imaging Systems Ltd. [2024] 161 taxmann.com 775 (Bombay) the Hon'ble High Court of Bombay has held that where assessee had furnished copy of tax audit report, P&L account and balance sheet, purchase bills, payments made by cheques to all suppliers, their ledger accounts, PAN card, bank statements, purchase confirmation of suppliers, etc., just because assessee could not produce dealers. entire purchases could not be treated as bogus purchases and Assessing Officer could have made further investigations to ascertain genuineness of transactions which he failed to do. The court has further held where Assessing Officer had not disputed sales made by assessee out of purchases, only profit element in alleged bogus purchases amount could be treated as income. The Hon'ble Court in its order has concluded that \"Whether purchases were bogus or whether the parties from whom such purchases were made, were bogus are essentially questions of fact. In the present case, the indisputable fact is that assessee had fumished copy of the tax audit report, P&L A/c and balance-sheet Assessee also fled purchase bills, payments made by cheques to all suppliers, their ledger accounts, PAN Card, bank statements, purchase confirmation of suppliers, etc. The AO did not accept the evidence but instead, added the amount in assessee's income. The AO, however has not disputed the sales made by assessee out of such purchases. The ITAT has given detailed findings for justifying addition to the extent of 12.5% only. The Courts have time and again held that only the profit element in the alleged bogus purchases amount can be treated as income, particularly, when the sales has not been disputed. The CIT(A) restricted the addition by estimating the gross profit at 12.5% Whether that is a right estimate is a question of fact. The ITAT has accepted Therefore, we see no reason to interfere.\" 5.2.6 Furthermore in the case of Principal Commissioner of Income-tax v. Tirupati Earth Neerprima JV [2023] 154 taxmann.com 197 (Bombay) the Hon'ble High Court of Bombay has held Where Assessing Officer treated purchases made by assessee as bogus and made addition in respect of same, since assessee had maintained inventory of stock and payments for such purchases were made by account payee cheques and tax invoices were obtained, such purchases could not be rejected and addition to be restricted to extent of profit element. 5.2.7 In this case Assessee was engaged in business of civil contractor carrying out repairs, construction, laying of drainage pipelines and other works awarded by municipal corporation An information was received that a scam was unearthed by Sales Tax Department in respect of parties who provided accommodation entries in respect of bogus purchases and it was found that assessee was also a beneficiary to such entries taken from bogus parties/hawala dealers Assessing officer also noted that parties were not produced byassessee during assessment proceedings. Thus, he held that purchases made by assessee were bogus and made addition on account of same - It was noted that purchases by assessee had not been doubted but genuineness of suppliers were doubted - Further, assessee had maintained books of account which were audited and audit report were filed under section 44AB and payment were made by account payee cheques and tax invoices were obtained - Whether, on facts. purchases could not be rejected and additions could be restricted to extent of profit element, Le., 12.5 per cent because when material was actually Printed from counselvise.com Page | 5 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 purchased and consumed in executing contract, cost price was required to be deducted and taxes could not be levied on same - Held, yes. 5.2.8 The Hon’ble court in its order has noted that: \"11. The AO has also held that the purchases themselves were not bogus though the parties from whom the purchases were made by the Respondent were found to be bogus. He has treated them as bogus parties because these parties were not produced during the assessment proceedings 12. The ITAT has come to a factual finding that though the suppliers were not produced before the AO, Respondent had maintained books of account which were audited and Audit Report were filed under section 44AB of the Act. Payments have been made by account payee cheques, tax invoices have been obtained and most importantly, Respondent has maintained inventory of stock and also consumed the materials purchased in executing the contract with BMC, 5.2.9 In the case of Principal Commissioner of Income-tax v. Hitesh Mody (HUF) [2024] 160 taxmann.com 110 (Bombay) the Hon'ble High Court of Bombay has held that where Assessing Officer, on noting that assessee was indulged in bogus purchases, disallowed entire purchases, considering it unexplained expenditure under section 69C, however, Commissioner (Appeals) on finding genuineness in payments and sales, restricted disallowance to 8 per cent of total purchases, order of Commissioner (Appeals) needed no interference. 5.2.10 The facts of the case are Assessing Officer, upon finding that assessee. was engaged in bogus purchases, disallowed entire purchases, considering it unexplained expenditure under section 69C On appeal, Commissioner (Appeals) concluded that since Assessing Officer did not doubt genuineness of payments made through banking channels and accepted total sales, entire purchases couldn't be disallowed Instead, only profit element was considered, restricting unexplained expenditure to 8 per cent of total purchases - Tribunal accepted factual finding recorded by Commissioner (Appeals) - Whether sinceboth Commissioner (Appeals) and Tribunal concluded, based on facts, that 8 per cent was a reasonable figure, there was no justification for interfering with orders of lower authorities - Held, yes. 5.2.11 The Hon'ble Court in its order stated that. \"8. It is impossible in this appellate jurisdiction to investigate what the product was and what should have been the profit margin. Moreover, the CIT(A) and the ITAT have on facts come to a conclusion that 8% is the reasonable figure. Therefore, in our view, the judgment of N.K. Industries (supra) does not assist Ms. Gokhale's case 9. Therefore, we do not find any reason to interfere\" 5.2.12 In the case of Principal Commissioner of Income-tax v. Yog Oil Traders [2023] 153 taxmann.com 386 (Bombay) the Hon'ble High Court of Bombay has held Where assessee-firm was engaged in business of importing oil in bulk, packing same in different packs and selling these packs and AO made additions on basis of statement of partner in assessee-firm wherein he admitted to bogus purchases of packing materials, since Commissioner (Appeals) in his order stated that there was Printed from counselvise.com Page | 6 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 no question of any purchase made by assessee to be termed as bogus as AO himself verified consumption of packing material with sales, there was no reason for Commissioner (Appeals) to conclude that 7 per cent of total purchase was to be disallowed. 5.2.13 The facts of the case are assessee-firm was engaged in business of importing oil in bulk, packing same in different packs and selling these packs - A survey was conducted at premises of assessee, wherein a partner in assessee-firm admitted to bogus purchases of packing materials - Assessing Officer made additions to assessee's income on basis of said statement which was later retracted Commissioner (Appeals) held that only 7 per cent of purchase of packing material was to be disallowed on ground that confirmation of availability of packaging materials by Assessing Officer had been made and consumption of packaging material vis-a-vis sales was also verified Whether since Commissioner (Appeals) in his order stated that there was no question of any purchase made by assessee to be termed as bogus, there was no reason to conclude that 7 per cent of total purchase was to be disallowed and thus addition was to be deleted - Held, yes. 5.2.14 The Hon'ble Court in its order has stated that: \"6. ITAT has therefore, come to a conclusion that there was no material whatsoeverbefore CIT(A) as to why 7% on the total purchase of packing material from 8 parties should be disallowed. Even we find the decision of the CIT(A) rather strange because in paragraph 53 of the order concluded above, he says there is no question of any purchase made by the appellant being termed as bogus. 7. In the circumstances, in our view ITAT was correct to delete the addition of Rs 32,71,140/- made by CIT(A)\" 5.2.15 In view of the above the Grounds of appeal taken by the appellant with regard to addition made of Rs. 4,38,61,650 is allowed and addition made is deleted.” 2.3. After hearing the rival contentions and perusing the materials available on record, we note that the ld. CIT (A) has recorded a finding of fact that the goods purchased by the assessee were supplied and sold to Semi-Government Department (The Gourkha Hill Council, Darjeeling) and since, the sales were doubted and books of accounts were not rejected by the ld. AO, therefore no disallowance of bogus purchases could be made. The ld. CIT (A) also noted that the assessee has furnished the cash book, evidences of payments through bank account ,ledger accounts for payment of commission and furnished e-way bills, lists of suppliers and confirmations etc. Printed from counselvise.com Page | 7 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 before the ld. AO as well as before the ld. appellate authority. We note that the ld. CIT (A) after taking into account all these evidences deleted the addition. Thel d CIT (A) also relied on series of decisions while deleting the addition. Therefore, we do not find any infirmity n the same and the order of ld. CIT (A) is upheld on this issue by dismissing the ground nos. 1 and 2. 3. The issue raised in ground no.3 is against the order of ld. CIT (A) deleting the disallowances of expenses of contract and commission despite the fact that the assessee has failed to establish the expenditure being incurred wholly and exclusively for the purpose of business. 3.1. The facts in brief are that the ld. AO during the course of assessment proceedings noted that assessee has incurred expenses in respect of commission payments and contract payments which were made to related parties which included assessee’s own HUF. The details whereof are given at page no.13 in Para no.3.4 of the assessment order Accordingly, the assessee was issued show cause notice for disallowance of the same which was replied by the assessee. The assessee submitted before the ld. AO that all the recipients have been filing their returns of income regularly and also furnished their ITRs, balance sheets, statement of affairs, computation of TDS, etc. for the last three years along with bank statements. However, the ld. AO , by rejecting all the pleas of the assessee, disallowed the commission paid to the related party. 3.2. The ld. CIT (A) in the appellate proceedings, allowed the appeal of the assessee by observing and holding as under:- “5.3.2 The assessing officer has noted in the assessment order that \"thus assessee has merely furnished copies of ledger accounts, ITR returns of the above parties. However, these documents are in no way indicative of the discharge of onus u/s 37 of Printed from counselvise.com Page | 8 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 the income tax Act. Assessee has to prove that how these payments are incurred wholly and exclusively for the purpose of business. It is seen from the journal ledger that all these entries are made on 31.03.2021. Assessee did not identify for which transaction and service the commission amounts were paid. Assessee did not identify what is the nature of the contract work including his own HUF. In the show cause assessee was specifically asked to prove that these payments are necessary for the business by furnishing details their expertise to render the services, what is the work/service performed by them, work orders given to them etc. Assessee is also silent on how his HUF is paid contract works payments. As the documents furnished by the assessee are in no way prove that the expenditure is incurred wholly and exclusively for the business and is necessary, the said expenditure is disallowed During the course of personal hearing also, no specific submissions are made by the assessee on this issue. As such variation of Rs.93,88,930/- is made to the returned income by disallowing the commission and contract payments made to the related parties.\" 3.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has filed all the details before the ld. AO as well as before the ld. CIT (A). We note that even the details of recipients, commission paid and contractual payments were furnished along with addresses, PAN Nos., Balance sheets, confirmations of their ITRs along with bank statements and also proved that these are the regular payments made by the assessee to these parties. The assessee also submitted before the ld. AO that these are wholly and exclusively incurred for the business of the assessee and there is no justification for disallowing the same though, the same were made to the related party. The ld. CIT (A) has rightly noted in the appellate order that the ld. AO has failed to bring on record any material to prove that these payments were bogus or unreasonable. Moreover, recipients have duly shown these payments/ commission in their returns of income and offered the income to tax. Moreover, it is not the case that the payments made were abnormally and reasonably high vis a vis the comparable prices in the market. Therefore, the ld. CIT (A) has rightly reversed the order of the ld. AO on this issue. Consequently, we uphold the order of ld. CIT (A) by dismissing the appeal of the revenue on this issue. Printed from counselvise.com Page | 9 ITA No. 1584/KOL/2024 Binoy Agarwal; A.Y. 2021-22 4. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 02.01.2026. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 02.01.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "