SUSHIL KUMAR ,DELHI V. DCIT CIRCLE 22(2), DELHI

ITA 4697/DEL/2024

AI Insights

The case revolves around the appeal by Sushil Kumar, a trader engaged in ferrous and non-ferrous metals, against the additions made to his income for the assessment year 2021-22. The additions were based on the AO's findings that certain purchases were bogus, as one supplier denied any business transactions with the assessee. The CIT(A) upheld the AO's decision, leading to the appeal in the Tribunal. The Tribunal examined the evidence presented, including bank statements, e-way bills, and the nature of the business transactions, and concluded that the assessee had substantiated his claims of legitimate purchases.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314409 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2021-2022
• Other Referred Cases: PCIT vs Kanak (Impex) Ltd., PCIT vs Drisha Impex (P.) Ltd., DCIT vs Surender Kumar Jain, Pr.CIT vs Bansal Strips Pvt.Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: AMIT GOEL; PRANAV YADAV
• Keywords: Bogus purchase; Bogus
• Section: 143(3); 133(6); 69C; 37; 37(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “G” BENCH: NEW DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No.4697/Del/2024 [Assessment Year : 2021-22] Sushil Kumar D-44, Puspanjali Enclave Pitampura, Delhi-110034 PAN-AALPK5068M vs DCIT Circle-22(2) Delhi. APPELLANT RESPONDENT Appellant by Shri Amit Goel, Adv. & Shri Pranav Yadav, Adv. Respondent by Shri Sahil Kumar Bansal, Sr. DR Date of Hearing 24.04.2025 Date of Pronouncement 07.05.2025 ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal has been filed at the instance of the assessee seeking to assail the First Appellate order dated 13.08.2024 passed by Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 29.12.2022 passed u/s 143(3) r.w.s 144B of the Act pertaining to assessment year 2021-22. 2. As per the grounds of appeal, the assessee has challenged the additions of INR 98,40,545/- towards bogus purchases and consequent disallowance under s. 37 of the Act. 3. Briefly stated, the assessee is a proprietor of ‘Shri Ram Agency’ and is engaged in trading activities of ferrous and non-ferrous metals. The assessee filed its return of income for AY 2021-22 in question and declared a total income of INR 78,72,920/-. The return filed by the assessee was subjected to regular assessment under s. 143(3) r.w.s 144B of the Act. The AO in the course of assessment proceedings, made enquiries towards bonafides of purchase made by the assessee from various parties. Notice under s. 133(6) of ITA No.4697/Del/2024 Page | 2 the Act was issued on several parties. In response to notice issued under s. 133(6) of the Act, one of the suppliers namely, Elegant Impex (Shri Rahul Shukla) denied any supply to the assessee. The reply given by the proprietor is reproduced a sunder:- “This notice demand information in connection with the assessment proceedings in the case of SUSHIL KUMAR, 237 DEEPALI ENCLAVE PITAMPURA, NORTH WEST DELHI, (PAN:AALPK5068M), for the Assessment Year 2021-22. I RAHUL SHUKLA, R/o JETHOPUR, PINDI, KARCHANA, ALLAHABAD Uttar Pradesh India 212301 it is hereby Submitted that I am not doing any business currently and I had also not taken any GSTN under my PAN but Somehow anyone manage to take GSTN under my PAN. Someone does Fraud against me and I am going to do FIR against him. I have no business connection with the SUSHIL KUMAR of even I don't know him personally. It is requested to you that kindly drop the enquiry against me.\" 4. In response to such reply of the suppliers, the assessee responded as under:- “Further, the assessee was supplied with the written submission made by Mr. Rahul Shukla prop. of Elegant Impex and requesting him to offer his comments. The assessee in his response has stated that \"In respect of the online response of Shri Rahul Shukla (Prop. Elegant Impex) provided by you, it is humbly submitted that, in his reply, he has stated that he is not doing any business currently. Please ask him about details of business carried on by him during the FY 2020-2021. Please also confront him with copy of bank statements submitted by us. As already submitted that we purchased the goods from various market suppliers. We made the payment in the name of the concern of which bill is provided by the suppliers for the goods received by you. (Emphasis supplied) As already submitted I am a trader and not a manufacturer. The goods purchased by me have been sold. There cannot be a sale without the corresponding purchase. I have already submitted complete stock register/details (both quantity wise as well as amount wise) of opening stock, purchases, sales and closing stock. \" 5. The AO however observed that the purported supplier namely M/s. Elegant Impex has denied the supply transactions and claimed no business connection with the assessee. It was further observed that Elegant Impex claims to have not taken any GSTN under his PAN and somehow somebody else has managed to take under his PAN. The AO accordingly concluded that the purchases reported amounting to INR 98,40,545/- is bogus. The AO ITA No.4697/Del/2024 Page | 3 accordingly resorted to s. 37(1) of the Act and made addition of the aforesaid amount to the total income by disallowance of expenses towards purchases. 6. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) observed in para 6.2.5 of its order that the assessee is admittedly a trader and goods were purchased from Elegant Impex. The assessee has furnished documentary evidences but has not furnished confirmation from Elegant Impex. Further, the supplier has denied the transactions. Hence, in the absence of the confirmation details, the action taken by the AO requires to be affirmed. The CIT(A) thus denied any relief to the assessee. The finding of CIT(A) is noted hereunder:- 6.2.5. “In view of the above, it is very clear that the appellant is trader and goods were purchased from Elegant Impex. The appellant has furnished duly supporting documents for such transactions but the appellant has not furnished any confirmation letter from Elegant Impex. Further, Prop. of Elegant Impex also denied about any transactions made with appellant (as mentioned above). Hence, in absence of the confirmation details from Elegant Impex, action taken by the AO is hereby confirmed. Accordingly ground of appeal no.3 raised by the appellant is hereby dismissed.” 7. When the matter was called for hearing, the Ld. Counsel for the assessee pointed out that in support of the purchase recorded in the books, the assessee has filed documentary evidences such as; (a) copy of ledger account of Elegant Impex. (b) copy of bill/e-way bill of purchase (c) copy of bank statement reflecting the payment to Elegant Impex. (d) copy of extract of stock register showing purchase from Elegant Impex and subsequent sales (e) copy of bill of sales. 7.1. The Ld. Counsel for the assessee pointed out that noticeably, the assessee is only a trader as distinct from manufacturer, meaning thereby, the goods purchased are sold without any modification. In the instant case, the sale has been recorded towards Zinc Ingot, Zinc Scrap & Copper scrap which was purchased from the aforesaid supplier. The sales recorded in the books have been accepted by the Revenue in the transaction of purchase and sale of ITA No.4697/Del/2024 Page | 4 Zinc & Copper items, the assessee has incurred a meager loss of INR 3,32,127/-. Therefore, applying G.P. rate of 1.78% accepted by the Revenue, the maximum possible disallowance could be INR 5,02,419/- only. This submission is however to demonstrate the acts in proper perspective and is without prejudice to the tell tale documentary evidences to support purchases recorded. The assessee being a trader obtains purchase from the multiple parties and if any supplier is engaged in wrong doing, the assessee has no control over it. The Ld. Counsel for the assessee submitted that, on its part, the assessee has not only purchased and obtained delivery of goods but has also made payments to the said party through banking channel as a quid pro quo. The factum of payment through banking channel to supplier was not examined despite requests by the assessee at the time of assessment and thus remains uncontroverted. The delivery of goods is also proved because e-way bill has been issued to the assessee towards supply wherein the specific transportation details etc. are also available. The Ld. Counsel for the assessee thus submitted that what is transpired from the reply of the supplier is that he is not doing any business currently, and does not per se deny the transactions occurred in the relevant to FY 2020-21. The AO, has infact, made enquiry from the transport agencies and found no error in the transportation of goods carried out and therefore, did not discuss this aspect in the assessment order. The Ld. Counsel submitted that the trader has no control in such a situation. The assessee trader has received the goods and made the payments and established the transportation and also made the sales in the market. Therefore, the chain of transactions carried out is complete. There could be variety of reasons for a supplier to deny the transaction. The AO has not made proper enquiries and has simply accepted the version of the supplier as gospel truth without even basic enquiry as to where the payment has gone if the supplier has not accepted the payment and how the sales have been carried out without the purchases. 7.2. The Ld. Counsel for the assessee thus submitted that the additions have been made casually in a stereo-typed manner disregarding sabotage of information by the supplier and without bringing the factum of delivery on record. ITA No.4697/Del/2024 Page | 5 7.3. The Ld. Counsel for the assessee thus contended that disallowances of purchases under s. 37(1) is dehors the facts on record and hence sought complete reversal of such additions. 8. The Ld. Sr. DR for the Revenue, on the other hand, strongly supported the action of the AO and the CIT(A). The Ld. Sr. DR contended that no fault can be found with the action of the Revenue where the supplier himself claims that he has not obtained any GSTN No. under his PAN and no supply has been made. The Ld. Sr. DR referred to and relied upon judgements in the case of PCIT vs Kanak (Impex) Ltd. (2025) 172 taxmann.com 283 (Bom.) and PCIT vs Drisha Impex (P.) Ltd. (2025) 173 taxmann.com 571 (Bom.) to buttress the action of the AO. The Ld.Sr.DR thus submitted that no interference with the order of the Revenue authorities is called for. 9. In the re-joinder, the Ld. Counsel for the assessee submitted that the judgements referred in PCIT vs Kanak (Impex) Ltd. and PCIT vs Drisha Impex (P.) Ltd. (supra) referred on behalf of the Revenue has no application in the facts of the present case. These judgements have been rendered in the context of applicability of s. 69C of the Act which deals with nature and source of payment of expenditure. In the instant case, the source of payment made towards purchase is not in question at all. In the captioned appeal, the additions have been made with the aid of s. 37(1) of the Act which deals with the allowability of expenditure for which business purpose test is applicable. The Ld. Counsel also referred to the decision of the Co-ordinate Bench of the Tribunal in the case of DCIT vs Surender Kumar Jain in ITA No.931/Del/2024 order dated 23.04.2025 wherein the issue has been adjudicated in favour of the assessee in similar facts and situation. The Ld. Counsel also submitted that half baked investigations do not permit such additions as held in Pr.CIT vs Bansal Strips Pvt.Ltd. in ITA No.103/2021 order dated 26.03.2021 (Delhi High Court) 10. We have carefully considered the rival submissions and perused the material available on record. The disallowance towards alleged bogus purchase under s. 37(1) of the Act is in controversy. ITA No.4697/Del/2024 Page | 6 10.1. As noted in the preceding paragraphs, the assessee claims to have purchased Zinc ingot etc. from one of the suppliers namely, Elegant Impex. The amount of purchase is quantified at INR 98,44,545/-. On appraisal of facts emerging from record, it is noticed that the assessee is a ‘trader’ rather than a manufacturer of goods. As per the Profit & Loss Account for FY 2020- 21 relevant to AY 2021-22 in question, the assessee has reported purchases to the tune of INR 112.14 crores and has also reported sales of INR 117.99 crores. Thus in the context of the business activities, the supplier namely, Elegant Impex is only one of the many suppliers and purchases are relatively insignificant. The AO has made enquiries on purchases from different suppliers and found the purchases reported to be satisfactory. It is only in the case of Elegant Impex that the supply has been doubted owing to denial of the suppliers to have supplied goods to the assessee or any other body. The assessee on the other hand, contends that such one-sided e-reply of the supplier cannot be relied upon. Despite absence of any rebuttal to ostensible facts, such as e-way bill showing the transporter name etc. and payment to the supplier through banking channel, the Revenue has blindly relied upon a simplicitor denial made by the supplier which is apparently quite vague and cryptic in the sense that the supplier merely writes that he is not engaged in the business ‘currently’. As per reply, the supplier does not deny to have supplied any goods in FY 2020-21 per se. No affirmative denial is available with regard to factum of payment made to the supplier through banking channel. Besides, the goods have been demonstrated to have been actually transported. 10.2. Furthermore, one cannot fathom the factum of sales without corresponding purchases particularly in the case of a trader assessee. The sales recorded has neither been disturbed by the Revenue nor could have been. The legitimacy of sales having been accepted, the AO could not have put question mark on the legitimacy of the corresponding purchases. The outcome of the enquiries made with the supplier is clearly half-baked and transgresses common sense approach. ITA No.4697/Del/2024 Page | 7 10.3. In the circumstances placed in the present case, the additions made appears to be clearly loop-sided and without any justifiable grounds. It was incumbent upon the Revenue to make further enquiries in the event of denial from the suppliers and trace the payments made as well as sales on so-called non-existent supply. 10.4. In the absence of any adverse finding on the factum of payments made coupled with transportation and corresponding sales of goods, we have no hesitation to dislodge the additions made by the Assessing Officer and restore the position claimed by the assessee. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 07th May, 2025. Sd/- Sd/- (VIMAL KUMAR) JUDICIAL MEMBER (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER *Amit Kumar, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "