The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of additions aggregating to ₹72.41 lakh, ruling that the Income Tax Department cannot treat purchases and sales as bogus merely because suppliers failed to respond to notices issued under the Income Tax Act. 

The bench of Mahavir Singh (Vice President) and Manish Agarwal (Accountant Member) has emphasized that where an assessee produces complete documentary evidence and the Assessing Officer (AO) accepts the trading results, additions cannot be sustained solely on the basis of third-party allegations. 

The dispute pertained to the Assessment Year 2018-19, where the department challenged an order of the Commissioner of Income Tax (Appeals) [CIT(A)] deleting two additions made during reassessment proceedings. The reassessment had been framed under Sections 147 read with 144B of the Income Tax Act after the Department alleged that the assessee had obtained accommodation entries through certain entities. 

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The case was reopened based on information gathered during a search conducted on another individual alleged to be engaged in providing bogus billing through multiple concerns. According to the Department, the assessee had entered into transactions amounting to ₹72,40,998 with two entities which were allegedly used for accommodation entries. 

The Assessing Officer alleged that the assessee had claimed non-genuine purchases through paper transactions without any actual movement of goods. On this basis, the AO made two additions: ₹61,27,750 by disallowing purchases under Section 28 of the Income Tax Act and ₹11,13,248 by treating sales-related credits as unexplained under Section 68. 

The Department relied primarily on information obtained from the investigation wing and the alleged failure of the concerned parties to respond to notices issued under Section 133(6). 

During the assessment proceedings, the assessee denied having taken any accommodation entries and maintained that all transactions represented genuine business dealings in pulses and cereals.

To substantiate its claim, the assessee furnished extensive records, including Income tax return and computation of income; Tax audit report; Trading and profit & loss account; Bank statements and bank book; Form 26AS; Detailed stock registers; Purchase and sale invoices; Party confirmations; Transport details including truck numbers; and GST returns covering nine months. 

The Tribunal noted that despite receiving these documents, the Assessing Officer failed to identify any specific discrepancy or inconsistency in the records. 

The CIT(A) observed that the assessee had maintained complete stock records showing purchases and sales of various commodities, including chana, arhar, moong dal, paddy, masoor and rice.

The appellate authority further noted that the disputed purchases constituted only about 5.23% of the assessee’s total purchases. The assessee had disclosed gross sales exceeding ₹12.56 crore and corresponding trading results. The AO had accepted the overall trading results without rejecting the books of account.

Accordingly, the CIT(A) concluded that the additions were unsustainable and deleted both additions. 

The Tribunal agreed with the CIT(A), holding that the Department had failed to conduct any meaningful independent investigation after receiving the assessee’s documentary evidence.

The Bench observed that merely because suppliers did not respond to notices under Section 133(6), the purchases could not automatically be treated as bogus. The AO had not produced any evidence showing that goods were never supplied or that the documentary records were fabricated. 

The Tribunal also noted that once the trading results were accepted, disallowing only certain purchases without supporting evidence was legally untenable.

With respect to the addition of ₹11.13 lakh, the Tribunal held that the assessee had successfully established that identity of the parties through PAN details; genuineness of the transactions through banking channels and supporting confirmations and financial records demonstrating creditworthiness.

The Tribunal observed that after the assessee discharged its initial burden, it was incumbent upon the Assessing Officer to carry out independent verification rather than relying solely on investigation reports or third-party statements. Since no such inquiry was conducted, the addition under Section 68 was rightly deleted. 

The Tribunal relied upon several judicial precedents, including the decision of the Bombay High Court in CIT v. Nikunj Eximp Enterprises Pvt. Ltd., where genuine purchases supported by documentary evidence were held to be allowable despite non-response from suppliers. The Tribunal also referred to other precedents affirming that additions cannot rest merely on suspicion or lack of third-party compliance. 

The Delhi ITAT dismissed the Revenue’s appeal and upheld the deletion of both additions amounting to ₹72.41 lakh. Since the assessee had already succeeded on the quantum issues, the cross-objection filed by the assessee was dismissed as infructuous. 

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