The Calcutta High Court has upheld the deletion of a ₹4.38 crore addition for alleged bogus purchases, holding that the purchases could not be disbelieved in the circumstances of the case when the corresponding sales were accepted, the books of account were not rejected, and contemporaneous documents supported the transactions.
The Bench of Justice Rajarshi Bharadwaj and Justice Sudip Deb also upheld the deletion of approximately ₹93.89 lakh in disallowed contract and commission expenses. It dismissed the Income Tax Department’s appeal after finding that the Tribunal’s conclusions involved factual issues and raised no substantial question of law.
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The appellant/assessee had filed his income tax return declaring an income of approximately ₹1.33 crore. His case was selected for scrutiny following information suggesting substantial purchases from suppliers who had either not filed returns, filed non-business returns, or disclosed turnover substantially lower than the transactions attributed to them.
According to the Assessing Officer, field enquiries revealed that some suppliers were untraceable or denied the transactions. The officer also alleged that the assessee had failed to provide complete supplier particulars and establish the genuineness of the purchases.
The disputed purchases included ₹2.25 crore attributed to one supplier, approximately ₹1.94 crore attributed to another, and ₹19.28 lakh attributed to a third. The assessee disputed transactions attributed to certain parties and submitted affidavits, which the Assessing Officer rejected.
The officer consequently disallowed ₹4,38,61,650 under Section 37 of the Income Tax Act, 1961, treating the purchases as bogus.
The assessment also questioned contract and commission payments made to related parties, including the assessee’s Hindu Undivided Family.
The Assessing Officer noted that the entries were recorded on March 31, 2021, and held that the assessee had not established the commercial necessity of the payments, the services rendered, or how the expenditure was incurred wholly and exclusively for business purposes.
The assessment order, passed on December 27, 2022, determined the assessee’s total income at approximately ₹6.66 crore after making the disputed additions. Penalty proceedings were also initiated.
The Commissioner of Income Tax (Appeals) deleted the disputed additions. On purchases, the appellate authority noted that the assessee had denied purchasing goods from certain parties and had requested the evidence relied upon by the Assessing Officer, but that evidence had not been supplied.
It also found that goods purchased from other suppliers had been sold to the Gorkha Hill Council, Darjeeling, described in the judgment as a semi-government department.
Regarding contract and commission expenses, the appellate authority examined documents establishing the recipients’ identities, income tax records and TDS compliance. It found that the Assessing Officer had not brought material on record proving that the payments were bogus.
The Kolkata “B” Bench of the Income Tax Appellate Tribunal upheld these findings and dismissed the Revenue’s appeal on January 2, 2026.
The Tribunal recorded that the assessee had furnished recipient details, addresses, PAN particulars, balance sheets, income tax return confirmations and bank statements. It also noted that the recipients had disclosed the payments in their returns and offered the income to tax.
For the purchase transactions, the records included the cash book, evidence of bank payments, e-way bills, supplier lists and confirmations.
Upholding the Tribunal’s decision, the High Court found that its conclusions were supported by contemporaneous documents.
The Bench emphasised that the Assessing Officer had neither doubted the sales nor rejected the books of account. In that factual setting, it approved the finding that the purchases could not be disallowed as bogus.
The Court relied on its earlier decision in Principal Commissioner of Income Tax–18, Kolkata v. Pravesh Kumar Jaiswal. That ruling explained that a completed sale necessarily requires goods to have been purchased, and distinguished an allegedly bogus purchase from a purchase made through a bogus entity.
Applying that reasoning, the Bench held that, since the sales had not been doubted after examination of the books and accounts, there was no basis to disbelieve the purchases in the present case.
On contract and commission expenses, the Court accepted the Tribunal’s findings that the payments were supported by records, disclosed by the recipients, and not shown by the Assessing Officer to be bogus or unreasonable.
The department argued that the Tribunal’s order was perverse and that the assessee had failed to discharge the burden of proving supplier identities, genuine purchases and business expenditure.
The High Court rejected that challenge, finding no illegality or perversity in the Tribunal’s order. It observed that the Tribunal, as the final fact-finding authority, had correctly assessed the evidence.
Holding that the proposed questions were factual disputes rather than substantial questions of law, the Court dismissed the Revenue’s appeal and the accompanying stay application. No order was made as to costs.
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