The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has partly allowed the National Spot Exchange Limited’s (NSEL) appeal while dismissing the department’s appeal, delivering crucial findings on bogus transactions, profit estimation, and applicability of Section 68 of the Income-tax Act.
The bench of Dr. B.R.R. Kumar (Vice-President) and T.R. Senthil Kumar (Judicial Member) has upheld the disallowance of a massive trading loss of ₹59.52 crore, holding that the transactions executed on the NSEL platform were merely “paper transactions” without any physical delivery of goods. The finding was based on the Special Audit Report and survey proceedings, which revealed absence of stock movement, transport records, or warehouse evidence.
The case pertained to Assessment Year 2014–15, where the assessee, engaged in trading of edible and non-edible oils, reported a substantial loss arising from commodity transactions executed through NSEL.
The Tribunal noted that the entire arrangement was structured more in the nature of financing rather than genuine trading activity. Even the assessee had admitted during proceedings that such transactions lacked real substance and had attempted to withdraw the loss claim through a revised computation.
However, the Tribunal clarified that the Assessing Officer must verify whether such losses were carried forward and set off in subsequent years, ensuring compliance with law.
A central issue before the Tribunal was the estimation of profit after rejection of books under Section 145. The CIT(A) had estimated profit at 1% of turnover (₹3,214 crore), resulting in an addition of ₹32.14 crore.
The Tribunal, however, found this estimation excessive and held that profit estimation must be reasonable and aligned with industry realities. The assessee was engaged in trading, not branded retail operations. Margins in trading are significantly lower than in branded oil businesses.
The Tribunal reduced the estimated profit to 0.3% of turnover, granting partial relief to the assessee.
The Tribunal upheld the deletion of an addition exceeding ₹1,620 crore made under Section 68 on account of alleged non-genuine trade payables.
The Assessing Officer had treated outstanding liabilities as unexplained due to lack of confirmations and mismatches in third-party responses. However, the CIT(A) and Tribunal took a holistic view of the transactions and observed that entire purchase and sale transactions were already held to be bogus. Trade payables and receivables arose from the same set of circular transactions. Net effect of such transactions resulted in the already disallowed loss.
The Tribunal emphasized that only the net effect of such non-genuine transactions can be considered, and not the gross figures in isolation. It held that taxing trade payables without adjusting corresponding receivables would distort real income.
Once the underlying transactions are found to be fictitious, both sides of the balance sheet—payables and receivables—lose their independent credibility. Therefore, selective addition of only credit balances under Section 68 is not legally sustainable.
The Tribunal also upheld deletion of addition on account of alleged unaccounted closing stock, and addition arising from differences between NSEL records and books
It held that once transactions are treated as non-genuine, further presumptive additions on such transactions are unwarranted.
Case Details
Case Title: Tirupati Retail (India) Pvt. Ltd. Versus Deputy Commissioner of Income-tax
Citation: JURISHOUR-1082-HC-2026(ITA)
Case No.: I.T.A. No. 560/Ahd/2023
Date: 30.04.2026
Counsel For Petitioner: Biren Shah, AR
Counsel For Respondent: Alpesh Parmar, CIT (DR)
