AI Structured Summary
Not yet generated for this judgment
Judgment
PER RAMIT KOCHAR, AM:
This appeal in ITA No. 8723/Del/2026 has arisen from the learned CIT(A)’s appellate order u/s 250 of the Income-tax Act, 1961(in short “1961 Act”) dated 07.10.2025 in DIN & Order No: ITBA/NFAC/S/250/2025-26/1081505183(1), which appeal in turn has arisen from the assessment order dated 23.03.2023 passed by the learned AO, NFAC u/s 147 read with Section 144B of the 1961 Act, for Assessment Year: 2018-19.
The assesse has raised following grounds of appeal in Memo of Appeal filed with the Income Tax Appellate Tribunal, Delhi Benches, New Delhi, which reads as under:
“General Ground: Order Bad in law
1.Against Enhancement of Addition: Deletion of Enhancement of Addition: The Ld. CIT(A) erred in law and on facts by exercising the power of enhancement under section 251(2) of the Income tax Act, 1961, and increasing the addition from Rs. 34,00,350 to Rs.68,00,700. The enhancement is arbitrary, excessive, and bad in law, and should be deleted entirely. (Annex A Point 1)
2.Against Original Addition and Treatment u/s 69C: Deletion of Bogus Purchase Addition: The Id. CIT(A) erred in confirming the original addition of Rs. 34,00,350 (and the enhanced amount of Rs. 68,00,700) as unexplained expenditure under Section 69C of the Act. (Annex A Point 2)
3.Against Disallowance when Sales are Accepted Restriction to Gross Profit: The Ld. CIT(A) erred in making the addition of the entire purchase amount by relying on the judgment of Pr. CIT 5 vs. Kanak Impex (India) Ltd. (Delhi HC) (Annex A Point 3)
4.Against Consequential Tax Deletion of Consequential Taxation u/s 115BBE: The Ld. CIT(A) erred in confirming the action of the Assessing Officer to tax the entire addition under Section 115BBE of the Act. Since the addition itself is unjustified, the consequential taxation under Section 115BBE is also bad in law and should be deleted. (Annex A Point 4), Tax effect already considered in points 1 and 2 above.
5.Against Consequential Penalty Deletion of Consequential Penalty The Ld. CIT(A) erred in upholding the initiation of consequential penalty proceedings under Section 271AAC(1) of the Act. As the addition is legally and factually incorrect, the basis for initiating the penalty proceedings ceases to exist, and the proceedings should be quashed. (Annex A Point 5).
Brief facts of the case are that the assessee filed its return of income u/s 139(1) of the 1961 Act on 14.10.2018 , declaring an income of Rs.44,64,997/-. The specific information was flagged as per Risk Management Strategy formulated by CBDT through ITBA software under the head ‘High Risk CRI/VRU cases’ wherein it was reflected that information was received through insight portal from the office of Investigation Wing, Delhi wherein it was stated that as per the detection of ITC (Input Tax Credit) fraud above 50 Cr. by Shri Aman Handa & Shri Jagdis Prasad & Others have issued ITC of Rs. 1709 crores by issuing bogus ITC on fake bill without the actual movement of goods. M/s Greendust Ventures Pvt. Ltd.(PAN AAGCG5589D) and M/s Libra Overseas (PAN AAGFL4440D) are such entities which were found to be involved in these activities . These entities are non-existent entities , and they are not available on registered address. The ITC claimed is bogus and further sales made to other persons is also bogus. Further, it was observed that the assessee has made bogus purchases to the tune of Rs. 39,99,620/- from M/s Greendust Ventures Private Limited and Rs. 28,01,080/- from Libra Overseas, non-existent entities.
The AO issued notice u/s 148 of the 1961 Act dated 31.03.2022 , to the assessee, requiring assessee to file its return of income. The assessee filed its return of income on 25.04.2022 in response to notice u/s 148 of the 1961 Act, declaring same income. Statutory notices u/s 143(2), 142(1) and SCN’s were issued by the AO to the assessee,from time to time, during the course of assessment proceedings. The assessee participated in the assessment proceedings and submitted computation of income, audited financials , purchase ledger, bank statements, incorporation certificate and copy of ledger account of both the parties from whom alleged purchases were made , but no confirmations from both the parties were furnished . The assessee submitted copy of ledger account of Greendust Ventures Limited of having made the purchases to the tune of Rs, 25,99,756/- and copy of ledger account of Libra ovserease for having made purchases to the tune of Rs. 17,92,691/-. The assessee did not submitted confirmed copy of the account from the aforesaid parties viz. Greendust Ventures Limited and Libra Overseas, of the assessee account from their books of accounts. The AO observed that there are differences between the information available with the department and that of supplied by the assessee. During the course of assessment proceedings, since there was differences, notices u/s 133(6) of the 1961 Act were issued by the AO to both the aforesaid parties to furnish conformation of the sales made to the assessee, but no reply was received from these parties. The AO made a reference to verification unit to serve notice u/s 133(6) of the 1961 Act physically to both these parties, to obtain confirmed copy of the accounts of the purchases made by the assessee. As per the report of the verification unit both the parties were found non-existent at their registered offices, and the investigation wing also stated that these are non existent parties and purchases made are bogus. SCN was issued to the assessee as to why bogus purchases to the tune of Rs. 39,99,620/- from M/s Greendust Ventures Private Limited , and Rs. 28,01,080/- from M/s Libra Overseas may not be treated as bogus purchases , and added to the taxable income u/s 69C of the 1961 Act read with Section 115BBE of the 1961 Act. In response to aforesaid Show cause notice, the assessee submitted that it had made purchase from M/s Greendust Ventures Pvt. Ltd. to the tune of Rs.19,99,810/- (exclusive of GST) and from M/s Libra Overseas to the tune of Rs.14,00,540/- (exclusive of GST) , totaling to Rs.34,00,350/-. Further, the assessee submitted that the purchases made from these two entities have been duly shown in the books of accounts. The assessee submitted that purchases have been made through banking channels and hence the additions are not justified. The assessee relied upon various judgments in support of its contention. The assessee submitted that the purchases cannot be treated as bogus, unless sales are held to be in-genuine. The assessee sought personal hearing before AO through Video Conferencing , which was granted. During Video Conferencing, the assessee reiterated its submissions and expressed inability to submit confirmations. The assessee submitted that the aforesaid two parties existed when the purchases were made, but later on these parties are not traceable and would have closed their businesses. The assessee submitted that it has no knowledge of their whereabouts. The assessee filed before AO consignee copy L.R. No.406 & 408 dated 23.10.2017, and L.R. No.411 and 413 dated 24.10.2017, but the AO observed from the challans that there are no details of freight amount, surcharge, GST and advance paid is not mentioned but only written ‘prepaid’. There was no details of weight and payments made. The AO observed that these documents are not reliable. The AO rejected the contentions of the assessee and the aforesaid evidences submitted by the assessee, and AO made the additions in the hands of the assessee to the tune of Rs.34,00,350/-as unexplained expenditure u/s 69C of the Act r.w.s. 115BBE of the Act, by treating the purchases shown by the assessee from M/s Greendust Ventures Private Limited and M/s Libra Overseas to be bogus purchases made by the assessee .
Aggrieved, the assessee filed first appeal with ld. CIT(A), wherein the assessee reiterated its submissions as were made before the AO. The ld. CIT(A) observed that the total purchases made by the assessee from these two entities were to the tune of Rs.68,00,700/- , while the AO has made additions only to the tune of Rs.34,00,350/- . The ld. CIT(A) issued enhancement notice to the assessee by exercising his powers u/s 251(2) of the 1961 Act. The ld. CIT(A) rejected the contentions of the assessee , by holding as under:
“Decision:
6.1.3.The Assessment Order, Grounds of Appeal, the Statement of Facts, Submission of the appellant, and law in this regard is considered.
6.1.4.Information was received through Insight Portal and the Investigation Wing, Delhi regarding large scale bogus ITC fraud (approx. Rs. 1709 crores) perpetrated by certain entry operators including Sh. Aman Handa & Sh. Jagdis Prasad. M/s Greendust Ventures Pvt. Ltd. and M/s Libra Overseas were identified as non-existent/fake entities engaged in issuing accommodation bills without any actual movement of goods.
6.1.5.The appellant was found to have made purchases aggregating to Rs.39,99,620/- from Greendust Ventures Pvt. Ltd. and Rs.28,01,080/- from Libra Overseas, totalling to Rs.68,00,700/-. During assessment, notices u/s 133(6) issued to these parties remained uncomplied and verification unit reported that the parties were non-existent. The appellant failed to furnish confirmations, transport evidence, or other cogent material. Submitted documents such as challans/L.Rs. lacked freight, GST, weight and payment particulars, and were not reliable. The AO, after considering submissions, treated purchases of Rs. 34,00,350/- (booked in appellant's ledger) as unexplained expenditure u/s 69C, taxed u/s 115BBE, and initiated penaltyu/s 271AAC(1).
6.1.6.It is settled law that mere routing of transactions through banking channels does not establish genuineness when the supplier itself is found non-existent and the purchase is proved bogus. (Ref: CIT vs. N.K. Proteins Ltd. 250 Taxman 22 (SC)). The appellant had failed to discharge the onus of proving genuineness of purchases. The suppliers were found non-existent, confirmations were not available, transport documents were unreliable, and notices u/s 133(6) went unserved.
6.1.7.The plea that sales are accepted and therefore purchases cannot be disallowed is untenable. As held by Hon'ble Delhi High Court in Pr. CIT-5 vs. Kanak Impex (India) Ltd. (2025), once purchases are found to be from bogus/non-existent entities, the entire claim fails irrespective of whether sales are recorded, because the chain of genuineness of business transaction itself is broken.
Enhancement of Income
The Ld.AO restricted the addition to Rs.34,00,350/- as per appellant's books.However, as per Investigation Wing data, the appellant's name appeared for bogus purchases aggregating to Rs.68,00,700/-(Rs.39,99,620/- from Greendust Ventures Pvt. Ltd. + Rs.28,01,080/- from Libra Overseas).
Since the appellant has failed to reconcile this discrepancy or explain why its books reflect lower figures, and given the fact that both suppliers were conclusively found non-existent, the entire quantum of purchases of Rs.68,00,700/- should be treated as bogus.
Reliance is placed on Pr. CIT-5 vs. Kanak Impex (India) Ltd. (Delhi HC, 03.03.2025), where it was held that in cases of proven bogus purchases, addition has to be made on full purchase amount, not merely the differential or book-recorded figure, since no real expenditure was incurred.
Hence, the action of the AO in treating purchases as bogus u/s 69C is upheld. Further, following the ratio of Kanak Impex (India) Ltd. (Delhi HC) and considering material on record, the addition is proposed to be enhanced from Rs.34,00,350/-to Rs.68,00,700/- as unexplained expenditure u/s 69C
6.1.8.During the course of appellate proceedings a Show cause notice was sent to the appellant on 26.8.2025 & 09.09.2025 as under :-
"ENHANCEMENT OF INCOME U/S. 251(2) OF INCOME TAX ACT: Show cause notice on proposed addition
a)Information was received through Insight Portal and the Investigation Wing, Delhi regarding large scale bogus ITC fraud (approx. Rs.1709 crores) perpetrated by certain entry operators including Sh. Aman Handa& Sh. Jagdis Prasad. M/s Greendust Ventures Pvt. Ltd. and M/s Libra Overseas were identified as non-existent/fake entities engaged in issuing accommodation bills without any actual movement of goods.
b). The appellant was found to have made purchases aggregating to Rs.39,99,620/- from Greendust Ventures Pvt. Ltd. and Rs. 28,01,080/- from Libra Overseas, totalling to Rs.68,00,700/-, During assessment, notices u/s 133(6) issued to these parties remained uncomplied and verification unit reported that the parties were non-existent. The appellant failed to fumish confirmations, transport evidence, or other cogent material. Submitted documents such as challans/L.Rs. lacked freight, GST, weight and payment particulars, and were not reliable. The AO, after considering submissions, treated purchases of Rs.34,00,350/- (booked in appellant's ledger) as unexplained expenditure u/s 69C, taxed u/s 115BBE, and initiated penalty u/s 271AAC(1).
c)It is settled law that mere routing of transactions through banking channels does not establish genuineness when the supplier itself is found non-existent and the purchase is proved bogus. (Ref: CIT vs. N.K. Proteins Ltd. 250 Taxman 22 (SC)). The appellant had failed to discharge the onus of proving genuineness of purchases. The suppliers were found non-existent, confirmations were not available, transport documents were unreliable, and notices u/s 133(6) went unserved.
d)The plea that sales are accepted and therefore purchases cannot be disallowed is untenable. As held by Hon'ble Delhi High Court in Pr. CIT-5 vs. Kanak Impex (India) Ltd. (2025), once purchases are found to be from bogus/non-existent entities, the entire claim fails irrespective of whether sales are recorded, because the chain of genuineness of business transaction itself is broken.
e)The Ld. AO restricted the addition to Rs 34,00,350/- as per appellant's books. However, as per Investigation Wing data, the appellant's name appeared for bogus purchases aggregating to Rs.68,00,700/-(Rs.39,99,620/- from Greendust Ventures Pvt. Ltd. + Rs. 28,01,080/- from Libra Overseas).
1)Since the appellant has failed to reconcile this discrepancy or explain why its books reflect lower figures, and given the fact that both suppliers were conclusively found non-existent, the entire quantum of purchases of Rs. 68,00,700/- should be treated as bogus
g)Reliance is placed on Pr. CIT-5 vs. Kanak Impex (India) Ltd. (Delhi HC, s. 03.03.2025), where it was held that in cases of proven bogus purchases, addition has to be made on full purchase amount, not merely the differential or book-recorded figure, since no real expenditure was incurred.
h)Hence, the action of the AO in treating purchases as bogus u/s 69C is upheld. Further, following the ratio of Kanak Impex (India) Ltd. (Delhi HC) and considering material on record, the addition is proposed to be enhanced from Rs.34,00,350/- to Rs.68,00,700/- as unexplained expenditure u/s 690.
Please note that in case of non compliance, it will be presumed that you have nothing to say in the matter and you have no objection on the proposed addition as above.
Your reply should reach to undersigned on or before 01.09.2025.
Please note that in case of non compliance, it will be presumed that you have nothing to say in the matter and you have no objection on the proposed addition and assessment will be completed as mentioned above."
6.2.From the above discussion of facts and circumstances it is clear that there is under addition while passing the assessment order by Rs. 34,00,350/-.
6.3.In response to the show cause notices issued on 16.08.2025 & 09.09.2025 under section 251 (2) r.w.s. 250(6B) of the Income Tax Act and Para 5(1)(xvii) of the Faceless Appeal Scheme, 2020, the appellant has submitted his reply as under:-
"1.Proposed Enhancement The proposal to enhance the addition is based on an unverified, external figure of 68,00,700 from the Investigation Wing. This amount is double the total purchases of 34,00,350 recorded in our audited books of accounts.
a. Factual Discrepancy: The figure of 68,00,700 is a clear data mismatch. We have not been provided with the source of this information, nor have been given a personal hearing opportunity to cross-examine it. An assessee cannot be held liable for figures that do not appear in their own genuine books of account. The proposed enhancement, therefore, lacks a factual basis.
b. No Unexplained Expenditure: The original addition of 34,00,350 was already incorrectly treated as an unexplained expenditure under Section 69C. This section applies when the source of expenditure is not explained. Our purchases, however, are duly recorded and paid for through proper banking channels, with all relevant documentation in place.
2.Explanation Against the Original Addition of 34,00,350 Even without the proposed enhancement, we maintain that the original addition is not justified on its merits. The purchases from M/s Greendust Ventures Pvt. Ltd. and M/s Libra Overseas were genuine and made in the ordinary course of business.
a. Legitimacy of Suppliers at Time of Transaction: During the Financial Year 2017-18, both suppliers were active, GST-registered entities. Their GST registrations were only canceled well after the disputed period (in October 2019 and August 2019, respectively). We acted in good faith, transacting with legally compliant vendors. Questioning the legitimacy of our purchases based on a post-facto status change of the vendors is untenable.
b. Discharging the Onus: The onus of proving the genuineness of the purchases has been met by providing:
Copies of invoices and purchase ledgers.
b. Proof of payment through banking channels. Crucially, the goods purchased were subsequently used to generate sales, which have been duly accepted by the department. As a fundamental principle of business, a sale transaction cannot occur without a preceding purchase. When the department accepts the sales recorded in our books, it implicitly acknowledges that the corresponding purchases must have been made. Disallowing purchases while accepting sales would lead to double taxation by taxing the same income twice-once as sales and again as unexplained expenditure. This is both illogical and contrary to law.
3. Reconciliation of Discrepancy (Rs. 34,00,350 vs. Rs. 68,00,700)
This is a follow-up to our previous submissions dated 08/08/2025 and 31/08/2025, and our detailed reply to the show cause notice. We are writing to reiterate our request for the specific data from the Investigation Wing that forms the basis of the proposed enhancement of the addition from Rs.34,00,350 to Rs.68,00,700.
The proposed enhancement is based on figures that are external to our audited books of accounts. The discrepancy between the amount in our books (34,00,350) and the amount from the Investigation Wing (Rs.68,00,700) is significant. We maintain that this higher figure is erroneous and may be a result of a data mismatch or an error at the source. As a matter of natural justice, and to enable us to provide a proper reconciliation, we require access to the data used by the department. Without this information, it is impossible for us to address the discrepancy effectively. We have repeatedly requested this data, but our requests have not been addressed.
Therefore, we once again most respectfully request you to Provide the specific data from the Investigation Wing that shows our purchases from the said parties as Rs.68,00,700, and Grant a personal hearing to allow us to explain the facts of the case and the discrepancy in person. We are confident that if given the opportunity and the necessary data, we can prove that the figure of Rs. 68,00,700 is incorrect and that the addition should not be enhanced.
4. Distinguished Applicability of Case Laws
The reliance on judicial precedents in the show cause notice is misplaced as the facts are distinguishable. ITAT Hyderabad in Mahalakshmi Laboratories Pvt. Ltd. v. The Income Tax Officer (ITANo. 615/Hyd/2024, dated October 18, 2024): In this case, the ITAT held that since the sales were not doubted, the entire purchase amount could not be added back to the assessee's income. The Tribunal noted that it is difficult to accept that sales of a certain quantity were made without having the corresponding purchases. As a result, the ITAT confirmed an addition of only 15% of the bogus purchases as additional profit, while deleting the rest of the disallowance. This case highlights a more balanced approach where the focus is on taxing the undeclared profit rather than the entire value of the bogus purchase. Pr. CIT-5 vs. Kanak Impex (India) Ltd. (2025). We respectfully submit that the facts of that case may be distinguishable. Moreover, the argument that an addition for the full purchase amount must be made, as the assessee did not incur a real expenditure, is flawed. The appellant has incurred a real expenditure by making the payments for the goods. If the source of funds for this expenditure is explained (eg. from the bank account), there can be no addition under Section69C. ITAT Amritsar in M/s Vohra Solvex Pvt. Ltd. v. ITO (ITA No. 588/Asr/2024, dated April 29, 2025): The ITAT upheld the decision of the CIT(A) to limit the addition to 1.2% of the bogus purchases. The Tribunal emphasized that when the sales are accepted and the books of accounts are not rejected under Section 145(3), the full disallowance of purchases is not warranted. The court noted that the assessee's bank payments were a critical piece of evidence. Pr. CIT v. Agson Global Pvt. Ltd., ITA Nos. 68-73/2021, dt. 19.01.2022 (Delhi High Court): Held that if purchases are disallowed, the corresponding sales must also be disallowed. Selective acceptance of one part of a transaction is impermissible. In Pr. CIT v. M/s. Agson Global Pvt. Ltd., ITA 68/2021 & CM No. 9319/2021, ITA 69/2021 & CM No. 9322/2021, ITA 70/2021 & CM No. 9346/2021, ITA 71/2021 & CM No. 9352/2021,ITA 72/2021 & CM No. 9355/2021, ITA 73/2021 & CM No. 9356/2021, dt. 19.01.2022, the Hon'ble Delhi High Court held that if the revenue chooses to disallow bogus purchases, it would necessarily have to ignore the corresponding sales recorded against the very same parties. So, In view of the above it is requested to do the needful by completing the Reassessment in our Favour PCIT v. Jakharia Fabric Pvt. Ltd. (Bombay High Court): The Hon'ble Court held that without purchases, job work like dyeing is not possible, and only the profit element embedded in the purchases, if any, can be taxed. PCIT vs. Jakharia Fabric (P) Ltd. that the Commissioner (Appeals) noted that without purchase of materials, it was not possible for the assessee to complete job work of dyeing and, thus, the entire purchases could not be added as bogus and profit element embedded in such transaction had to be added to the total income of the assessee. The Hon'ble Bombay High Court upheld the order of the Tribunal and the appeal filed by the Revenue was dismissed. CIT vs. N.K. Proteins Ltd.: This case holds that mere routing of funds doesn't prove genuineness. However, we have provided more than just bank statements; we have provided invoices, ledgers, and proof that the goods were used for sales. We have discharged our onus to the best of our ability, and the subsequent non-compliance of a supplier with an income tax notice should not be held against us.
That basis the certain information regarding M/s Green Dust Ventures Pvt. Ltd and M/s Libra Overseas, the department has passed the order and the department has not provided any evidence or statement given by the both parties or received by the department from any other source. The department has also not provided any personal hearing or videoconference opportunities for clarification and explanation of the genuine of Purchase in this matter. The appellant has made the transaction with M/s Green Dust Ventures Pvt Ltd and M/s Libra Overseas which were genuine and entire number of purchases made from these companies amount to Rs. 34,00,350/-has been paid through banking channel and should be considered genuine purchases.
Also, the Appellate Authority have overlooked a critical fact: the case was reopened on the allegation of bogus purchases M/s Greendust Ventures Pvt. Ltd. (GSTIN 07AAGCG5589D1ZE)and M/s Libra Overseas (GSTIN: 07AAGFL4440D1ZN), for Rs. 34,00,350/-, According to the GST portal, the registrations of these vendors were cancelled on October 29, 2019, and August 19, 2019, respectively. Crucially, this is after the disputed period of the financial year 2017-18. During that financial year, both vendors were legally registered with the GST department, were active, and had fulfilled their compliance obligations by filing GST returns. Therefore, since the vendors were legally authorized to issue invoices and collect taxes at the time of the transactions, questioning these purchases is akin to questioning the legitimacy of the GST department's own records."
6.5.Considering the facts of the case and appellant's submission as above, it is noted that-
(i) Discrepancy in Figures (Rs.34,00,350/- vs. Rs.68,00,700/-):
The appellant has contended that the figure of Rs.68,00,700/- represents an error or mismatch and that only Rs.34,00,350/- was recorded in its books. This contention is untenable. The Investigation Wing data specifically names the appellant as a beneficiary of accommodation entries from the above two entities aggregating to Rs.68,00,700/-. The onus lies on the appellant to reconcile this discrepancy by producing documentary evidence. Despite repeated opportunities, no reconciliation or corroborative evidence has been furnished. Mere denial does not discharge the statutory burden.
(ii) Non-genuine nature of Suppliers:
The suppliers, namely M/s Greendust Ventures Pvt. Ltd. and M/s Libra Overseas, have been conclusively found to be non-existent by the Investigation Wing. Notices issued u/s 133(6) were returned unserved. Verification unit categorically reported them as bogus entities engaged in issuing accommodation bills without actual supply of goods. The so-called transport documents furnished by the appellant are vague and unreliable, lacking freight details, GST particulars, and weight specifications. In these circumstances, the purchases claimed stand wholly unproved.
(1) Applicability of Section 69C:
Section 69C squarely applies when an assessee claims to have incurred an expenditure but fails to substantiate the same with cogent evidence. In the instant case, the appellant has admittedly routed payments through banking channels, but as held by the Hon'ble Supreme Court in CIT v. N.K. Proteins Ltd. (250 Taxman 22). banking transactions by themselves do not prove genuineness of the underlying transaction when the supplier is found bogus. Here, no real expenditure was incurred, and the payments were merely recycled through hawala operators. Hence, the addition is rightly to be made u/s 69C.
(iv) Case Law Considered:
The appellant has relied on certain ITAT orders (Mahalakshmi Laboratories, Vohra Solvex, Jakharia Fabrics, etc.) where profit element alone was estimated. These cases are clearly distinguishable since, in those matters, the assessee could demonstrate actual movement of goods and use in business. In the present case, no evidence of movement of goods has been produced and the suppliers are non-existent.
On the other hand, reliance placed by the department on Pr. CIT-5 v. Kanak Impex (India) Ltd. (Delhi HC, 03.03.2025) is squarely applicable. The Hon'ble High Court held that where purchases are conclusively established as bogus, the entire purchase value must be disallowed, not merely the differential or profit element, since no genuine expenditure is incurred at all
(v) Acceptance of Sales Argument:
The appellant's plea that since sales are accepted, purchases must also be accepted, is misconceived. As held in Kanak Impex (supra), once purchases are found bogus, the entire chain of transaction is tainted. The so-called sales, even if recorded, could be from purchases made from undisclosed sources or inflated figures. There is no principle in law that acceptance of sales mandates acceptance of all claimed purchases.
From the foregoing discussion, it is clear that the suppliers were conclusively found to be bogus/non-existent. The appellant failed to reconcile the difference between book-recorded purchases and Investigation Wing data. No cogent evidence of genuineness, transportation, or actual delivery of goods has been produced. Payments through banking channels are not sufficient to prove genuineness. Jurisdictional and binding judicial precedents mandate disallowance of the entire purchase value in such cases. Accordingly, the action of the Ld.AO in treating purchases as bogus u/s 69C is upheld. Further, exercising powers of enhancement under section 251(2) of the Income-tax Act, the addition is enhanced from Rs.34,00,350/- to Rs.68,00,700/-, being the total bogus purchases made from M/s Greendust Ventures Pvt. Ltd. and M/s Libra Overseas.
In view of the foregoing discussion, the action of the AO in treating purchases as bogus u/s 69C is upheld. Further, following the ratio of Kanak Impex (India) Ltd. (Delhi HC) and considering material on record, the addition is enhanced from Rs.34,00,350/- to Rs.68,00,700/- as unexplained expenditure u/s 69C, taxable u/s 115BBE of the Act. Consequential penalty proceedings u/s 271AAC(1) are upheld.
Ground of Appeal No. 1 to 3 are dismissed.
6.4. In Ground of Appeal No. 4, [As per Para 3 above]
6.4.1.Since the appellant has not added, amended, altered, modified or varied any of above ground either before or at the time of hearing of appeal, hence, Ground of appeal No. 4 is dismissed.
7.In result, the appeal is filed by the appellant is dismissed.”
Aggrieved , the assessee has filed second appeal with the Tribunal. The ld. Counsel for the assessee submitted that the additions have been made on account of allegation of bogus purchases. The Ld. Counsel for the assessee submitted that the Ld. CIT(A) enhanced the addition by issuing the enhancement notice, and upheld additions to the tune of Rs. 68,00,700/- as against the additions of Rs. 34,00,350/-made by the AO. Ld. Counsel for the assessee submitted that the assessee is a Private Limited company engaged in the business of construction activities. It was submitted that cement was purchased for construction activities from these two entities namely M/s Greendust Ventures Private Limited and M/s Libra Overseas . The said purchases were held to be bogus purchases. It was submitted that the sales have not been disturbed, and the same were accepted. It was also submitted by the assessee that the GST No. of both the parties were existing when purchases were made, but was later cancelled by the GST Department. Our attention was drawn to the orders of the authorities below. It was submitted that the assessee is not provided with any document by the Revenue which could demonstrate that the assessee made purchases from these two parties to the tune of Rs. 68,00,700/- as against purchases to the tune of Rs. 34,00,350/- which stood recorded in the books of accounts of the assessee.It was submitted that the assessee made payments for these purchases through banking channel. It was submitted that the assessee has duly submitted invoices, bank statements and copy of ledger account of said parties in the assessee’s books of accounts.
Ld. Sr. DR on the other hand, submitted that there are allegation of bogus purchases being made by the assessee from entry operators who were involved in Input Tax Credit(ITC) fraud, wherein fake invoices were issued by the entry providers. The assessee did not furnish confirmations from the said parties , nor submitted confirmed copy of ledger account of the assessee in the books of the said parties. The assessee has submitted before the authorities below that the said parties are not traceable. The AO issued notice u/s 133(6) of the 1961 Act to the said parties, but there was no reply from these parties. Verification were conducted to trace the said parties, but these two parties namely M/s Greendust Ventures Private Limited and M/s Libra Overseas from whom the assessee has claimed to have made purchases, were not available at their registered addresses.
The ld. Counsel for the assessee submitted , without prejudice, that if the contention of the Department are accepted then also only GP can be added as income as the sales are not disputed by Revenue.
We have considered rival contentions and perused the materials available on record. We have observed that the assessee is in the business of Construction activities. We have observed that the assessee has filed return of income u/s 139(1) of the 1961 Act, declaring an income of Rs.44,64,997/-. The specific information was flagged as per Risk Management Strategy formulated by CBDT through ITBA software under the head ‘High Risk CRI/VRU cases’ wherein it was reflected that information was received through insight portal from the office of Investigation Wing, Delhi wherein it was stated that as per the detection of ITC (Input Tax Credit) fraud above 50 Cr. by Shri Aman Handa & Shri Jagdis Prasad & Others have issued ITC of Rs. 1709 crores by issuing bogus ITC on fake bill without the actual movement of goods. M/s Greendust Ventures Pvt. Ltd. and M/s Libra Overseas are such entities which were found to be involved in these activities, and were controlled by these entry operators. These entities were found to be non-existent entities , and they were not available on registered address. The ITC claimed was alleged to be bogus and further sales made to other persons were also alleged to be bogus. Further, it was alleged by Revenue that the assessee has made bogus purchases to the tune of Rs. 39,99,620/- from M/s Greendust Ventures Private Limited , and Rs. 28,01,080/- from Libra Overseas, non-existent entities. Proceedings u/s 148 of the 1961 Act were initiated by Revenue against the assessee. The assessee could not produce confirmation from these parties nor could produce confirmed copies of ledger account of the assessee in books of accounts of these two parties namely Greendust Ventures Private Limited and Libra Overseas. The AO conducted enquiries by issuing notice u/s 133(6) of the 1961 Act to these two parties namely M/s Greendust Ventures Private Limited , and Rs. 28,01,080/- from Libra Overseas, but there were no response from both these entities . Verification were also conducted at the behest of AO by Revenue , and these parties were found to be not traceable at their registered address. The GST number of both the parties were cancelled by GST department as these two entities are part of ITC fraud allegedly committed by entry operators to the tune of Rs. 1709 crores. Once it is alleged that the assessee has made allegedly bogus purchases from these entry operators who were allegedly issuing fake bills without supplying material and involved in fake GST input tax credits, the onus shifts to the assessee to rebut such allegation and the onus is very heavy. The assessee on its part has submitted copies of invoice , copies of ledger accounts of these parties in assessee’s books of accounts and claim is made that payments are made through banking channel, but submissions of these documents nor claiming that payments were made through banking channel, are not sufficient . Further, it is observed that the assessee is in the business of construction activities. The assessee has allegedly purchased cement from these alleged entry operators namely Greendust Ventures Private Limited and Libra overseas , who were allegedly involved in ITC fraud to the tune of Rs. 1709/- crores, wherein fake invoices were generated. Under these circumstances, the onus has shifted to the assessee, and the onus is very heavy on the assessee. The assessee could not bring on record material to prove movement of goods nor the assessee could bring on record confirmations from these parties as well no confirmed copy of ledger account of the assessee in the books of accounts of these parties , could be brought on record by the assessee. The onus was on the assessee to have proved that cement so claimed to have been purchased from these parties have been consumed in the construction activities carried on by the assessee as its business activities, but no such evidences were brought on record by the assessee. The assessee ought to have justified by cogent evidences receipt of cement and its consumption for its construction activities, through a credible evidences such as movement of goods, entry of trucks through toll, e-way bills, stock records , authentication of consumption by assessee engineers as well engineers of the buyers(which could be government engineers in case contract is executed for government department), terms and conditions of construction contract which will demonstrate magnitude of construction, type of construction , cement required for construction , industry norms of consumption etc., but no such evidences were brought on record by the assessee. Thus, credible evidences to justify consumption of cement for construction were required to have been brought on record, Otherwise these alleged bogus invoices are devices to merely inflate expenses to reduce income and consequently to evade taxes as well to avail bogus GST input credit. None of these evidences were brought on record by the assessee, and merely saying that payment were made by banking channel or that sale has not been disputed by Revenue, is not sufficient. The onus is more so heavy because these two entities Greendust Ventures Private Limited and Libra Overseas, are part of the entry operator who were engaged in providing fake bills and have allegedly involved in ITC fraud to the tune of Rs. 1709 crores. Evidences which could be produced but is not produced, the presumption shall be drawn against the person who withheld such evidences. Reference is drawn to provisions of Section 69C of the 1961 Act, where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof , of the explanation, if any , offered by him is not , in the opinion of the AO, satisfactory, the amount covered by such expenditure or part thereof, as the case may be , may be deemed to be the income of the assessee for such financial year. Proviso to Section 69C of the 1961 Act clearly states that provided that ,notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. There is a allegation that the assessee has procured fake bills without receiving any material from these parties and such expenditure is not genuine. Thus, Section 69C and the first proviso is directly applicable.Thus, the AO and ld. CIT(A) has rightly disallowed the said expenditure, and we sustain the additions accordingly. We have observed that Revenue has rightly relied upon the judgment and order of Hon’ble Bombay High Court in the case of PCIT v. Kanak Impex (India) , reported in (2025) 172 taxmann.com 283(Bom. HC) , wherein SLP filed by the tax-payer against aforesaid judgment and order stood dismissed by Hon’ble Supreme Court in Kanak Impex (India) Limited v. PCIT , reported in (2025) 180 taxmann.com 790(SC). Thus, the additions to the tune of Rs. 34,00350/- stood sustained by us. We order accordingly.
Proceeding further, however, the assessee also disputed that total purchases made from these two entities namely Greendust Ventures Private Limited and Libra Overseas in aggregate were to tune of Rs. 34,00,350/- and not Rs. 68,00700/- as alleged by the investigation wing. The AO specifically noted that there is a difference between the information supplied by the investigation wing and the purchases admittedly claimed by the assessee from these two parties . But, the AO restricted the additions to the tune of Rs. 34,00,350/- despite recording that there is no satisfactory answer/evidences on record brought by the assessee with respect to such differential wherein it transpired from information from investigation wing that the assessee has made purchases to the tune of Rs. 68,00,700/- as against admitted by the assessee to the tune of Rs. 34,00,350/-. The assessee could not produced confirmation from said parties nor produced confirmed copy of the account of the assessee in their books of accounts. The ld. CIT(A) enhanced the additions to Rs. 68,00,700/- , after giving enhancement notice and after hearing assessee. It is observed that the assessee has been contended that the copies of the aforesaid information has not been supplied to it. So far as differences in the amount of purchases to the tune of Rs. 34,00350/- as admitted by the assessee to have made from these parties and Rs. 68,00,700/- as claimed by the Revenue, we are of the considered view that it is the Revenue who is making allegation of the purchases to the tune of Rs. 68,00,700/- being made by the assessee from these two aforesaid parties, then the Revenue is under obligation to provide credible information to the assessee to that effect, as the assessee is admittedly claiming to have made purchases to the tune of Rs. 34,00,350/- from these two parties. The assessee can not be asked to prove negative. With these observations, we are setting aside the matter back to the file of the AO to denovo make assessment with respect thereto after forwarding the copies of evidences suggesting that the assessee made purchases to the tune of Rs. 68,00,700/- from these two entities and not Rs. 34,00350/- as claimed and admitted by the assessee. Needless to say that the AO shall give proper and adequate opportunity of being heard to the assessee in the set aside remand assessment proceedings with respect to whether further addition to the tune of Rs. 34,00,350/- with respect to purchases denied by the assessee, before making any addition on merit in accordance with law, with respect thereto. We clarify that we have not commented on the merits of the aforesaid enhanced addition as were made by ld. CIT(A) in the hands of the assessee. We order accordingly.
In the result, the appeal of the assesse is partly allowed, in the manner as indicated above.