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Judgment
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 13.01.2026 of the Ld. Commissioner of Income Tax (Appeals)-23, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) DIN & Order No : ITBA/APL/S/250/2025-26/1084711158(1) arising out of the assessment order dated 30.03.2025 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the DCIT, Circle -1 for AY: 2023-24.
Heard and perused the record. The assessee company engaged in the business of trading in lead and lead products which filed its return of income for A.Y. 2023-24 declaring taxable income of Rs. 1,93,07,470/- and was selected for complete scrutiny under CASS and notice under section 143(2) was issued on 19.06.2024, followed by multiple notices under section 142(1), in the backdrop of a survey under section 133A conducted on 30.05.2023 in the case of M/s Saraswati Spinning and Weaving Mills (SSWM), one of the purchase parties of M/s Pilot Industries Pvt. Ltd., where it was found that SSWM was engaged in providing accommodation entries and showing substantial purchases from non-existent entities. On the basis that the assessee was identified as one of the party with whom SSWM had financial transaction and relying on investigation findings that a very high proportion of SSWM’s purchases were suspicious, the Assessing Officer examined the assessee’s transactions and stock position and, not being satisfied with the explanation, proceeded to make additionswhile completing the assessment u/s 143(3) for AY 2023-24.
On the basis of rate-difference analysis between alleged billed and off-book cash rates of lead observed in a comparable searched case, treated 3.27% of such non-genuine purchases as additional profit/commission income of the assessee, which was added to the returned income in the order passed u/s 143(3).
Aggrieved by the additions, the Appellant preferred an appeal before the ld. CIT(A) and during the appellate proceedings, the assessee filed following documents in support of the grounds of appeal :
Copy of the sales register for the year
Copy of the purchase register for the year
Supporting documents relating to purchases/suppliers.
Supporting documents relating to purchases/suppliers.
Supporting documents relating to purchases/suppliers.
Copy of bank statement highlighting relevant transactions
Purchase invoices with supporting documents for Capital Steel.
Purchase invoices with supporting documents for Global
Audited financial statements / balance sheet and profit & loss account for F.Y. 2022-23.
The additional evidences submitted by the appellant during appellate proceedings mainly comprised the same type of documents that had already been filed before the Assessing Officer, namely copies of purchase invoices, e-way bills, ledger accounts, bank statements showing payments to suppliers, transporter invoices, toll and dharam-kanta receipts and GPS-tagged photographs of loading and unloading. The appellant also filed copies of certain replies furnished by a few suppliers to notices, along with their ledger copies and bank statements, and placed reliance on case law where purchases supported by bills and banking-channel payments were accepted even when suppliers did not appear.
Ld. CIT(A), observed that no principal supplier or transporter was produced in person for verification, and no independent material was brought on record to rebut the adverse field enquiries, the non-filer status of key parties, or the pattern of short-lived / cancelled GST registrations noted in the assessment order and thereby held as follows;
“Findings/ Determination are as hereinafter:-
5.I have considered the material on record. I have perused the assessment order u/s 143(3) and documents submitted, In the present appeal, the appellant has raised Five grounds of appeal.
6.Ground Nos. 1 to 4: These grounds are related to the addition Addition of Rs. 12,22,519 for purchases from M/s Saraswati Spinning and Weaving Mills and Addition of Rs.3,92,10,256 for purchases from other high-risk / non-filer suppliers. In these grounds, the assessee contended that all purchases were genuine because it had purchase invoices, e-way bills, transporter bills, toll and dharam-kanta receipts, bank payments, GPS photos of trucks and drivers, and that it could not be held responsible if suppliers were non-filers or their GST registrations had been cancelled. The assessee also argued that SSWM had actually returned the material and paid through bank for short material, and that some suppliers had responded to notices and filed their own documents.
6.1As per the assessment order, it was found that there had been a search in the Pilot Industries group and a survey in the case of SSWM, where it emerged that SSWM had routed very large purchases through entities which were non-filers or stop-filers of income tax, had short-lived or cancelled GST registrations, and in many cases did not exist at the addresses given. The Assessing Officer had issued detailed notices and summons to a large number of such parties; most remained unserved or unanswered, and inspector reports confirmed that several concerns were not found at their stated addresses. The order further recorded that, despite very high turnover, such parties had not filed income-tax returns or claimed TDS, and that SSWM had reversed substantial GST input tax credit, indicating a wider pattern of accommodation bills and bogus purchases in this line of trade. In view of these findings, two additions were made in the assessee’s case:
(A)An addition of Rs. 3,92,10,256 on account of profit element in purchases routed through other non-filer and high-risk vendors.
(B)An addition of Rs. 12,22,519 on account of profit element in purchases routed through SSWM, and
6.2A. Addition: Rs. 3,92,10,256 : This amount represents 3.27% of invoices of nongenuine purchases from vendors amounting to Rs.119,90,90,424/-mentioned below.
Sr. No. Party PAN Party Name Aggregated Transaction Value (Rs.) Last ITR filed by Party 1 LCXPK6371G Rehman Khan 14,60,14,052 2021-22 2 KGAPS4586K Sonu Singh 39,28,96 2022-23 3 AACCF8910D Furacle Private Limited 82,000 2020-21 4 AASFC3022C Crystal Metal Industries 7,62,27,645 2022-23 5 HLYPK5759q Gaurav Kumar 17,71,33,305 -6 MJPPK1012A Arvind Kumar 18,14,43,905 -
7 JOVPK9317G Yogesh Kumar 16,54,20,801 - 8 AAUCA7901M A.S Brawny Metal & Alloys 4,02,12,435 2022-23 Pvt. Ltd. 9 KWFPS5893J Om Prakash Singh 77,54,550 -10 KVZPK3173A Kapil Kumar 14,22,92,525 -11 DJXPP0251D IndalPawan 31,42,745 2022-23 12 GIOPB9797M Baburam 13,28,89,185 -13 CTHPC8956P AyushChaurasiya 12,60,84,380 -14 Total 1,19,90,90,424
The assessee was specifically called upon to show cause why purchases from the above parties should not be treated as bogus, but no convincing reply with proper documentary evidence was filed to prove that genuine supplies had actually been made by these parties. The explanation remained confined to routine documents, without addressing the fundamental doubts about the existence, tax-compliance and capacity of the alleged suppliers.
6.2.1Notices under section 133(6) were issued to Shri Arvind Kumar, Shri Gaurav Kumar, Shri Yogesh Kumar, Shri Rehman Khan and Shri Kapil Kumar asking for copies of ITR for A.Y. 2023-24 and supporting documents for sales to the assessee. In response, they furnished only bank statements, ledger accounts, invoices and e-way bills, but did not file copies of their income-tax returns, nor did they explain why returns had not been filed earlierdespite transactions running into crores. No audited financial statements or profit and loss accounts were produced, which was unusual for entities claiming such large turnover. The documents submitted were of the kind normally produced by accommodation-entry providers merely to give a colour of genuineness, without any real underlying business.
6.2.2It was also noticed that, after issue of notices, two parties namely, Shri Gaurav Kumar (PAN HLYPK5759Q) and Shri Yogesh Kumar (PAN JOVPK9317G) filed their returns, which further showed that they were not in regular/ established business but filed their return only after issuance of notice and investigation in the cases of SSWM and Pilot Industries Ltd. Their written replies carried identical mistakes even in the name of the Assessing Officer, indicating that these responses were mechanically drafted and no independent explanations furnished. photographs of premises furnished were also evidently fabricated. All these facts stated by the AO could not dismantled by the appellant. The AO discussed the same in detailed manner in para 33-45 of his order.
6.2.3Bank-statement analysis showed clear pass-through patterns. In the case of M/s KK Steels (linked to Kapil Kumar), amounts credited from the assessee were immediately transferred, often on the same day, to M/s Motownn Exim Pvt. Ltd., a company engaged in electrical equipment and having no nexus with lead or metal supplies; Motownn Exim itself appeared doubtful. Similar patterns existed in the case of M/s Anant Enterprises and others, where funds received from the assessee were quickly routed onwards, mostly the same day or next day, to concerns such as Falcon Business Deal. There was no evidence that these downstream entities were engaged in the lead trade; the pattern was consistent with money routing through a chain of entry operators rather than genuine purchase and sale.
6.2.4Notices under section 131 were also issued to Shri Rehman Khan, Shri Gaurav Kumar, Shri Arvind Kumar, Shri Yogesh Kumar and Shri Kapil Kumar requiring production of complete books of account, along with purchase and sales bills, for both the transactions with the assessee and the corresponding purchases. None of them appeared or produced books or vouchers. Their complete non-cooperation, despite being confronted with large alleged turnovers, strongly supported the inference that they were only name-lenders.
6.2.5From the GST records, it was seen that these parties had obtained registration and then got it cancelled within a very short period, often within a few months, which matched the typical profile of bill-trading entities created for a limited time to issue invoices. The details were as under:
Sr. No. Name of supplier Trade Name Date of GSTIN Date of (proprietor) Registration Cancellation
1 Arvind Kumar Arise 19.09.2022 07MJPPK1012A1ZJ 09.11.2022 International
2 Gaurav Kumar Anant 20.09.2022 07HLYPK5759Q1ZK 21.11.2022 Enterprises
3 Rehman Khan Capital Steel 04.06.2022 07LCXPK6371G1ZR 10.02.2023 Work
4 Kapil Kumar KK Steels 07.11.2022 07KVZPK3173A1Z5 22.08.2023
5 Yogesh Kumar Kumar 31.10.2022 07JOVPK9317G1Z6 31.10.2022 International
In particular, in the case of Shri Yogesh Kumar, Kumar International, the GST registration was cancelled retrospectively from the very date of registration, which usually happened where the department found that the entity had been created only to issue fake bills and cancelled the GST number to prevent further misuse. Such short-lived or back-dated cancellations were typical of bogus-billing entities and confirmed that they were never meant to carry on genuine trade.
6.2.6In law, there was a long line of decisions where purchases proved to be bogus or routed through accommodation entries had been held disallowable, while only the profit element embedded in such bogus purchases was brought to tax to avoid double counting. Courts and Tribunals had consistently held that where material was actually procured from undisclosed/grey-market vendors and only bills were obtained from bogus entities, the entire purchase shown in the books could not be allowed, and an estimated percentage representing the benefit or extra profit to the assessee (such as savings in tax, non-incurrence of genuine expenses and inflation of purchase cost) must be added back.
6.2.7Applying these principles here, the facts clearly showed that the so-called suppliers were non-existent or non-compliant, their GST registrations were short-lived or cancelled from inception, they had no proper books or returns despite huge turnovers, funds were routed immediately to unrelated third parties, and none of them came forward to substantiate genuine trade in lead or related products.
6.2.8On the aspect of quantification, the AO did not disallow the entire purchases. Instead, following the settled “profit-element” method used in bogus-purchase cases, the AO relied on seized material from a comparable case in the same line of trade, where rates recorded in books (Tally) were compared with rates in handwritten slips of unbilled/grey-market deals, showing that unbilled sales were on average 3.27 per cent cheaper than billed sales. The rate comparison, inter alia, showed entries such as the following:
Rate as per Tally (Rs.) Rate as per Handwritten slip (Rs.) Difference in rates (Rs.) Difference in rates (%) 222 208.5 13.5 6.08% 215 212 3 1.40% 213 208 5 2.35% Average Rate 3.27% Taking an average difference of 3.27 per cent, the AO applied this rate only to the block of purchases held to be non-genuine. This method was reasonable and conservative, as it recognized that some real goods had been used but that the assessee had earned an extra margin by sourcing from the grey market while booking inflated bogus bills.
6.2.9The assessee failed to substantiate its claim of genuine purchases or to produce the real purchase parties, who were evidently bogus entities acting as accommodation-entry providers. In line with judicial practice in similar bogus-purchase cases, only the profit element of 3.27 per cent embedded in these non-genuine purchases was brought to tax, resulting in the addition of Rs. 3,92,10,256. On these facts, this addition was reasonable and is sustained.
6.3B. Addition: Rs. 12,22,519 : This amount represented 3.27% of the purchases shown from M/s Saraswati Spinning and Weaving Mills amounting to Rs. 3,73,85,920, and was brought to tax as additional profit embedded in bogus purchases. The assessee had routed substantial purchases through parties who were either non-filers of income-tax or had highly doubtful profiles, such as short-term / cancelled GST registrations, non-existence at their registered addresses and summons returned unserved. During enquiry and survey in the SSWM group, these parties were found to be part of a bogus-billing and accommodation-entry network. The assessee had not produced any key supplier or transporter for examination and had relied only on routine documents like invoices, e-way bills, ledgers, bank statements and GPS photos, which could easily be manufactured in such rackets and did not, by themselves, prove actual supply of goods. At the same time, it wasreasonably accepted that some raw material must have been used in business and sales had been recorded; therefore, instead of disallowing 100 per cent of the purchases, only the extra profit embedded in such grey-market purchases was estimated and added at Rs. 12,22,519, having regard to the following facts found in investigation:
(i)Most of SSWM’s own suppliers were found non-existent during field enquiry by the Inspector, as detailed in the show-cause notice.
(ii)Summons issued to a large number of those vendors were returned unserved.
(iii)Some vendors, such as Shri Amit Kumar Tyagi (Prop. M/s Bhumika Enterprises) and Shri AbhishekRana (Prop. M/s Nayak Enterprises), categorically denied having any transactions with SSWM in statements recorded under section 131(1A)
(iv)The GST registrations of many such entities were cancelled either suo-motu by the department or on the taxpayers’ own application.
(v)The HSN codes of several suppliers did not match the items allegedly supplied to SSWM, and entities dealing in items like pianos, rice or vegetable oil could not plausibly be suppliers of lead / lead alloy.
(vi)Manipulation of e-way bills was detected, as the payload capacity of vehicles and the weight of material transported were not in proportion.
(vii)Vehicle numbers mentioned in some e-way bills were found, on verification from the e-Vahan portal, to belong to two-wheelers or school buses which could not have carried the lead products, contrary to SSWM’s explanation.
(viii)In a search conducted by Central GST at SSWM’s factory, it was revealed that almost three-fourths of the suppliers in the suspicious chain had no stock and that many of them were non-existent at their declared GST addresses and had never carried out real business from those premises.
6.3.1In view of this overwhelming material, purchases in the name of SSWM and its network entities could not be treated as genuine, and consequently the assessee’s book -entries of purchases routed through SSWM were also tainted. The assessee was also found involved in similar issues in other related cases discussed in the assessment order, which further weakened its stand in the present matter. The estimation and addition of the profit element at Rs. 12,22,519 is therefore held to be justified and is sustained.”
The assessee is in appeal and has raised following grounds;
“1.Because The Learned Assessing Officer has erred in making an addition of Rs.12,22,519 on account of Alleged Additional Profit at the rate of 3.27 percent on alleged non genuine purchases of Rs 3,73,85.920 from M/s Saraswati Spinning and Weaving Mills.
2.Because The Learned Assessing Officer has erred in making an addition of Rs.3,92,10,256 by estimating the addition at the rate 3.27 percent on alleged non genuine purchase of Rs.119,90,90,424.
3.Because The Learned Assessing Officer has erred in presuming purchases of Rs.119,90,90,924 to be non-genuine merely on the basis of non-filing of ITR by the suppliers.
4.Because the Learned Assessing Officer has erred by illegally relying on facts and figures relating to proceedings in the case of M/s Saraswati Spinning and Weaving Mills although those facts and figures have no direct bearing to the case of appellant.
5.Because ire order appealed against is contrary to the facts, law and principles of natural justice. The appellant craves leave to add, DLEETE, modify OR substitute any OR all the grounds of appeal at any appropriate time.”
The contention of ld. Counsel of the assessee were the reassertion of the case of assessee as contested before ld. tax authorities below while ld. DR has opposed the same by submitting that the material on record sufficiently establishes the parties from which alleged purchases were made were non filers and non existing entities and therefore, the reason given by ld. CIT(A) are exhaustive and the same were relied.
After taking into consideration the facts and circumstances we find that assessee had filed all the basic document like copy of invoices e-way bills, bank statement KYC and other documents suppliers, transporters details, payment of toll tax, dharma kanta receipt loading and unloading pictures with CPS camera payment acknowledgment and GST return relating to all the purchases. Ld. tax authorities below have not found any discrepancy in these evidences or alleged that these evidences were fabricated. Ld. CIT(A) had discredited these evidences on a bald assertion that such evidence can be easily manufactured in such rackets. When ld. tax authorities do not dispute or doubt the revenue from operations and sales and intend to tax only extra profit embedded in grey market purchases then the same cannot be on the basis of mere suspicion and brushing aside the evidences of the assessee by alleging that such evidences are generally prepared for bogus purchases. We are of the considered view that case of bogus purchase to deny the expenditure as a whole and the case of purchases from grey market and too attributing profit percentage are required to be examined on different parameters with regard to probative value of the evidences of the assessee failed to establish the genuineness of the purchases. Furthermore, when such material evidence have been filed to establish genuineness of transaction and without any independent inquiry the evidences have to be rebutted the same should be not merely on the basis of suspicion but there should be some material so show that the purchases were otherwise available at lesser prices and thus establishing that sourcing from grey market by booking inflated bogus bills benefitted the assessee. Then in the present facts and circumstances we are of the considered view that assessee’s purchases were unreasonably doubted. Thus, we sustain the grounds and allow the appeal of the assessee and the impugned additions are deleted.