Delhi ITAT Holds Purchases and Sales with RCI Industries Genuine; Deletes Additions Under Sections 69C, 69A and 115BBE

1. Background and Context

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) adjudicated a cluster of appeals filed by the Revenue and corresponding cross-objections by Bonlon Industries Ltd. The dispute related to alleged bogus purchases and sham sales routed through RCI Industries & Technologies Ltd., and consequential additions under Section 69C, Section 69A and application of Section 115BBE of the Income Tax Act 1961.

The matters arose from reassessment proceedings for:

  • Assessment Year 2018-19 – addition of ₹9.16 crore by estimating 12.5% of purchases from RCI Industries as bogus.
  • Assessment Year 2019-20 – additions aggregating more than ₹32.33 crore on account of alleged bogus purchases and unexplained money involving both Bonlon Industries Ltd. and amalgamated entity Smita Global Pvt. Ltd.

The common thread in all years was the Revenue’s reliance on:

  • Investigation material relating to RCI Industries,
  • Retrospective cancellation of RCI’s GST registration,
  • Non-response or partial response to notices, and
  • Alleged deficiencies in supporting documents such as transport papers and confirmations.

The assessee, in contrast, consistently produced detailed commercial and statutory evidence to demonstrate that all purchases and sales with RCI Industries were genuine business transactions duly recorded, taxed, and reflected in stock and bank records.

The ITAT, after reviewing the detailed findings of the CIT(A)/NFAC and hearing both sides, upheld the deletion of additions for both years and dismissed the Revenue’s appeals. The assessee’s cross-objection for A.Y. 2018-19 was treated as academic.

2. A.Y. 2018-19 – Alleged Bogus Purchases and 12.5% Profit Addition

2.1 Reopening and Assessment Proceedings

For A.Y. 2018-19, Bonlon Industries Ltd., engaged in manufacturing and trading of non-ferrous metals (primarily copper wires and rods), had:

  • Filed its return of income on 29.11.2018 declaring Nil income and claiming a refund of ₹1,20,610, which was processed under Section 143(1) on 24.05.2019.

Information later surfaced through departmental channels alleging that Bonlon had obtained bogus purchases from RCI Industries & Technologies Ltd. during F.Y. 2017-18. Based on this material, the Assessing Officer (AO) reopened the assessment:

  • Notice under Section 148 issued on 31.03.2022,
  • Further notices under Section 143(2) and Section 142(1) followed,
  • Assessment was finally framed under Section 147 read with Section 144B on 19.05.2023.

The AO treated purchases from RCI Industries amounting to ₹73,32,84,161 as accommodation entries and made an estimated addition of 12.5%, i.e. ₹9,16,60,520, as suppressed profit on alleged bogus purchases, while accepting the remaining 87.5% as genuine.

2.2 Assessee’s Position Before CIT(A)

In the appellate proceedings, the assessee explained that its total purchases for the year were ₹247,93,48,111, including purchases from RCI Industries of ₹73,32,84,161, and total sales of ₹241,92,66,934 as disclosed in the profit and loss account.

The assessee emphasised:

  • Books of account were never rejected under Section 145(3).
  • Sales were fully accepted; thus, it was commercially impossible to sell goods without corresponding genuine purchases.
  • Complete supporting evidence was produced for purchases from RCI Industries, including:
    • Purchase invoices,
    • E-way bills,
    • Transport receipts,
    • Stock registers (maintained invoice-wise),
    • GST returns,
    • Bank statements reflecting payments through banking channels,
    • Confirmations from RCI Industries,
    • Party-wise and quantity-wise purchase and sales reconciliation.

It was also stressed that:

  • RCI Industries was a listed company on BSE during the relevant years with substantial turnover and profits, subsequently admitted to Corporate Insolvency Resolution Process (CIRP) by the Hon’ble NCLT, New Delhi Bench-III vide order dated 25.11.2022.
  • Once RCI entered CIRP, all statutory communications ought to have been directed to the Resolution Professional (RP). The AO, however, issued notice under Section 133(6) to the corporate debtor instead of the RP and then drew adverse conclusions because there was no response.
  • Similar transactions with RCI during the same period had been accepted as genuine by the Department in other cases, specifically:
    • Captain Industries, PAN AAFFC0006K, order of NFAC dated 23.03.2023;
    • Myco Electricals Private Limited, PAN AAACM1868P, NFAC order dated 09.03.2023.

The assessee further pointed out that:

  • Cancellation of RCI’s GST registration occurred only pursuant to notice dated 21.02.2023 with effect from 01.07.2017, and the actual cancellation order was passed on 21.02.2023. During F.Y. 2017-18 relevant to A.Y. 2018-19, the GST registration was in force and input tax credit (ITC) was allowed by the GST authorities.
  • A purchase transaction cannot logically be partly genuine and partly bogus when supported by the same set of documents and integrated into the same stock and sales records.

Before the CIT(A), the assessee also raised an additional legal ground challenging the validity of the notice under Section 148 in light of:

  • Section 151A and
  • CBDT Notification No. 18/2022 dated 29.03.2022,

relying on the Supreme Court’s decision in ADIT vs. Deepanjan Roy dated 16.07.2025 which held that faceless issuance of notice under Section 148 is mandatory.

The CIT(A) accepted this additional ground and held the assessment order dated 19.05.2023 to be null and void, but nevertheless proceeded to adjudicate the addition on merits as well.

Notably, in the Revenue’s appeal before the ITAT, no ground was raised challenging this jurisdictional finding of the CIT(A).