Delhi ITAT on Bogus Purchases: Addition Restricted to 6% of Purchase Value

The Delhi Bench of the Income Tax Appellate Tribunal, in the case of Arham Iron Ltd. Vs ITO (ITAT Delhi), has held that where the Revenue accepts the assessee’s sales and the business profile indicates genuine movement of goods, it is not justified to treat the entire purchase amount as unexplained expenditure under Section 69C. Instead, only the profit element embedded in the impugned purchases is liable for addition.

In this case, the Tribunal confined the disallowance to 6% of the alleged bogus purchases from M/s Siddhi Ganesh Industries, while specifically clarifying that this was a fact-specific determination and should not be treated as a binding precedent in all similar matters.

Background of the Dispute

Reopening and Assessment Proceedings

  • The matter pertained to Assessment Year 2019-2020.
  • Proceedings were initiated under Section 147 of the Income Tax Act 1961.
  • The assessment order dated 28.02.2025 treated certain purchases as bogus and made an addition under Section 69C.
  • The order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi [“CIT(A)/NFAC”] bearing DIN and order no. ITBA/NFAC/S/250/2025-26/1085063969(1) dated 22.01.2026 upheld the Assessing Officer’s (AO’s) view.

The assessee carried the matter in appeal before the Delhi ITAT challenging the confirmation of the addition.

Nature of Business and Disputed Purchases

  • The assessee, Arham Iron Ltd., was engaged in wholesale trading of iron and steel.
  • The controversy centered on purchases amounting to ₹75,53,225 from M/s Siddhi Ganesh Industries.
  • The AO concluded that these purchases were non-genuine and treated the entire amount as unexplained expenditure under Section 69C.
  • Despite the allegation of bogus purchases, the corresponding sales were not doubted by the Revenue at any stage.

The assessee’s case focused on this inconsistency: while purchases were disbelieved, the sales based on these very purchases were accepted as genuine.

Proceedings before the ITAT

Ex-Parte Hearing

When the appeal was listed before the Delhi ITAT, the case was called out twice. No one appeared on behalf of the assessee. The Tribunal therefore decided to proceed ex-parte, based on the material available on record and arguments advanced by the Departmental Representative.

Core Ground in Appeal

The assessee’s sole substantive ground in this appeal was directed against:

  • The treatment of purchases of ₹75,53,225 from M/s Siddhi Ganesh Industries as bogus; and
  • The consequential 100% disallowance of such purchases under Section 69C, as sustained by the CIT(A)/NFAC.

The assessee effectively contested the quantum of the addition, given that: