Gujarat High Court Upholds Deletion of Rs. 5.04 Crore Bogus Purchase Addition — AO Failed to Discharge Burden of Proof

Case Overview

PCIT Vs Sunil Devkishan Panwar (Gujarat High Court)

The Gujarat High Court, while adjudicating a Revenue appeal under Section 260A of the Income Tax Act, 1961, examined whether the Income Tax Appellate Tribunal was justified in upholding the deletion of an addition of Rs. 5,04,80,000/- alleged to represent bogus purchases — pertaining to Assessment Year 2012–13.

The case presents a significant precedent on the evidentiary obligations of an Assessing Officer when making additions on the basis of third-party investigation reports, particularly where the assessee maintains complete books of accounts and has fulfilled all statutory compliance obligations.

Background and Factual Matrix

Return Filing and Initial Assessment

The assessee filed his return of income for AY 2012–13 on 30.09.2012, declaring income of Rs. 9,90,170/-. The case was picked up for scrutiny, and the Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961 on 18.03.2015, determining the total income at Rs. 16,77,080/-.

Reassessment Proceedings

Subsequently, the Investigation Wing, Mumbai forwarded information pertaining to the assessee's alleged transactions with M/s. Keshav Impex — an entity reportedly operating as an accommodation entry provider under the control of one Shri Anil Babubhai Chokhara. Acting on this information, a notice under Section 148 of the Act was issued to the assessee on 30.03.2019, triggering reassessment proceedings.

The reassessment was completed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 on 18.11.2019, whereby the total income of the assessee was reassessed at Rs. 5,21,57,080/- — incorporating the disputed addition of Rs. 5,04,80,000/- on account of alleged bogus purchases from M/s. Keshav Impex.

Contentions of the Revenue

The Revenue, represented by Senior Standing Counsel Mr. Sanghani, raised the following core arguments before the High Court:

  • The assessee had transacted with Shri Anil Babubhai Chokhara, proprietor of M/s. Keshav Impex, who was found to be running a commission-based accommodation entry operation
  • Investigation conducted by the Investigation Wing, Mumbai established that M/s. Keshav Impex was not engaged in any genuine diamond trading activity and was merely providing accommodation entries in its books
  • The assessee was identified as one of the beneficiaries of the scheme, allegedly routing unaccounted money through the said entity
  • The assessee had not disputed having conducted transactions with M/s. Keshav Impex
  • Payments made through banking channels alone cannot be treated as sufficient proof of the genuineness of underlying transactions
  • Additional documentary evidence submitted by the assessee during appellate proceedings was never sent to the Assessing Officer for verification, nor was any remand report called for
  • The deletion of 100% of the alleged bogus purchases was unjustified in the absence of the assessee having proven the genuineness of the expenditure

The Revenue framed four substantial questions of law before the High Court, all essentially converging on the central issue of whether the concurrent deletion of the addition by the CIT(A) and the ITAT was legally sustainable.