ITAT Ahmedabad: General Admission of Accommodation Entries by Seller During Survey Cannot Validate Bogus Purchase Addition u/s 69C

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, recently delivered a significant ruling in the case of Espee Pharma Chem Pvt. Ltd. Vs ITO, addressing the contentious issue of additions made under Section 69C of the Income Tax Act regarding alleged bogus purchases. The Tribunal held that a general admission made by a seller during a survey proceeding—stating they provided accommodation entries—cannot be the sole basis to penalize the purchasing assessee, especially when the latter has furnished robust documentary evidence substantiating the transaction.

Case Background and Reassessment Proceedings

The dispute arose from the assessment order for the Assessment Year (A.Y) 2019-20. The assessee, a private limited company, had filed its return of income declaring a total income of Rs. 2,98,50,300.

Subsequently, the Revenue authorities initiated reassessment proceedings under Section 147 of the Income Tax Act. This action was triggered by information flagged on the Department's "Insight Portal," which indicated that the assessee was a beneficiary of bogus purchases amounting to Rs. 42,95,000 from an entity named M/s. Biotavia Labs Private Limited.

Based on this intelligence, the Assessing Officer (AO) issued a notice under Section 148 on April 19, 2023. During the assessment proceedings, the AO remained unconvinced by the submissions made by the assessee. The Revenue's stance was heavily reliant on a survey conducted at the premises of the seller, M/s. Biotavia Labs Pvt. Ltd., where a key person, Shri Alkesh Bhavsar, had admitted that the entity was engaged in booking bogus sales/purchases without actual movement of goods.