ITAT Ahmedabad Restricts Bogus Purchase Addition to 8% Profit Element in Ferrous Metals Trading Case
Case Overview
Pruthvi Singh Solanki Vs ITO (ITAT Ahmedabad)
Assessment Year: 2018-19
Tribunal: Income Tax Appellate Tribunal, Ahmedabad
The ITAT Ahmedabad delivered a significant ruling in the matter of Pruthvi Singh Solanki Vs ITO, partially allowing the assessee's appeal against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 09.12.2025, for Assessment Year 2018-19. The central question before the Tribunal was whether the Assessing Officer was justified in adding the entire purchase amount of Rs. 50,33,695 to the assessee's income on the ground that such purchases were bogus — or whether only the embedded profit element could be subjected to taxation.
Background and Facts of the Case
The assessee, an individual carrying on the business of trading in ferrous and non-ferrous metals under the trade name "Vinay Enterprises," found himself at the receiving end of a reopened assessment. The reopening was triggered by intelligence received through the Insight portal, which flagged that the assessee had engaged in purchase transactions with certain entities suspected of being paper companies or accommodation entry providers.
Upon examining the transactions during assessment proceedings, the Assessing Officer identified five such entities that were allegedly involved in issuing fictitious or bogus invoices. The total value of purchases made by the assessee from these entities aggregated to Rs. 50,33,695. Taking the view that these purchases were wholly fictitious, the AO proceeded to add the entire sum back to the assessee's taxable income. The CIT(A) subsequently upheld this addition without granting any relief to the assessee.
Grounds of Appeal Raised Before ITAT
The assessee preferred an appeal before the ITAT, Ahmedabad, raising the following grounds:
The learned CIT(A) has erred in confirming an addition of Rs. 50,33,695/- alleging bogus purchases without proper appreciation of the documents and evidence submitted by the appellant to learned assessing officer.
The learned CIT(A) erred in holding the transactions as accommodation entries merely on the basis of alleged discrepancies in transport documents and common transporters, without bringing any positive or independent evidence on record to establish that no goods were actually received by the appellant.
The learned CIT(A) failed to appreciate that the Assessing Officer neither rejected the books of account nor disputed the corresponding sales, stock records, or consumption of material, thereby rendering the addition of the entire purchase amount legally unsustainable.
The learned CIT(A) erred in relying upon third-party statements and general observations without providing the appellant an effective opportunity to cross-examine the persons whose statements were relied upon, in gross violation of the principles of natural justice.