ITAT Chandigarh Deletes Bogus Purchase Addition: GST Records, E-Way Bills and Stock Tally Held Sufficient to Establish Genuineness of Transactions
Background and Overview
The Income Tax Appellate Tribunal, Chandigarh Bench, recently delivered a significant ruling in Gaurav Singhi Vs ITO, disposing of cross appeals filed by both the assessee and the Revenue for Assessment Year 2021–22. The case revolved around a fundamental question that recurs frequently in income tax proceedings — whether purchases can be branded as "bogus" solely on the basis that certain suppliers either denied making sales or failed to respond to notices, particularly when the assessee's books of accounts remain intact, stock records are maintained meticulously, and corresponding sales are not questioned.
The Tribunal's ruling provides important clarity on the evidentiary standards applicable in bogus purchase cases and reaffirms principles that protect assessees who maintain proper documentation and transact through legitimate channels.
Facts of the Case
The assessee, Gaurav Singhi, operates as the proprietor of Pragatie Steels, a trading enterprise dealing in various categories of scrap material. The assessee had filed the return of income for Assessment Year 2021–22 on the basis of fully audited books of accounts. Additionally, complete day-to-day stock records reflecting different types of scrap purchases and corresponding sales were maintained and made available during proceedings.
Findings by the Assessing Officer
During the course of assessment, the Assessing Officer identified concerns regarding certain suppliers from whom purchases had been made. Specifically:
- Notices were issued under
Section 133(6)to several suppliers. - Two suppliers — Sh. Kapil Kidar Tirpude, proprietor of Rama Traders, and Sh. Amit Arora, proprietor of M/s Panna Enterprises — responded to the notices by categorically denying any transactions with the assessee or his establishment.
- Purchases from these two parties aggregated to Rs. 5,37,21,989/–.
- A separate set of suppliers from whom purchases worth Rs. 5,39,57,562/– were made had not filed their income tax returns and had not provided their email IDs, creating doubts in the Assessing Officer's view about the genuineness of those transactions.
On this basis, the Assessing Officer:
- Disallowed entirely the purchases from Sh. Kapil Kidar Tirpude and Sh. Amit Arora — amounting to Rs. 5,37,21,989/–.
- Disallowed 25% of purchases from the other group of doubtful parties amounting to Rs. 5,21,52,513/–, working out to Rs. 1,30,38,078/–.
- Made a total addition of Rs. 6,67,60,067/– to the returned income.
Submissions Before the Assessing Officer
The assessee had furnished extensive documentation before the Assessing Officer, including:
- Ledger accounts of all suppliers in the assessee's books
- Bank statements evidencing payments made exclusively through banking channels
- Purchase invoices
- E-way bills demonstrating movement of goods
- Lorry receipts, toll receipts, and transportation documents (Kanda Parchi)
- Affidavits from drivers confirming no tax deduction
- GST registration status of all suppliers on the GST portal
Despite these submissions, the Assessing Officer proceeded with the additions as detailed above.
CIT(A)'s Order
Before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, the assessee reiterated the documentary evidence and argued that sales could not logically occur without corresponding purchases, and that rejecting part of the purchases while accepting the totality of sales was fundamentally inconsistent.
The CIT(A) agreed that the purchases could not be treated as entirely bogus and that disallowing the full quantum merely on the basis of Section 133(6) enquiries was not tenable. However, the CIT(A) held that:
- The transactions were not fully verifiable.
- The correctness of pricing could not be accepted outright.
- The purchases may have been made from grey market sources without proper billing, or may have been over-invoiced.