ITAT Nagpur Deletes Bogus Purchase Addition Based Solely on Sales Tax Information

Background of the Dispute

This matter involves an assessee engaged in the business of electrical items through a sole proprietorship concern, M/s. Vaidehi E-Link (earlier known as M/s. PHP Electrical Services). For Assessment Year 2009-10, the assessee’s gross turnover stood at ₹1,78,71,045/-, with total purchases of ₹12,66,205/-.

The dispute centred on a disallowance of purchases amounting to ₹35,48,955/- made from two Mumbai-based concerns:

  • Purchases of ₹30,63,269/- from M/s. P.M. Trading Company, Mumbai
  • Purchases of ₹4,85,686/- from M/s. Reliance Metal Alloy, Mumbai

The Revenue authorities treated these purchases as non-genuine (bogus) primarily on the basis of information received from the Sales Tax/VAT authorities that these suppliers were “suspicious dealers” who had not deposited VAT collected from customers.

Procedural History

Original Return and First Assessment

  1. The assessee filed the return of income on 30.09.2009, declaring total income of ₹13,31,090/-.
  2. The assessment was completed u/s. 143(3) on 27.01.2015.
  3. During this assessment, the Assessing Officer (AO) disallowed purchases of ₹35,48,955/-, alleging that the transactions with M/s. P.M. Trading Company and M/s. Reliance Metal Alloy were bogus.

The key basis for treating the purchases as non-genuine was:

  • Sales Tax Department’s information that these vendors were defaulting/“suspicious” dealers, and
  • Non-availability of lorry receipts/transport documents.

The assessee’s appeal before the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] failed in the first round.

First Round Before ITAT

The matter was then carried to the Income Tax Appellate Tribunal (ITAT). By order dated 10.01.2017, the Tribunal did not straightaway decide on the genuineness of the purchases; instead, it restored the matter to the file of the Jurisdictional Assessing Officer (JAO) with a direction to re-examine the assessee’s submissions and verify the factual aspects.

Second Round of Assessment u/s 143(3) r.w.s. 254

In the second round, assessment proceedings were taken up u/s. 143(3) r.w.s. 254. The assessee produced:

  • Details of goods purchased
  • Registration details of the vendors under MVAT
  • Tax invoices with VAT charged
  • Delivery particulars and lorry registration numbers noted on invoices
  • Ledger accounts for the vendors
  • Proof of payments through regular banking channels

Despite this, the AO repeated the earlier addition, again disallowing the same quantum of purchases of ₹35,48,955/-, citing:

  • Absence of lorry receipts and independent transportation documents
  • Non-response from the said suppliers to summons/notices

The AO ultimately assessed the income at ₹49,00,050/-.

Appeal Before CIT(A) in Second Round

The assessee again approached the CIT(A), contending that all primary evidences had been furnished and that the disallowance was unjustified.

However, the CIT(A) confirmed the addition on the grounds that:

  • The assessee could not produce lorry receipts or other transport documents, and
  • The alleged suppliers did not appear before the AO, nor did they respond to notices.

Delay in Second Appeal Before ITAT

The assessee then filed a further appeal before the ITAT against the order of the CIT(A)/NFAC dated 30.04.2025. There was a delay of 100 days in filing this appeal. An application for condonation of delay along with an affidavit explaining the reasons was filed.

The Departmental Representative (DR) opposed condonation.

The Tribunal examined the affidavit and found that:

  • There was a reasonable cause for the delay.
  • The delay was not deliberate or with any intention to gain undue advantage.

Relying on judicial guidance from:

  • Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. [(1987) 2 SCC 107], and
  • Inder Singh Vs. State of Madhya Pradesh (judgment dated 21.03.2025, 2025 INSC 382),

the ITAT adopted a justice-oriented approach and condoned the 100-day delay, admitting the appeal for adjudication.

Core Issue Before ITAT