TaxTMI 
TaxTMI 
2026 (5) TMI 1416
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....er of Income Tax (Appeals) is not justified in refusing to admit the additional evidence filed under Rule 46A of the Income Tax Rules, 1962. 3. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs. 11,14,24,795 made by the assessing officer towards alleged bogus purchases. 4. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs. 16,76,868 made by the assessing officer towards ad-hoc disallowance @ 50% of the labour charges claimed. 5. Any other ground that may be urged at the time of appeal hearing." 2. Succinctly stated, the assessee company, which is engaged in the business of construction of infrastructure and commercial projects, had filed its return of income for AY 2021-22, declaring an income of Rs. 2,04,50,850/-. Thereafter, the case of the assessee company was selected for scrutiny assessment to verify substantial purchases made from suppliers who were either non-filers, or had filed non-business income tax returns, or had reported substantially low turnover in their respective returns of income. 3. During the course of the assessment proceedings, th....
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....al works. 5. Coming to the issue in hand, i.e., the subject purchases that were claimed to have been made from the aforesaid parties, it was submitted that, as the assessee company, being a sub-contractor of M/s. UDPL had lower profit margins; therefore, it sought to reduce operating costs by cutting materials, labor, or overhead. Elaborating further on its contention, it was submitted that the assessee company was introduced to suppliers based in Delhi by some middlemen, who had offered to supply the required materials for executing the aforesaid sub-contract at a discounted and competitive price, i.e., 20% to 26% lower than the local market price. It was submitted that the assessee company, which was in its nascent stage and had inexperienced staff, had remained under a bona fide belief and had trusted the said arrangement carried out through the aforementioned middlemen. The assessee company submitted that the middlemen had assured that the goods would be supplied for six months. It was further assured that the goods, which were lying in different stockyards and warehouses of the suppliers, would be dispatched subsequently. It was submitted that, as the assessee company had f....
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.... filed its return of income, but the facts pertaining to the remaining 12 parties revealed a different story wherein either the said parties were not found to be operating from the respective addresses or denied any financial transactions with the assessee company or were found to have not filed their returns of income for the last many years and had their GST registrations cancelled. Accordingly, the AO, based on the facts gathered by the AO (Verification Unit), though accepted the purchases of Rs. 67,74,688/- claimed by the assessee company to have been made from M/s. Harsh Infra Projects, but for the remaining parties, observed that the assessee company had claimed that, as no material was supplied by them, the entries initially made based on their respective invoices were reversed and nullified. 8. The AO, after necessary deliberations, concluded that out of the total purchases of Rs. 11,81,99,483/- that the assessee company had claimed to have made from 17 parties except for one party, i.e., M/s. Harsha Infra Projects, which had replied to the notice issued under section 133(6) of the Act, the purchases from the remaining parties aggregating to Rs. 11,14,24,795/- were bogus....
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....Rs. 13,35,52,513/-. 12. Aggrieved, the assessee company carried the matter in appeal before CIT(A) but failed on both issues. For the sake of clarity, the observations of the CIT(A) are culled out as under: "7.1 In this case, the appellant has placed substantial reliance on documents, records, and submissions in its support. Accordingly, the appeal is adjudicated on merits based on materials available on record and submissions. 7.2.1 Ground No. 1: The appellant has raised a general ground that the order passed by the Assessing Officer is contrary to the facts of the case and to the law applicable thereto. It is claimed that the Assessing Officer ignored submissions and details filed during the assessment proceedings and wrongly concluded that the purchases and labour expenses were not genuine. 7.2.2 I have carefully considered the assessment order, the grounds of appeal, and the material available on record. This ground is general in nature and does not point out any specific factual error or legal infirmity in the assessment order. The Assessing Officer has completed the assessment after issuing statutory notices under sections 143(2) and 142(1), call....
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.... sufficient cause from producing the evidence before the Assessing Officer, or where the Assessing Officer made the order without giving sufficient opportunity. In the present case, the assessment records clearly show that the Assessing Officer had issued multiple notices under sections 142(1) and 143(2) specifically calling for details of purchases, supporting evidences, and reconciliation of accounts. Despite such opportunities, the appellant failed to furnish the requisite documents during the assessment stage. 7.3.4 The reason advanced by the appellant, namely "time constraint, is vague and cannot be regarded as a sufficient cause for failure to comply with repeated statutory notices. No material has been placed on record to demonstrate that the appellant was prevented by circumstances beyond its control from producing the evidences earlier. 7.3.5 Accordingly, I hold that the conditions prescribed under Rule 46A for admission of additional evidence are not satisfied in this case. The petition for admission of additional evidence is therefore rejected. The matter is adjudicated on the basis of the material available on record. 7.3.6. In view of the abo....
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....in why no payments were ever made to the parties despite purported purchase commitments running into several crores. Even assuming arguendo that some payments had indeed been made, the appellant's contention would still not be acceptable in the absence of contemporaneous corroboration such as delivery records, transport documentation, or confirmations from suppliers. Moreover, no clear party-wise reconciliation has been furnished to link the alleged reversal entries with the amounts actually debited to or claimed in the Profit & Loss Account. In the absence of such credible and verifiable material, the documents filed at this stage cannot be relied upon to displace the findings of the Assessing Officer. 7.3.10 It is a settled principle that the onus lies upon the assessee to establish the genuineness of purchases recorded in its books of account. Mere book entries or subsequent reversals, unsupported by delivery challans, transport documents, supplier confirmations, or bank statements, cannot substantiate the reality of transactions of such magnitude. The explanation of reliance on middlemen is also unconvincing, since no agreements, correspondence, or particulars of s....
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....s wholly and exclusively incurred for business. Mere vouchers prepared internally and unsupported by third-party or statutory records cannot be treated as sufficient evidence. In the present case, the absence of independent corroboration justifies the conclusion that the claim was inflated and unverifiable. The Assessing Officer, taking a reasonable view, disallowed only 50% of the claim rather than the entire amount, thereby giving partial relief to the appellant. 7.4.4 It is further noted that in cases where the Assessing Officer is unable to fully verify the genuineness of an expenditure due to lack of adequate supporting records, it is settled law that a reasonable estimate may be made based on the facts and circumstances of the case. In the present case, instead of disallowing the entire claim, the Assessing Officer restricted the disallowance to 50% of the labour charges. This approach is fair, balanced, and based on reasonable estimation, particularly given the appellant's failure to maintain statutory registers or independent corroborative evidence. Hence, the disallowance sustained cannot be said to be arbitrary or excessive. 7.4.5 Considering the fac....
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....sessee company, aggrieved with the order of the CIT(A), has carried the matter in appeal before us. 14. We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below, and the material available on record. 15. Shri GVN Hari, Advocate, the Learned Authorized Representative (for short, "Ld. AR") for the assessee company, at the threshold of hearing of the appeal, submitted that both the authorities below had grossly erred in misconstruing the facts which had resulted in the impugned addition in the hands of the assessee company. Elaborating on his contention, the Ld. AR submitted that though it has been the claim of the assessee company since inception that the impugned purchases of Rs. 11,07,65,220.75 (out of Rs. 11,14,24,795.19) which based on the invoices received from the aforementioned 11 parties were initially debited to its "Profit & Loss account", but thereafter, when no goods were received from them the said respective parties, the said entries were reversed, and, thus, no claim for deduction of the impugned purchases was raised in the "Profit & Loss account" that was filed by the assessee company along with its return....
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....low have rightly made/sustained the addition of the bogus purchases. The Ld. CIT-DR submitted that it is incomprehensible that the assessee company would book purchases of a substantial amount of Rs. 11.14 crores (supra) without any actual receipt of goods, and thereafter reverse the same in its books of accounts. It was further submitted by him that the fact that the bogus purchases of Rs. 11.14 crores (supra) are debited either under the purchases head or as an expenditure under any other nomenclature disclosed by the assessee company in its "Profit & Loss account" for the subject year cannot be ruled out. 18. Apropos, the disallowance of 50% of labor charges of Rs. 16,76,868/- by the AO, the Ld. CIT-DR submitted that as the assessee company had failed to lead any evidence/material to substantiate the authenticity of the aforesaid claim for expenditure, therefore, both the lower authorities had rightly made/sustained the disallowance of 50% of its claim for deduction of the labor charges. The Ld. CIT-DR submitted that the assessee company's claim that it had engaged daily laborers who were picked up from local sites, wherever available, for the completion of the project pr....
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....tained by the CIT(A). 22. In our view, the conduct of the assessee company of having refunded the GST along with interest as per order of the Joint Director of Directorate of GST (Intelligence), dated 14/03/2024, and reversed the purchase entries aggregating to Rs. 11.07 crores (supra) w.r.t purchases claimed to have been made from the aforementioned parties after selection of its case for scrutiny assessment vide notice issued under Section 143(2) of the Act, dated 28/06/2022 raises serious doubts about the genuineness of its said claim. In our view, it is incomprehensible that the assessee company would have debited purchases to the value of Rs. 11.07 crores based on invoices received from the subject 11 parties without any actual supply of goods, and thereafter, on learning that the same were bogus parties, reversed the corresponding purchase entries. At the same time, we principally concur with the Ld. AR that if the amount of the impugned purchases of Rs. 11.07 crores (supra) pertaining to the aforementioned 11 parties that was initially debited in its books of accounts had thereafter been reversed and thus, not claimed as a deduction in its books of accounts, there could b....
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.... company is directed to substantiate the purchase of Rs. 12.57 crores (supra) by placing on record the confirmations of the respective parties. In case the claim of the assessee company that the purchases of Rs. 11.07 crores (supra) do not form part of the purchases of Rs. 12.57 crores (supra), debited in its Trading, Profit & Loss account for the year under consideration or under any other head of expenditure, then, the AO shall vacate the impugned addition made by him. We say so because, if it is established that the assessee company had not claimed a deduction of Rs. 11.07 crores (supra) either under the head purchases or under any other head of expenditure, there can be no justification for disallowing the said amount, which had never been claimed as a deduction. Also, we direct the AO to carry out further verifications, which he may deem fit, to his satisfaction, in order to arrive at the correct factual position. 25. Apropos, the purchases of Rs. 6,53,030/- (supra), which the assessee had claimed to have genuinely made from the aforementioned parties, we are of the view that after considering the totality of the facts involved in the case before us, which undeniably raises....