Pranav B Prem

The Mumbai Bench of the Income Tax Appellate Tribunal has held that mere non-filing or alleged irregular filing of income tax returns by suppliers is not sufficient to treat purchases as bogus. Upholding the order of the Commissioner of Income Tax (Appeals), the Tribunal dismissed the Revenue’s appeal and confirmed the deletion of an addition of ₹25.55 crore made on account of alleged non-genuine purchases.

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The Bench comprising Vikram Singh Yadav (Judicial Member) and Kavitha Rajagopal (Accountant Member) was dealing with an appeal filed by the Revenue for Assessment Year 2021–22 against M/s Everest Food Products Pvt. Ltd., a company engaged in the manufacture, trading and sale of masala and spices under the brand name “Everest”. The assessee had filed its return of income declaring income exceeding ₹517 crore, and the case was selected for scrutiny under CASS on the ground that substantial purchases were made from suppliers who were allegedly non-filers of income tax returns or had reported lower turnover.

During the course of assessment, the Assessing Officer alleged that purchases amounting to about ₹55.55 crore made from four suppliers were non-genuine. Instead of disallowing the entire amount, the Assessing Officer applied a gross profit rate of 45.73 per cent on the alleged bogus purchases and made an addition of ₹25.55 crore. The allegation was primarily based on the premise that some of the suppliers had not filed income tax returns or had not audited their accounts despite having substantial turnover.

On appeal, the CIT(A) deleted the addition after recording detailed factual findings. It was noted that the assessee had furnished extensive documentary evidence to substantiate the purchases, including ledger accounts, purchase invoices, goods receipt notes, e-way bills, transportation documents, weighbridge slips, quality testing reports and bank statements evidencing payments made through banking channels. The CIT(A) also observed that input tax credit in respect of the purchases had been allowed under GST law, indicating that the suppliers were regularly filing GST returns. It was further noted that three out of the four suppliers were not “specified persons” under Sections 206AB and 206CCA, which implied that they had filed their income tax returns for the relevant assessment year. The books of account of the assessee were duly audited and no adverse findings had been recorded by the auditors.

The CIT(A) held that non-filing of income tax returns by suppliers, by itself, could not be a ground to treat purchases as non-genuine, particularly when consumption of raw material and corresponding sales were not disputed by the Assessing Officer. The appellate authority further noted that the Assessing Officer had not established that the suppliers were fictitious entities or accommodation entry providers.

Aggrieved by the relief granted, the Revenue carried the matter in appeal before the Tribunal. The Revenue contended that the assessee had failed to prove the genuineness of the purchases and relied on decisions of the Bombay High Court to argue that profit element could be added in cases of doubtful purchases. The assessee, on the other hand, supported the order of the CIT(A) and pointed out that the Assessing Officer had neither rejected the books of account nor disputed the documentary evidence placed on record, and had also accepted the corresponding sales.

After considering the rival submissions and perusing the material on record, the Tribunal found no infirmity in the order of the CIT(A). It observed that the Assessing Officer had not carried out any independent enquiry to establish that the suppliers were bogus or were merely accommodation entry providers. The Tribunal emphasized that the Revenue had accepted the sales corresponding to the alleged purchases and had not found any defect in the supporting documents furnished by the assessee. It was also noted that no adverse finding had been recorded regarding the existence of the suppliers or the actual receipt of goods.

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The Tribunal reiterated the settled legal position that an assessee’s obligation is limited to proving that the expenditure was incurred wholly and exclusively for the purposes of business. The assessee cannot be expected to ensure tax compliance by its suppliers. It further observed that additions on account of alleged bogus purchases cannot be sustained solely on the ground that suppliers have not filed income tax returns, especially when the transactions are supported by documentary evidence and the corresponding sales are accepted. In view of these findings, the ITAT dismissed the Revenue’s appeal and upheld the deletion of the ₹25.55 crore addition made by the Assessing Officer.

Cause Title: ACIT Versus M/s. Everest Food Products Pvt. Ltd.

Case No.: ITA No.3988/Mum/2025

Coram: Vikram Singh Yadav (Judicial Member) and Kavitha Rajagopal (Accountant Member)