When a Revenue authority proposes to treat purchases as bogus, the principles of natural justice require the disclosure of verification reports to the assessee; authorities must judiciously consider documentary evidence like GST records and banking trails rather than relying on blanket additions without evidence-based investigation.

आदेश / O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by order of first appeal dated 25.09.2024 passed by Commissioner of Income-tax (Appeal)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 20.12.2022 passed by Assessment Unit of Income-tax Department [“AO”] u/s 143(3) r.w.s. 144B of the Income tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2021-22, the revenue and assessee both sides have filed the captioned cross-appeals.

2. The background facts leading to these cross-appeals are as under:

(i) The assessee-individual is engaged in the business of iron scarp. For AY 2021-22, the assessee filed return declaring a total income of Rs. 9,13,720/-. The case of assessee was selected for scrutiny for verification of transactions. The AO issued statutory notices u/s 143(2), 142(1) and show-causes notices but most of the notices remained uncompiled by assessee except that in response to two notices, the assessee filed part-replies. The details of such notices are mentioned by AO in Para 2 of assessment-order. Ultimately, the AO passed following order making a disallowance of Rs. 9,10,39,185/- equivalent to entire 100% purchases made by assessee from 6 suppliers treating the same as bogus purchases. The relevant portion of order passed by AO is re-produced below for an immediate reference:

“3. Variation proposed:-

As per information available on record the assessee has shown purchases from certain parties who have not filed their income tax return for period under consideration. In this regard, physical verification was made through Verification Unit of the following parties:-

3.1 The Verification Unit after making physical verification reported that the above mentioned entities do not exists at the given addresses or have left the premises. Out of the above six person, only notice u/s 133(6) could be served upon one person i.e. the wife of Sh. Pankaj Kapoor prop. M/s Inder Enterprises on 01.12.2022 and he was asked to furnish his reply through online portal but till date no information has been supplied. The assessee was confronted in this regard by issue of show cause notice dated 09.12.2022 for 12.12.2022 & 14.12.2022 & 18.12.2022 respectively.

4. In response to the show cause notice, the assessee could not furnish any explanation. From the field enquires it is gathered that the assessee has shown purchases from those parties who have not filed their income tax return for A.Y. 2021-22 and are not existing at their addresses, which prove that the assessee has shown bogus purchases to decrease his actual profit. As the assessee has failed to furnish any explanation w.r.t. the show cause notice dated 14.12.2022, an amount of Rs. 9,10,39,185/- shown as bogus purchases is hereby added to the income of the assessee and penalty proceedings under section 270A of the I.T. Act are also being initiated separately for under reporting of the income. (Addition of Rs. 9,10,39,185/-)”

(ii) Aggrieved, the assessee carried matter in first-appeal before CIT(A). The assessee made detailed submission which is re-produced by CIT(A) in Para No. 4 / Pages 3 to 6 of impugned o