Case 1: M/s KDP Infrastructure Private Limited v. DCIT-ITAT Delhi | ITA No. 1094/Del/2024 | Order dated 12.12.2025

Case 2: ACIT, Circle-1 v. Taparia Tools Ltd., Nashik-ITAT Pune | ITA No. 1337/PUN/2025 | Order dated 10.12.2025

1. Comparison of Facts

In KDP Infrastructure, the allegation of bogus purchases was founded exclusively on information received from the Investigation Wing regarding a single supplier, M/s Bhawani Enterprises, alleged to be an entry provider. The purchases were fully recorded in the assessee’s books of account, payments were made through RTGS from disclosed bank accounts, and the expenditure was debited to the profit and loss account. There was no allegation of excess stock, discrepancy in consumption, suppression of sales or inflation of project costs. The assessee’s business results and accounting framework were otherwise accepted.

In Taparia Tools, the allegation arose from large-scale purchases amounting to approximately ₹87.64 crore from M/s Sharp King Trading Pvt. Ltd., which constituted nearly the entire turnover of the supplier. The Revenue relied on abnormal financial ratios of the supplier, negligible freight and operating expenses, lack of transportation documents and adverse findings in the supplier’s assessment. However, the assessee produced purchase invoices, delivery challans, stock records, banking trail and subsequent GST investigation material indicating actual supply of goods.

Common factual thread:

In both cases, purchases were recorded in the books and payments were routed through banking channels.

Key factual distinction:

KDP involved no dispute regarding stock or business operations, whereas Taparia Tools involved supplier-level abnormalities and evidentiary gaps relating to movement of goods.

2. Comparison of Procedure Adopted by the Assessing Officer

In KDP Infrastructure, reassessment proceedings were initiated under section 147 after completion of search assessments, based on Investigation Wing information. Approval under section 151 was obtained. The Assessing Officer proceeded to treat the recorded purchases as unexplained investment and made an addition under section 69, without rejecting the books of account under section 145(3) and without examining stock or consumption records.

In Taparia Tools, the Assessing Officer proceeded within the framework of business assessment and disallowed the purchases under section 37(1), treating them as non-genuine expenditure. The AO relied on circumstantial indicators such as lack of freight documents and findings in the supplier’s case, but did not conclusively establish a money-back or accommodation entry cycle.

Common procedural aspect:

In both cases, reliance was placed on third-party information and supplier-side deficiencies.

Critical procedural divergence:

KDP invoked a deeming fiction without first invalidating the books; Taparia Tools applied a business disallowance provision based on factual suspicion.

3. Comparison of Findings on Merits

In KDP Infrastructure, the Tribunal found that the Assessing Officer himself accepted that the purchases were routed through the books and paid via banking channels. There was no finding of any investment outside the books, nor any rejection of the assessee’s accounts. The Tribunal held that section 69 could not be invoked merely because the supplier was alleged to be non-genuine, as the statutory precondition of an unrecorded investment was absent. The failure to reject books or examine stock was held fatal to the addition.

In Taparia Tools, the Tribunal found that while the Assessing Officer’s conclusions were not fully substantiated, the CIT(A) had relied on GST closure reports and additional material which were not examined by the AO. Given the conflicting evidence, the Tribunal held that the issue required fresh factual verification rather than outright deletion or confirmation.

Common finding:

Suspicion or third-party allegations alone cannot conclusively establish bogus purchases.

Divergent conclusion:

KDP resulted in deletion due to legal invalidity; Taparia Tools resulted in remand due to incomplete factual examination.

4. Comparison of Invoking Provisions and Legal Sustainability

In KDP Infrastructure, section 69 was invoked, which applies only where investments are found outside the books of account. Since the purchases were recorded, paid through bank and reflected in profit and loss account, the Tribunal held that the very invocation of section 69 was legally misconceived. The argument that quoting a wrong section is a curable defect was rejected, as different deeming provisions impose different statutory burdens.

In Taparia Tools, section 37(1) was invoked, which permits disallowance of expenditure if the assessee fails to prove that the expense is wholly and exclusively for business and genuine. The Tribunal held that this provision was correctly invoked, but its application required proper verification of all relevant evidence.

Common issue: Alleged bogus purchases.

Fundamental legal difference:

KDP failed due to wrong charging provision; Taparia Tools survived due to correct provision but inadequate verification.

5. Consolidated Legal Position

Though both cases deal with alleged bogus purchases, they operate on entirely different legal planes.

KDP Infrastructure establishes that, where purchases are recorded in the books and paid through banking channels, addition under section 69 without rejection of books is unsustainable in law.

Taparia Tools clarifies that, where purchases are questioned under section 37, genuineness is a matter of factual verification, and in case of mixed evidence, remand is the appropriate course.

Final Takeaway

The common label of “bogus purchases” does not permit a uniform legal response.

The nature of provision invoked, procedural discipline followed, and evidentiary evaluation undertaken decisively determine whether the case ends in deletion, confirmation or remand.

Validity of Reopening of Assessment and Addition under Section 69 without Rejection of Books

I. M/s KDP Infrastructure Private Limited v. DCIT- ITAT Delhi | ITA No. 1094/Del/2024 |

Date of Order: 12 December 2025

1. Statutory Provisions Involved

Section 147 – Income Escaping Assessment:-Empowers the Assessing Officer to reopen a completed assessment where he has reason to believe that income chargeable to tax has escaped assessment. The belief must be based on tangible material and not on mere suspicion or borrowed satisfaction.

Section 148 – Issue of Notice:( old regime) Prescribes the procedural requirement for issuance of notice before reopening an assessment under section 147.

Section 151 – Sanction for Issue of Notice:-Mandates prior approval of the specified authority before issuance of notice under section 148. Such approval must reflect due application of mind to the reasons recorded by the Assessing Officer.

Section 69 – Unexplained Investments:-Applies where an assessee is found to have made investments not recorded in the books of account, and the assessee fails to satisfactorily explain the nature and source thereof. The section presupposes: existence of an “investment”, such investment being outside the books, and failure of explanation regarding its source.

Sections 145(3), 37, 68 to 69C – Contextual Relevance

Disallowance of expenditure or estimation of income ordinarily requires rejection of books of account under section 145(3). Deeming provisions from sections 68 to 69C impose distinct and specific burdens of proof, depending on the nature of addition proposed.

2. Core Issue: Whether reassessment proceedings initiated under section 147, with approval under section 151, culminating in an addition under section 69 on account of alleged bogus purchases, are sustainable in law when:
3. the purchases are duly recorded in the books of account,
4. payments are made through banking channels,
5. books of account are not rejected, and
6. no independent examination of stock, inventory or business results is undertaken by the Assessing Officer.
7. Facts of the Case: The assessee, a private limited company engaged in real estate development and construction, was subjected to a search and seizure operation under section 132 on 29 September 2014 as part of the KBP/MGI Group cases. Consequent to the search, assessment was framed under section 153A read with section 143(3) on 30 December 2016, wherein substantial additions were made.

Subsequently, on 26 March 2019, the Assessing Officer received information from the Investigation Wing, New Delhi alleging that the assessee had made bogus purchases/expenses from M/s Bhawani Enterprises, a proprietary concern. Based on this information, the completed assessment for Assessment Year 2012-13 was reopened under section 147 after obtaining approval under section 151.

The reassessment culminated in an addition of ₹4.55 crore under section 69 of the Act, treating the purchases as unexplained investment on the ground that the supplier was an entry provider and had not carried out any genuine business activity. The addition was confirmed by the CIT(A).

Aggrieved, the assessee preferred an appeal before the ITAT.

4 Findings and Legal Analysis by the Tribunal

(a) Validity of Reopening and Approval under Section 151

The Tribunal examined the approval proforma under section 151 and noted that the sanction was accorded based on the reasons recorded by the Assessing Officer, which relied entirely on Investigation Wing information alleging bogus purchases routed through RTGS payments.

While the Tribunal did not invalidate reopening solely on the ground of defective approval, it observed that the reasons themselves acknowledged that payments were made through banking channels and purchases were recorded in the books, thereby shaping the nature of enquiry even at the stage of formation of belief.

(b) Nature of Addition and Incorrect Invocation of Section 69

The Tribunal found that the Assessing Officer consistently invoked section 69, both in the assessment order and even during appellate proceedings, thereby negating the Revenue’s argument that wrong quoting of section was a curable defect.

It was held that section 69 can be invoked only where an “investment” is found, and such investment is not recorded in the books of account. In the present case, the alleged bogus purchases were fully recorded in the books, routed through disclosed bank accounts, and debited to the profit and loss account.

There was no finding of any investment outside the books, nor any allegation of unexplained source of funds.

(c) Non-Rejection of Books of Account

A critical finding of the Tribunal was that the books of account were never rejected under section 145(3). The business results, turnover, stock records and accounting framework of the assessee remained undisputed.

The Tribunal held that where purchases are disallowed as bogus, the primary step must be examination of books, stock and business results, and in the absence of rejection of books, wholesale disallowance of purchases as unexplained investment is legally untenable.

(d) Failure to Discharge Departmental Onus

The Tribunal emphasized that each deeming provision from sections 68 to 69C carries a distinct burden of proof. Once the assessee demonstrates that, purchases are recorded in books, and payments are made through banking channels, the onus shifts to the Revenue to prove that:

the books lack veracity, or

the transactions represent investments or expenditure outside the books.

In the present case, the Revenue relied solely on third-party investigation reports and non-response of the supplier, without any independent examination of the assessee’s records, stock position or project execution

(e) Reliance on Judicial Precedents

The Tribunal followed and reaffirmed settled legal principles laid down in:

PCIT (Central)-2 v. Param Dairy Ltd. [2022] 139 taxmann.com 546 (Delhi HC)

CIT-V v. Radhika Creation, ITA No. 692/2009

Mandeep Singh Anand v. ACIT [2024] 161 taxmann.com 1225 (Delhi ITAT)

These decisions consistently hold that additions for bogus purchases cannot be sustained under sections 69/69C when books are not rejected and payments are recorded.

6. Decision: The Tribunal held that the addition of ₹4.55 crore under section 69 was unsustainable in law and on facts. The invocation of section 69 was fundamentally misconceived, the onus under the deeming provision was not discharged by the Revenue, and the books of account remained unassailed.

Accordingly, the appeal of the assessee was allowed, and the impugned addition was directed to be deleted.

Addition on Account of Alleged Bogus Purchases – Matter Remanded for Fresh Verification

II. ACIT, Circle-1 v. Taparia Tools Ltd., Nashik (and Vice-Versa)-ITAT Pune | ITA No. 1337/PUN/2025 & CO No. 30/PUN/2025-Order dated: 10 December 2025

Core Issue: Whether purchases amounting to ₹87.64 crore made by the assessee from M/s Sharp King Trading Pvt. Ltd. (SKTPL) could be treated as entirely bogus and disallowed under section 37(1) of the Income-tax Act, 1961 merely on the basis of abnormal financial ratios of the supplier, absence of transportation bills and adverse findings in the supplier’s assessment, despite documentary evidence of purchases and subsequent verification by GST authorities.

Factual Matrix: The assessee, a listed limited company engaged in manufacturing and trading of hand tools and forgings, filed its return for AY 2017-18 declaring income of ₹17.50 crore. Based on information received from the office of the ITO, Mumbai, alleging bogus purchases by SKTPL, reassessment proceedings were initiated.

The Assessing Officer observed that SKTPL had effected sales of ₹87.65 crore to the assessee, constituting nearly 98% of its total turnover, while declaring abnormally low profits and incurring negligible operating and freight expenses. The AO further noted that neither the assessee nor SKTPL could furnish transportation bills evidencing actual movement of goods. Physical verification of SKTPL’s premises allegedly revealed inadequate infrastructure inconsistent with the scale of operations. Reliance was also placed on the assessment order of SKTPL, wherein its books were rejected and its sales were treated as non-genuine.

On these premises, the AO disallowed 100% of the purchases under section 37(1), invoking the ratio of N.K. Industries Ltd. as affirmed by the Supreme Court, and initiated penalty proceedings for misreporting under section 270A.

Findings of the CIT(A)

The Commissioner (Appeals) reversed the disallowance after undertaking a substantive factual analysis. The CIT(A) held that for branding a purchase as bogus, the Revenue must establish a complete cycle of accommodation entry, namely issuance of fake invoices, banking trail, cash withdrawal and return of cash to the assessee. In the present case, no evidence of cash circulation or money-back was brought on record.

Significant reliance was placed on the investigation conducted by GST authorities, including a closure communication indicating that materials were actually supplied by SKTPL to the assessee. The CIT(A) also accepted the explanation that tools and forgings do not necessarily require large warehouse space, and low margins alone cannot justify branding transactions as sham.

It was further observed that sales, stock records and audited books were not rejected in the assessee’s case, profit margins were consistent with industry trends and discrepancies pointed out by the AO were marginal in nature. On an overall appreciation of facts, the CIT(A) concluded that SKTPL was an existing entity and transactions between the parties were genuine, and accordingly deleted the addition.

Revenue’s Challenge Before the Tribunal

The Revenue contended that the CIT(A)’s order was non-speaking and violative of section 250(6) and Rule 46A, particularly because reliance was placed on GST closure communications which were allegedly not produced before the AO. It was argued that the GST letter relied upon was limited to mismatch of vehicle data and did not conclusively establish genuineness of purchases. Heavy emphasis was placed on absence of freight documentation, abnormal financial ratios of SKTPL and adverse findings in its assessment.

The Revenue sought restoration of the AO’s order or, alternatively, remand of the matter for fresh adjudication.

Submissions of Assessee

The assessee demonstrated that it had discharged its primary onus by furnishing purchase orders, invoices, delivery challans, confirmations, ledger accounts and bank statements evidencing payments through banking channels. It was submitted that GST and MVAT authorities had independently examined the transactions and found no adverse material. The assessee clarified that transportation was arranged by the supplier and delivery challans bearing vehicle details were available, though some records could not be collated earlier due to a fire incident.

Without prejudice, the assessee fairly conceded that if the Tribunal considered GST-related material as additional evidence, the matter could be remanded to the AO for verification.

Decision of the ITAT

The Tribunal held that the issue required fresh examination. While the AO’s conclusions were largely drawn from deficiencies in transportation evidence and findings in the supplier’s case, the assessee had subsequently produced extensive documentary material, including GST investigation and closure reports, which were admittedly not examined by the AO.

The Tribunal noted that these GST proceedings, including search and enquiry, constituted a significant development and could not be ignored. At the same time, it accepted the Revenue’s contention that such material required verification by the jurisdictional AO in accordance with law.

Accordingly, the Tribunal set aside the order of the CIT(A) on merits and restored the issue to the file of the Assessing Officer for the limited purpose of examining the genuineness of purchases from SKTPL, after considering all documentary evidence and affording due opportunity to the assessee.

Gist of Cases Relied Upon

1. N.K. Industries Ltd. v. Dy. CIT (Gujarat HC; SLP dismissed by SC)

Full disallowance of purchases is justified only where transactions are proved to be completely bogus, with clear evidence of accommodation entries and cash circulation. The ruling applies only when sham nature is conclusively established.

2. CIT v. Nikunj Exim Enterprises Pvt. Ltd. (Bombay HC)

Purchases cannot be disallowed merely because suppliers fail to appear or have deficiencies, when invoices, delivery evidence and banking payments exist and sales are accepted.

3. PCIT v. Jagdish Thakkar (Bombay HC)

Additions cannot be based on suspicion or third-party allegations alone; once the assessee discharges primary onus, the burden shifts to the Revenue to prove purchases as bogus with cogent evidence.

By,