The Income Tax Appellate Tribunal (ITAT), Delhi, has delivered a critical ruling on the burden of proof in cases involving alleged bogus purchases. In a case where the assessee was accused of availing accommodation entries from a hawala operator, the Tribunal upheld the addition of Rs. 16.5 lakh as unexplained expenditure under Section 69C of the Income Tax Act, 1961, emphasizing that the assessee failed to discharge the onus of proving the genuineness of the transactions despite multiple opportunities.
Background & Facts
The Dispute
The appellant, Vishwkarma Impex Private Limited, filed its return of income for Assessment Year 2018-19 on 26.10.2018, declaring a total income of Rs. 9,76,940. The case was flagged under the CRIU/VRIU risk category on the Insight Portal of the Income Tax Department, based on inputs from the Investigation Wing. These inputs emanated from a search conducted on 31.10.2018 in the case of Shri Manish Gupta, a known hawala operator, who admitted to providing non-genuine sales and purchase bills through various entities, including M/s M.K. Traders. The assessee was identified as one of the beneficiaries, having allegedly booked fictitious purchases amounting to Rs. 16,50,000 from M/s M.K. Traders.
Key Facts
31.10.2018: Search conducted on Shri Manish Gupta, who admitted to providing accommodation entries.
11.03.2022: Notice u/s 148A(a) issued to Shri Manish Gupta; no response received.
26.10.2018: Assessee filed return of income for AY 2018-19, declaring Rs. 9,76,940.
19.11.2019: Investigation Wing forwarded letter listing M/s M.K. Traders (PAN AGCP7151N) as an entity operated by Shri Manish Gupta for providing bogus bills.
08.02.2019: Statement of Shri Manish Gupta recorded u/s 131(1A), implicating M/s M.K. Traders.
Payments: Assessee claimed payments of Rs. 16,50,000 to M/s M.K. Traders were made through banking channels.
Documents Submitted: Assessee filed invoices and bank statements but failed to provide:
Confirmation from the supplier (M/s M.K. Traders).
Evidence of actual movement of goods (transport receipts, delivery challans, lorry receipts).
Stock register or quantitative tally.
GST returns or GST payment details of the supplier.
Independent corroborative evidence to establish genuineness of the transaction.
Procedural History
27.03.2023: Assessment order passed u/s 147 r.w.s. 144B, treating Rs. 16,50,000 as unexplained expenditure u/s 69C.
23.01.2026: CIT(A) dismissed the assessee’s appeal, upholding the addition.
12.05.2026: Appeal heard by ITAT Delhi.
13.07.2026: ITAT dismissed the appeal, affirming the addition.
Relief Sought
The assessee sought deletion of the addition of Rs. 16,50,000 made under Section 69C, arguing that the purchases were genuine and supported by invoices and bank statements. The assessee also filed a stock register as additional evidence before the ITAT, claiming that the purchased footwear was sold during the year.
The Legal Issue
The central question was whether the assessee had discharged the burden of proving the genuineness of purchases amounting to Rs. 16,50,000 from M/s M.K. Traders, a concern allegedly operated by a hawala operator, in light of the presumption under Section 132(4) of the Income Tax Act and the provisions of Section 69C.
Arguments Presented
For the Appellant
The assessee contended that the purchases were genuine, supported by invoices and bank statements.
Payments were made through banking channels, and the assessee had no connection with Shri Manish Gupta.
The assessee filed a stock register as additional evidence, claiming the purchased footwear was sold during the year.
Reliance was placed on the principle that mere suspicion cannot replace evidence.
For the Respondent
The Revenue argued that Shri Manish Gupta was a proven hawala operator, and M/s M.K. Traders was one of the entities used for providing accommodation entries.
The assessee failed to discharge the onus of proving the genuineness of the transactions, as no confirmation from the supplier, evidence of goods movement, or GST details were provided.
The statements of Shri Manish Gupta recorded u/s 132(4) and 131(1A) created a rebuttable presumption against the assessee.
The assessee did not seek cross-examination of Shri Manish Gupta or file an affidavit from M/s M.K. Traders.
The Court's Analysis
The ITAT examined the statutory framework and the burden of proof in cases involving alleged bogus transactions. The Tribunal noted that the case was reopened based on specific and credible information from the Investigation Wing, following a search on Shri Manish Gupta, who admitted to providing accommodation entries. The assessee was identified as a beneficiary of fictitious purchases from M/s M.K. Traders, an entity controlled by Shri Manish Gupta.
The Tribunal relied on the judgment of the Hon’ble Supreme Court in Sumati Dayal v. CIT (1995) 214 ITR 801 (SC), which held that the burden of proving the genuineness of transactions lies on the assessee, particularly when the supplier is a proven hawala operator. The Tribunal observed:
"The assessee has not come forward and produce the said proprietor/partner of the said concern M/s M K Traders. No cogent evidences are brought on record to disprove the allegation leveled by the Revenue. Even affidavit from M/s M K Trader and/or its partner/proprietor is not filed. Even, the assessee never asked for cross examination of Mr. Manish Gupta."
The Tribunal rejected the additional evidence (stock register) filed by the assessee, noting that it was unsigned, lacked details (such as description of goods), and did not bear folio numbers. The invoices and bank statements alone were insufficient to discharge the burden of proof, especially when the supplier was a hawala operator. The Tribunal emphasized that the assessee failed to provide:
Confirmation from the supplier.
Evidence of actual movement of goods.
GST returns or payment details of the supplier.
Independent corroborative evidence.
The Tribunal held that the presumption under Section 132(4) shifted the onus to the assessee to rebut the allegations, which the assessee failed to do. The Tribunal also noted that the assessee did not file a return in response to the notice u/s 148 and only partially complied with the proceedings, compelling the AO to complete the assessment ex parte.
The Tribunal applied Section 69C, which provides for the addition of unexplained expenditure when the assessee fails to offer a satisfactory explanation about the source of such expenditure. The first proviso to Section 69C further stipulates that such unexplained expenditure shall not be allowed as a deduction under any head of income. The Tribunal concluded that the authorities below rightly invoked Section 69C, and the assessee’s contentions lacked merit.
The Verdict
The ITAT dismissed the appeal, upholding the addition of Rs. 16,50,000 as unexplained expenditure under Section 69C. The Tribunal affirmed the orders of the AO and CIT(A), ruling that the assessee failed to discharge the burden of proving the genuineness of the purchases. No relief was granted to the assessee.
What This Means For Similar Cases
Burden of Proof Lies Squarely on the Assessee
In cases involving alleged bogus purchases or accommodation entries, the assessee must provide cogent evidence to establish the genuineness of the transactions. Mere production of invoices and bank statements is insufficient.
The assessee must furnish:
Confirmation from the supplier.
Evidence of actual movement of goods (transport receipts, delivery challans, lorry receipts).
Stock register with quantitative tally.
GST returns and payment details of the supplier.
Independent corroborative evidence.
Presumption Under Section 132(4) is Rebuttable but Demanding
The presumption under Section 132(4) that statements recorded during search proceedings are true shifts the onus to the assessee to rebut such presumption.
The assessee must actively disprove allegations, such as by seeking cross-examination of witnesses or filing affidavits from the supplier.
Failure to rebut the presumption will result in the addition of the entire alleged bogus amount as unexplained expenditure under Section 69C.
Additional Evidence Must Be Substantive and Timely
Additional evidence filed at the appellate stage (e.g., stock register) must be detailed, signed, and corroborative to be considered.
Unsigned documents lacking critical details (e.g., description of goods, folio numbers) will be rejected.
Assessees should ensure all evidence is submitted during the assessment proceedings to avoid adverse inferences.
Section 69C Applies in Full for Non-Genuine Transactions
Section 69C creates a deeming fiction where the entire amount of unexplained expenditure is added to the assessee’s income, and no deduction is allowed under any head of income.
This provision applies not only to inflated purchases but also to entirely non-genuine transactions, as in this case.
Assessees must ensure compliance with all statutory requirements to avoid additions under this stringent provision.
