ITAT Deletes Rs. 3.51 Crore Bogus Purchase Addition After Finding GST Returns, Bank Payments, E-Way Bills and Transport Documents Proved Genuine Movement of Goods:

ITAT Deletes Rs. 3.51 Crore Bogus Purchase Addition After Finding GST Returns, Bank Payments, E-Way Bills and Transport Documents Proved Genuine Movement of Goods The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has provided major relief to Mumbai-based fabric trader Dinesh Dharamshi Patel by deleting additions of more than Rs 3.55 crore made by the Income Tax Department for AY 2021-22.

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Patel, who runs a proprietary concern named Active Sports, had challenged the orders of the Assessing Officer and the CIT(A), both of whom had treated certain purchases and expenses as non-genuine. The dispute was mainly in respect of purchases worth Rs 3.51 crore made from a supplier, called Delightful Collections. During the assessment proceedings, the Income Tax Department received a reply from Chandraprakash Shukla, the alleged proprietor of the supplier firm, claiming that his PAN had been misused by a friend. On the basis of this statement, the Assessing Officer held that the purchases shown by the assessee were bogus and added the whole amount to his income under Section 69 of the Income Tax Act. The assessee, however, strongly challenged the addition and submitted evidence to prove the genuineness of the transactions. These included purchase invoices, transport receipts, e-way bills, bank statements showing payments through banking channels, GST records reflecting Input Tax Credit (ITC). The assessee also contended that the goods purchased were sold subsequently and the department accepted the corresponding sales. Having considered the record, the Tribunal observed that the tax authorities had only taken into account the statement of Chandraprakash Shukla and had not made any further enquiry. The ITAT noted that the supplier filed GST returns, payment received through bank accounts and transport documents supported the movement of goods. Significantly, the department had neither recorded the statement of Shukla, nor had given opportunity to the assessee to cross examine him. The Tribunal observed that none of the documents produced by the assessee were found to be false or fabricated.

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The Tribunal further held that merely because a supplier filed a low income tax return or later claimed misuse of his PAN could not be a valid basis to reject purchases that were otherwise supported by substantial evidence. Since the assessee's sales had not been disputed and his books of account had not been rejected, the ITAT concluded that the disallowance of Rs 3.51 crore was unjustified and directed its deletion. The second issue concerned the disallowance of Rs 4.20 lakh paid as management and consultancy fees to Hetal Patel. The Assessing Officer had questioned the payment on the ground that the recipient was only matric-pass and had shown limited income in her tax return. According to the department, the expenditure appeared to have been claimed only to reduce taxable profits. The Tribunal disagreed with this view and held that educational qualification alone cannot determine whether a person is capable of providing administrative or consultancy services. It observed that the payment worked out to only Rs 35,000 per month and was not excessive considering the scale of the assessee's business. The department had also failed to bring any evidence on record to show that no services had actually been rendered.

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In its final ruling pronounced on June 18, 2026, the ITAT allowed the assessee's appeal in full. The Tribunal deleted the addition of Rs 3.51 crore relating to alleged bogus purchases as well as the disallowance of Rs 4.20 lakh towards consultancy fees.