ACIT v Waryam Steel Casting: ITAT Chandigarh on Bogus Purchases

In this decision, the Income Tax Appellate Tribunal, Chandigarh Bench "B", heard cross appeals by Waryam Steel Casting Private Limited and the Revenue against an order of the CIT(A)/NFAC passed under section 250. The order had sustained, at 12.5%, an addition for alleged bogus purchases made in reassessment proceedings initiated by a notice under section 148. The Tribunal deleted the whole addition, including the 12.5% that the CIT(A) had sustained. That makes the case a useful reference on how a first-appellate order under section 250 is dealt with where purchases are treated as bogus.

This page is a research summary of one specific Indian tax judgment, NOT legal advice. Always verify against the full judgment and consult a professional for case-specific guidance.

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The case at a glance

• Parties: Astt. Commissioner Of Income Tax vs Waryam Steel Casting Private Limited
• Bench: Income Tax Appellate Tribunal - Chandigarh
• Date: 14 May 2025
• Court level: Tribunal (ITAT)
• Sections engaged: 148, 250
• Outcome: Taxpayer succeeded

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Facts of the case

The appeals were ITA No. 715/Chd/2024 (filed by the assessee) and ITA No. 757/Chd/2024 (filed by the Revenue), both for Assessment Year 2019-20. Both were directed against the order of the CIT(A)/NFAC dated 10/05/2024. The matter was heard on 25/02/2025 and pronounced on 14/05/2025. Waryam Steel Castings Private Limited is a private limited company that manufactures steel products, specifically steel ingots, by melting iron scrap in electric furnaces. It filed its return on 30.10.2019 declaring a loss of Rs. 1,80,272 under normal provisions, and reported turnover of Rs. 134.08 crores.

The reassessment began with information from the Insight Portal about a purchase of Rs. 63,84,522 from M/s Gauri Shankar Trading Co. (GSTC). A notice under section 148 was issued on 31.03.2023. The Assessing Officer (AO) found GSTC to be a fraudulent entity with no actual business. This was based on investigations by the DGGI, GST Intelligence (Delhi Zone) and the Income Tax Department's Investigation Wing. The named proprietor stated on oath that neither he nor his family was associated with GSTC. The AO also recorded that notices to him went unanswered, that the Verification Unit confirmed no transactions with the assessee, and that GSTC's bill numbers were non-sequential.

The AO also examined purchases of Rs. 4,11,60,437 from five other parties: M/s Tejinder Fabricators, M/s Radhika Enterprises, M/s Garg Trading Co., M/s Aryan International-Delhi and M/s Akriti Industries. Notices to these parties either went unanswered or could not be served because of incorrect or non-existent addresses. The Verification Unit's reports described addresses where no business was conducted or where the proprietor was unknown. The AO noted that the parties were newly registered with GST and filed no income tax returns. The assessee had not provided supplier confirmations, email correspondence or daily stock registers, and the AO found the invoices, transport vouchers and stock ledgers unsatisfactory. The AO disallowed the full Rs. 4,75,44,959 as bogus and computed total income at Rs. 4,73,64,687 under normal provisions.

On appeal, the CIT(A) upheld the action but restricted the addition to 12.5% of Rs. 4,73,64,687, being Rs. 59,20,585 as described in the assessee's grounds. The assessee challenged the sustained addition and the reassessment itself, and the Revenue challenged the restriction to 12.5%.

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Issues raised

• Whether the notice under section 148 was validly issued. The assessee argued that there was no information showing escaped income, that the AO merely relied on information from external agencies without applying his mind, and that complete reasons were not provided.
• Whether the purchases from GSTC and the five other parties were rightly treated as bogus, and whether the addition sustained at 12.5% by the CIT(A) could stand.
• Whether the assessment breached natural justice because statements of various persons were relied upon without an opportunity for cross-examination.
• Whether the NFAC order under section 250 was passed without giving the assessee a hearing by video conferencing or other means, despite a specific request.
• On the Revenue's appeal: whether restricting the addition to 12.5% of the bogus purchases was justified.

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What the court held

The operative disposition is in paragraph 20 of the order: "In the result, appeal of the assessee is allowed and the Cross appeal of the Revenue is dismissed." The Tribunal therefore ruled for the assessee on both appeals.

In paragraphs 18 and 19, the Tribunal dealt with the Revenue's appeal on the 12.5% addition sustained by the CIT(A) on the five-party purchases of Rs. 4,11,60,437. The Revenue's Departmental Representative argued that restricting the addition to 12.5% was not logical. He relied on an Allahabad High Court decision holding that, once purchases are proved beyond doubt to be bogus, the entire amount is to be disallowed. The Tribunal noted that the bogus-purchase issue had already been addressed in the assessee's appeal and that its findings there applied equally to the Revenue's appeal. It therefore found the confirmation of the 12.5% addition by the CIT(A) "not acceptable".

The Tribunal then deleted both the entire addition made by the AO and the 12.5% sustained by the CIT(A) for the alleged bogus purchases. The Revenue's cross appeal, which sought a higher addition, was dismissed.

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Strategy observations

1. The assessee's grounds were pleaded on several tracks. One attacked the validity of the section 148 notice, including that the AO relied on information from external agencies without independent application of mind. Another attacked the merits of the purchase disallowance. Others raised natural justice, specifically the lack of cross-examination of persons whose statements were used, and the lack of a hearing before the NFAC.
2. The assessee was represented by two chartered accountants, and the Revenue by a Senior Departmental Representative. The Tribunal heard the matter in physical mode.
3. The Revenue filed a cross appeal against the CIT(A)'s restriction of the addition to 12.5%. It relied on the Allahabad High Court's position that proven bogus purchases are to be disallowed in full. The Tribunal did not accept this and dismissed the cross appeal.
4. The Tribunal decided the assessee's appeal on the purchases first and then carried its findings across to the Revenue's appeal on the same purchases. As a result, the same reasoning governed the deletion of both the AO's full addition and the CIT(A)'s 12.5% addition.

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Why this case matters

The case shows the Tribunal ruling in the assessee's favour after the AO built a bogus-purchase addition on Insight Portal information, GST and DGGI investigation findings, and Verification Unit reports. It also shows the CIT(A)'s 12.5% restriction being set aside on both sides: the assessee's appeal was allowed and the Revenue's attempt to restore the full disallowance failed.

For researchers tracking bogus-purchase litigation, the case is a record of the Tribunal declining both the full disallowance and the partial 12.5% disallowance at the appellate stage. It also records the Revenue's reliance on the Allahabad High Court's full-disallowance position. The order's own findings on the merits are in the paragraphs preceding the dispositive passage.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/192137837/