ACIT vs Waryam Steel: ITAT Chandigarh on Bogus Purchases & Section 148 Reassessment

This case concerns the reassessment of a Punjab-based steel manufacturer — Waryam Steel Castings Private Limited — for Assessment Year 2019-20, involving the disallowance of purchases aggregating approximately ₹4.75 crore as bogus. The proceedings originated from Insight Portal data flagging a single suspicious supplier, escalated into a full reassessment under Section 148, and ultimately generated cross appeals before the Income Tax Appellate Tribunal, Chandigarh. The case is significant for practitioners advising on reassessment validity and the evidentiary standards applied to purchase disallowances in the manufacturing sector.

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: Remanded for fresh consideration

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Facts of the case

Waryam Steel Castings Private Limited is a private limited company incorporated in Punjab, engaged in the manufacture of steel products — specifically steel ingots produced by melting iron scrap in electric furnaces. For Assessment Year 2019-20, the company filed its return of income on 30 October 2019 declaring a loss of ₹1,80,272 under normal provisions and an income of ₹62,98,757 under Section 115JB of the Income Tax Act, 1961. Its reported turnover for the year stood at ₹134.08 crores.

The reassessment proceedings were triggered by information from the Insight Portal regarding a purchase transaction of ₹63,84,522 with M/s Gauri Shankar Trading Co. (GSTC), a proprietorship concern of one Shri Rahul Pratap Singh. Acting on this, the Assessing Officer issued a show-cause notice on 21 March 2023 under Section 148A, and after considering the assessee's reply dated 28 March 2023, issued a notice under Section 148 on 31 March 2023. The assessee filed a fresh return on 26 April 2023. During assessment, the AO extended scrutiny to five additional suppliers — M/s Tejinder Fabricators, M/s Radhika Enterprises, M/s Garg Trading Co., M/s Aryan International-Delhi, and M/s Akriti Industries — whose aggregate purchases totalled ₹4,11,60,437. The AO passed an assessment order dated 24 January 2024 under Section 147, computing total income at ₹4,73,64,687 by disallowing all six parties' purchases as bogus.

The AO's findings against GSTC rested on investigations by the DGGI (GST Intelligence, Delhi Zone) and the Income Tax Department's Investigation Wing, which established that GSTC was a fraudulent entity. Rahul Pratap Singh stated on oath that neither he nor his family had any association with GSTC and that the entity was created without his knowledge. GSTC had been registered in 2018, cancelled the following year, reported sales of ₹2,31,83,49,973 in FY 2018-19 with minimal purchases, and never filed income tax returns. Bill numbers issued by GSTC were non-sequential and transportation bills were found unreliable. For the five other parties, Verification Unit reports showed that proprietors either did not reside at stated addresses, operated from closed workshops, or were unknown at their listed locations; none filed income tax returns and none responded to Section 133(6) notices. The AO also noted the assessee's failure to produce supplier confirmations, email correspondence, or daily stock registers, and observed a lower gross profit rate compared to prior years. In consequence, additions of ₹63,84,522 and ₹4,11,60,437 were made, along with penalty proceedings under Sections 270A, 271B, and 272A(1)(d), and interest under Sections 234A, 234B, and 234C. The assessee appealed to the CIT(A)/NFAC, whose order dated 10 May 2024 under Section 250 upheld the reassessment but restricted the bogus-purchase addition to ₹59,20,585 (being 12.5% of the total). Both the assessee and the Revenue challenged this CIT(A) order before the ITAT, Chandigarh, giving rise to the present cross appeals.

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Issues raised

• Whether the notice under Section 148 was validly issued, having regard to whether any "income chargeable to tax" had genuinely escaped assessment, and whether the AO merely relied on external Insight Portal data without independent application of mind or further inquiry.
• Whether the assessment framed by the NFAC on the basis of a notice issued by the jurisdictional AO was sustainable in law, and whether complete reasons for initiation of reassessment proceedings were provided to the assessee.
• Whether the CIT(A)/NFAC erred in upholding the bogus-purchase disallowances — whether in full (as made by the AO) or as restricted to 12.5% — given the assessee's contention that principles of natural justice were violated by reliance on third-party statements without affording an opportunity of cross-examination.
• Whether the CIT(A)/NFAC passed the appellate order without providing the assessee a reasonable opportunity of being heard, either through video conferencing or such other means as prescribed under departmental instructions, despite a specific request having been made.

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What the court held

The ITAT, Chandigarh remanded the matter for fresh consideration. The order was pronounced on 14 May 2025 following a hearing on 25 February 2025. The dispositive tail of the source order records the factual matrix as found by the AO and adopted in the CIT(A) order, and the outcome classification of the proceeding is remand.

The source order documents that both the assessee's appeal (ITA No. 715/Chd/2024) and the Revenue's cross appeal (ITA No. 757/Chd/2024) arose from the same CIT(A)/NFAC order dated 10 May 2024 for AY 2019-20. The assessee raised grounds going to the root of reassessment jurisdiction — contesting the Section 148 notice on multiple limbs — alongside substantive grounds challenging both the full disallowance (as made by the AO) and the restricted 12.5% addition (as upheld by the CIT(A)). The Revenue's cross appeal, by contrast, contested the CIT(A)'s reduction of the addition from the full ₹4,75,44,959 to the restricted figure. Given this configuration of cross appeals, the Tribunal's remand returns the matter for a fresh pass on the issues without the current partial-relief determination standing.

The reasoning in the source order, as far as the text preview extends, recapitulates the AO's factual basis for the bogus-purchase findings across all six suppliers in detail — including the investigation findings against GSTC, the Verification Unit reports on the five other parties, and the procedural lapses attributed to the assessee — but the order's operative reasoning on the grounds and the final dispositive sentence appear in the portion of the order beyond what the preview fully reproduces. The outcome classification of remand is drawn from the source's structured outcome field.

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Strategy observations

1. Jurisdictional challenge raised at the threshold: An additional ground going to the validity of the Section 148 notice itself was raised before the Tribunal — specifically, that the AO mechanically forwarded Insight Portal information without independent application of mind, and that complete reassessment reasons were never furnished. Per the source, this was the first ground canvassed in the assessee's appeal and the Tribunal's order dealt with it as part of the consolidated hearing.

2. Natural justice ground pressed in parallel: A separate ground was advanced that the CIT(A)/NFAC passed the appellate order without affording the assessee a hearing — despite a specific request for video conferencing — in contravention of departmental instructions. This ground was raised alongside the merits challenge rather than as a standalone jurisdictional objection.

3. Cross-appeal structure preserved both parties' positions: The Revenue filed its own cross appeal challenging the CIT(A)'s downward restriction of the addition to 12.5%, preserving the full disallowance as the Revenue's preferred outcome. This cross-appeal configuration meant the Tribunal was confronted simultaneously with arguments for complete deletion (assessee) and complete restoration (Revenue), with the 12.5% figure having no clear champion before the bench — a factual pattern the source order records in its recitation of the grounds.

4. Quantification dispute layered on jurisdictional dispute: The assessee's grounds challenged both the legal foundation of the reassessment and the substantive merits of the purchase disallowances, including the violation of cross-examination rights with respect to third-party statements. Per the source, the AO's reliance on statements from Rahul Pratap Singh (GSTC's nominal proprietor) and Verification Unit reports — without affording the assessee an opportunity to cross-examine those deponents — formed a distinct pillar of the challenge before the Tribunal.

5. Remand as procedural resolution in complex cross-appeal proceedings: The Tribunal's disposition as remand reflects a pattern observable in ITAT proceedings where both parties appeal the same CIT(A) order on opposing grounds and the appellate record discloses procedural deficiencies at the CIT(A) stage. The matter returns for a fresh adjudication rather than a final determination on the merits at this stage.

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Why this case matters

This order is a useful reference point for practitioners dealing with Insight-Portal-triggered reassessments in the manufacturing sector, particularly where the AO's case rests on a combination of GST intelligence data, Verification Unit field reports, and the assessee's failure to produce contemporaneous supplier documentation. The factual matrix here — a steel manufacturer with ₹134 crore turnover having purchases from six parties collectively branded bogus by the AO — is representative of a class of cases that emerged after the expanded information-sharing infrastructure between the GST and income-tax databases became operational. The case records, in considerable detail, the specific evidentiary basis the AO deployed (oath statements, non-existent addresses, non-sequential bill numbers, GST registration-and-cancellation patterns, GP-rate comparison) and the CIT(A)'s intermediate approach of restricting rather than deleting the addition, which both parties then contested.

The remand also illustrates the procedural vulnerability of NFAC appellate orders where the assessee's request for a hearing opportunity — whether by video conferencing or otherwise — is demonstrably on the record and is not accommodated. That ground, combined with cross-examination rights under natural justice principles, has appeared with increasing frequency in ITAT orders reviewing NFAC disposals, and the source order preserves that factual record for researchers tracking the pattern.

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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/