Alleged Bogus Purchases – Divergent Legal Treatment

 

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.