Estimation theory inapplicable where entire purchases are non-genuine; Restores addition Mumbai

 ITAT allows Revenue’s appeal and reverses CIT(A) order and restores addition on account of purchases being entirely bogus and clearly accommodation entries; On consideration of facts, Tribunal outlines that all 5 purchase parties were identified as hawala dealers by Sales Tax Department and DGIT(Inv.); ITAT emphasizes that the notices under section 133(6) and summons under section 131 were returned unserved, and the Assessee neither produced the parties nor furnished any evidence in respect of the purchase from the 4 parties like transportation or delivery of goods; ITAT asserts that given the facts the Assessing Officer was clear in its addition and holding that the purchases from 4 parties excluding S.K. Traders were entirely bogus and clearly accommodation entries; Tribunal opines that the CIT(A) completely disregarded the specific findings of the Assessing Officer and the Investigation Wing and mechanically applied general case laws for profit estimation without there being any evidence substantiating the genuineness of the purchases; ITAT observes that estimation theory is inapplicable in cases where entire purchases are found to be non-genuine; Further, ITAT articulates that it is a settled principle that entire addition is warranted where purchases are sham and not merely unverifiable; Noting Revenue’s reliance on jurisdictional High Court decision in Kanak Impex (India) Ltd., ITAT states that said decision squarely applies to the present case; Reiterating Assessee’s inability to furnish requisite information/documents, ITAT opines that the Assessing Officer has completely established non-existence of suppliers while demonstrating the sham nature of transactions based on Assessee’s submissions; Further, Tribunal observes that Assessee’s statement regarding transactions with S.K. Traders cannot be ignored and cannot be accepted in piecemeal. [In favour of revenue]
(Related Assessment year : 2010-11) – [DCIT v. Deepak Shah [TS-1570-ITAT-2025(Mum)] – Date of Judgement : 24.11.2025 (ITAT Mumbai)]

AI Generated Precautions for Professionals (Summary)
• Verify supplier existence through independent checks including GST registration, address verification, and past compliance history.
• Ensure complete documentation—purchase orders, delivery challans, transport receipts, weighment slips, and stock records.
• Respond promptly to notices under sections 131/133(6) by producing parties or alternative admissible evidence.
• Advise clients against transacting with entities flagged by Investigation Wing, Sales Tax Department, or listed as hawala operators.
• Maintain trail of payment through banking channels supported by reconciliation with stock movement.
• Avoid reliance on profit estimation principles where facts indicate complete sham transactions.
• Document due-diligence efforts to mitigate exposure in scrutiny or appellate proceedings.