In T. C. Agro Food Industries v. Income Tax Officer, Ward-1, Karnal (ITAT Delhi, order dated 09 January 2026), the Delhi Bench of the Income Tax Appellate Tribunal adjudicated upon the taxability of alleged bogus sales and purchases, as well as the validity of revisionary proceedings initiated under Section 263 of the Income Tax Act, 1961, for Assessment Year 2018-19.

The Assessing Officer, while completing reassessment under Section 147 read with Section 144B, treated certain sales and corresponding credits as unexplained under Section 68, relying on a statement recorded under Section 131 alleging that the assessee was a beneficiary of accommodation entries. Purchases from certain parties were also treated as bogus, resulting in disallowance of 12.5% of such purchases under Section 69C, with taxation under Section 115BBE. These additions were upheld by the Commissioner (Appeals). Subsequently, the Principal Commissioner invoked Section 263, holding that the Assessing Officer ought to have disallowed the entire alleged bogus purchases instead of restricting the disallowance to 12.5%.

The Tribunal observed that while the assessee had furnished documentary evidence such as invoices, transport details, and ledger accounts, the existence of adverse material in the form of a Section 131 statement could not be ignored. At the same time, the Tribunal held that even where transactions are treated as accommodation entries, the entire turnover cannot be brought to tax, and only the profit element embedded in such transactions can be subjected to addition.

Balancing both aspects, the Tribunal estimated a gross profit at 8% on the impugned credit entries, treating them as part of regular business turnover, while sustaining the 12.5% disallowance on bogus purchases as reasonable. With respect to the Section 263 proceedings, the Tribunal held that the issue of bogus purchases had already been considered and decided by the CIT(A) prior to initiation of revision, thereby attracting the bar under Explanation 1(c) to Section 263. Consequently, the revisionary order was set aside.

Accordingly, the assessee’s appeal against the assessment was partly allowed, and the appeal against the Section 263 order was allowed in full, with directions for consequential computation in accordance with law.


Source Link- https://itat.gov.in/public/files/upload/1768371425-xMG7yy-1-TO.pdf

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