Addition on Bogus Purchases and Labour‑Charge Disallowance Sustained Where Transactions Found Unverified: ITAT Rejected Evidence Under Rule 46A [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT) upheld additions on bogus purchases amounting to ₹11.14 crore and sustained a 50% disallowance of labour charges, holding that the transactions were found unverified and lacked credible supporting evidence.

The Tribunal concurred with the lower authorities in rejecting additional documents filed under Rule 46A of the Income‑tax Rules, 1962, noting that the conditions for admitting such evidence were not satisfied and that mere reversal entries or self‑prepared vouchers could not establish the genuineness of the transactions.

The assessee, Globe Infraconstructions Pvt Ltd, engaged in infrastructure and commercial construction, had declared an income of ₹2.04 crore. During scrutiny, the AO found that the company had recorded purchases from 17 suppliers, many of whom had not filed income tax returns or had inactive GST registrations. Notices issued under Section 133(6) revealed that most suppliers were either non-existent or denied any transactions with the assessee.

While one supplier, Harsha Infra Projects Pvt Ltd, confirmed transactions worth ₹67.74 lakh, the AO treated the remaining purchases of ₹11.14 crore as bogus and added them to the income. The AO also disallowed 50% of the claimed labour charges of ₹33.53 lakh, citing a lack of verifiable records such as muster rolls, wage sheets, or PF/ESI details.

The CIT(A) rejected the assessee’s plea to admit additional evidence under Rule 46A, observing that the company had multiple opportunities during assessment but failed to furnish supporting documents.

It also noted that the explanation of reliance on “middlemen” for discounted supplies was unconvincing, as no agreements or correspondence were produced. The disallowance of 50% labour charges was deemed reasonable given the absence of statutory records and the cash nature of payments.

Represented by Advocate GVN Hari, the assessee argued that the authorities had misconstrued facts and ignored evidence showing reversal of purchase entries and GST input credits.Also argued that since the purchases were cancelled and reversed, the addition of ₹11.14 crore as bogus purchases was unjustified

Regarding labour charges, the assessee maintained that payments were made to daily‑wage workers hired from local sites, who lacked PAN or formal identification, and that the absence of PF/ESI records should not invalidate genuine expenditure supported by vouchers.

On the other hand, the revenue argued that the assessee failed to furnish documentary evidence during assessment despite repeated notices under sections 142(1) and 143(2). Also, the revenue stated that mere book entries or reversals without delivery challans, transport documents, or supplier confirmations cannot prove genuineness.

After examining the record, the Tribunal noted that the CIT(A) had rightly rejected the Rule 46A petition, observing that “time constraint” was not a sufficient cause for non‑submission of evidence. It held that the assessee failed to discharge its onus to prove the reality of transactions and that the Assessing Officer was justified in treating purchases worth ₹11.14 crore as non‑genuine.

On the issue of labour charges, the bench, comprising Judicial Member Shri Ravish Sood and Accountant Member Shri Omkareshwar Chidara, agreed with the lower authorities that payments made in cash to daily‑wage workers without muster rolls, attendance registers, or PF/ESI records were unverifiable. The 50 per cent disallowance of ₹16.76 lakh was deemed a reasonable estimate.

Accordingly, the ITAT held that the appeal was partly allowed for statistical purposes.

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