The Bombay High Court has rapped Income Tax Appellate Tribunal (ITAT) for a casual approach and held that entire bogus purchases should be disallowed, not just 3%.
The bench of Justice M.S. Sonak and Justice Jitendra Jain has observed that the Tribunal erred by estimating only 3% of the alleged purchases as bogus to justify disallowance. There was a clear error of law, and the ITAT’s approach contradicted several decisions. By indulging in speculative reasoning that was never urged by or on behalf of the Assessee, the Tribunal should not have estimated only 3% instead of confirming the disallowance of all the purchases.
The Respondent-Assessee is engaged in trading in electronic items, toys, electronics, etc. A return of income was filed declaring total income of Rs.10,60,910, and the same was accepted under Section 143(1) of the Income-tax Act.
Subsequently, the case of the Assessee was reopened on the ground that the purchases made by the Assessee from certain parties were non-genuine. An order under Section 143 (3) read with Section 147 of the Income Tax Act was passed, wherein Rs.6,15,71,284, the peak of the purchases made from the parties mentioned in the assessment order, was added as bogus purchases.
The Assessing Officer (AO) has given his reasoning for making the disallowance. It is important to note that in the assessment order, AO recorded that Respondent-Assessee has expressed its inability to produce regular books of accounts that were duly audited under the Income-tax Act. The Assessee has confirmed that no incidental expenses relating to these purchases by way of octroi, transport, delivery expenses, etc. were incurred. It also records the submissions made by the Respondent-Assessee, during the assessment, that they are not able to locate the suppliers.
The assessment order was challenged before the Commissioner (Appeal), who, granted substantial relief to the Respondent- Assessee by confirming only 1% of the bogus purchase.
The department challenged the order of the Commissioner (Appeal) by filing an appeal to the Tribunal, and the Tribunal, by the order, increased the disallowance from 1% estimated by the Commissioner (Appeal) to 3% of the peak of the purchases, which came to Rs.20,93,100/-.
The department contended that the Respondent-Assessee has failed to discharge the onus of proving the purchases. However, after giving such a finding the Tribunal erred in confirming disallowance only 3% of the purchases and not the whole of the peak of total purchases found to be bogus. The Tribunal having concluded that the purchases were bogus ought to have disallowed the whole of the peak purchases and not 3%. The Assessee has not challenged the finding of the Tribunal, and the findings of the Tribunal being final, this court cannot examine whether the Assessee has proved the purchases.
The assessee contended that statements recorded by the Sales Tax Department of the suppliers were not furnished during the assessment proceedings. He relied heavily on the submissions made before the CIT (A). The Assessee had filed the detailed paper book with the Tribunal and correlated each purchase and sale. He further submitted that there is no material to show that the Respondent-Assessee has received cash. The disallowance made by the officer was not justified. The provisions of Section 69C of the Income Tax Act were not invoked by any of the authorities.
The court reversed the orders passed by the CIT(A) and the Tribunal and restored the addition made in the assessment orders by the Assessing Officer.
Case Details
Case Title: PCIT Versus M/s Drisha Impex Pvt. Ltd.
Case No.: Income Tax Appeal No.1240 Of 2018 With Income Tax Appeal No.2087 Of 2018
Date: 7 April 2025
Counsel For Petitioner: Shilpa Goel
Counsel For Respondent: K Gopal and Ms Neha Paranjape
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