Kalpataru Projects International Ltd. Vs DCIT (ITAT Mumbai)
Search After 10 Years Can’t Taint Genuine Purchases: ITAT Mumbai Deletes Entire s.37(1) Disallowance in Kalpataru / JMC Merger Cases
ITAT Mumbai (E Bench) in Kalpataru Projects International Ltd. vs DCIT & cross-appeal (ITA Nos. 5962 to 5965 & 6112/Mum/2025; AYs 2013-14, 2014-15, 2015-16 & 2017-18; order dated 24.12.2025) has allowed all assessee appeals and dismissed the Revenue appeal, deleting even the residual 12.5% ad-hoc disallowance of alleged non-genuine purchases sustained by CIT(A).
The dispute related to purchases/sub-contract expenses of ₹2.70 crore incurred by JMC Projects (India) Ltd., a subsidiary which later merged with Kalpataru w.e.f. 01.04.2022. Based on a search conducted in August 2023 (after a gap of nearly 10 years) and statements of certain employees, the AO reopened the assessment u/s 147 and disallowed the entire purchases u/s 37(1), alleging non-genuineness. CIT(A), despite recording extensive findings in favour of the Assessee, restricted the disallowance to 12.5% merely “to plug leakage of revenue”.
ITAT held that:
- No incriminating material was found during search to prove bogus or accommodation purchases
- Statements relied upon were of employees who joined much later or were not connected with JMC’s procurement during the relevant years
- Unfamiliarity with vendors ≠ bogus transactions, especially in a large organisation with 8000+ employees
- Field inspection conducted in 2023 cannot discredit transactions of FY 2012-13
- Purchases were linked to executed projects, revenue from which was accepted by the Department
- Vendors were regular suppliers, even in subsequent years, and payments were through banking channels
- Once expenditure is shown to be wholly & exclusively for business, s.37(1) disallowance cannot survive
The Tribunal strongly criticised the ad-hoc 12.5% disallowance, holding that there was no legal or factual basis for sustaining even partial disallowance after accepting that transactions were genuine and supported by business activity. It also distinguished Bombay HC ruling in Drisha Impex on facts.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
