ITO Vs Rakesh Pruthaviraj Jain (ITAT Mumbai)
In this case, the ITAT Mumbai upheld the CIT(A)’s decision to restrict addition on alleged bogus purchases (₹2.46 crore) to 12.5%, rejecting the Assessing Officer’s higher estimation of 25%.
The Tribunal noted that the AO had relied solely on Sales Tax Department information and non-service of notices to suppliers, without conducting any independent enquiry or verification. At the same time, the assessee had furnished complete documentary evidence, including purchase bills, bank payments, VAT records, and stock details, which were not found to be false.
Importantly, the ITAT observed that:
- Sales were accepted and not disputed by the department
- Books were not rejected and quantitative details were intact
- No evidence showed that purchases were entirely bogus
Applying settled law, the Tribunal reiterated that where purchases are doubtful but sales are accepted, only the profit element embedded in such purchases can be taxed, not the entire amount.
The CIT(A)’s estimation of 12.5% was held to be reasonable and balanced, reflecting possible savings from grey market purchases.
Final Outcome:
- Addition restricted to 12.5% of alleged bogus purchases
- Revenue’s appeal dismissed
This ruling reinforces a consistent principle: Bogus purchase cases = tax only the profit element, not gross purchases
FULL TEXT OF THE ORDER OF ITAT MUMBAI
