Jagruti Jatin Shah (Deceased) Vs ITO (ITAT Mumbai)
Bogus Purchase Addition Can’t Be 100% When Sales Are Accepted: ITAT Orders GP-Based Estimation
The Mumbai ITAT held that where the Revenue accepts the sales declared by the assessee, it is generally not permissible to disallow the entire amount of alleged bogus purchases. At best, only the profit element embedded in such purchases can be brought to tax. Accordingly, the Tribunal restored the matter to the Assessing Officer for fresh adjudication in line with the Bombay High Court’s decision in Mohommad Haji Adam & Co..
The case involved an addition of ₹36.51 lakh made on account of alleged hawala purchases. The Assessing Officer relied upon information received from the Sales Tax Department and notices issued under Section 133(6) remained unanswered by the suppliers. Though the assessee furnished purchase bills, ledger accounts and demonstrated that payments were made through banking channels, it could not produce the suppliers or furnish transportation details. Consequently, the AO treated the entire purchases as bogus and added the amount under Section 69C.
The Tribunal noted that the books of account had not been rejected and the sales declared by the assessee had been accepted. Therefore, it was possible that the assessee had actually procured the goods from the open market while obtaining accommodation bills from the listed parties. In such circumstances, taxing the entire purchase amount would be unjustified and only the profit embedded in the purchases could be estimated and added.
On the challenge to reopening, the Tribunal rejected the assessee’s argument of “borrowed satisfaction” and upheld the validity of reassessment, observing that the Assessing Officer had tangible information regarding alleged bogus purchases and the assessee failed to substantiate actual delivery of goods.
The matter was therefore remanded to the Assessing Officer to recompute the addition by applying the principles laid down in Mohommad Haji Adam & Co., after granting adequate opportunity to the assessee to furnish evidence regarding gross profit rates and purchase transactions
FULL TEXT OF THE ORDER OF ITAT MUMBAI
