Akashkumar Shah Vs ITO (ITAT Pune)
Pune ITAT Restricts Bogus Purchase Addition to 25% of ₹16.54 Crore Actually Found Unproved – Cannot Apply Disallowance to Entire ₹25.01 Crore Purchases
The Pune ITAT partly allowed the assessee’s appeal against an addition arising from alleged non-genuine purchases. The assessee had declared total purchases of ₹25.01 crore. The AO treated the entire purchases as non-genuine but, following Vijay Proteins Ltd., added 25% thereof, i.e. ₹6.25 crore, representing the alleged profit embedded in such purchases.
The assessee contended that the purchases were supported by party-wise details, GSTR-2A statements, invoices, transport/lorry receipts and payments through banking channels, and further pointed out that the corresponding sales had not been doubted.
The Tribunal, however, noticed several serious deficiencies. Many suppliers had their GST registrations cancelled within a short period, several were non-filers of income-tax returns and none had responded to the AO’s Section 133(6) notices. Particularly, one supplier, Madan Lal of Saini Enterprises, from whom purchases of ₹4.21 crore were claimed, had himself stated during his assessment that he had never carried on any business and that somebody might have used his identity.
The Tribunal also held that E-way bills by themselves do not prove actual movement of goods, since they are generated electronically before transportation. Though lorry receipts were produced, the assessee could not demonstrate GST payment under reverse charge on GTA services. Similarly, invoices were regarded as self-generated documents which, standing alone, could not establish genuineness.
Another significant factor was the tax audit report. Despite the assessee claiming substantial trading purchases, the report did not furnish quantitative details of traded goods, and there was no closing stock. The Tribunal observed that the auditor had also not recorded any qualification in this regard.
The Tribunal further noticed that the capital account placed on record contained another person’s name despite bearing a CA’s stamp. Moreover, while the return disclosed only one bank account, payments to the alleged suppliers were claimed to have been made from a Kotak Mahindra Bank account which had not been disclosed in the return.
On an overall consideration, the ITAT agreed that the assessee had failed to establish the genuineness of purchases of ₹16,53,88,121 from the suppliers specifically examined by the AO. However, it found that the AO had wrongly applied the 25% profit addition to the entire purchases of ₹25,00,93,128, even though only ₹16.54 crore of purchases had been identified and examined as non-genuine.
Accordingly, following the Bombay High Court decision in PCIT v. Mohommad Haji Adam & Co., the Tribunal restricted the addition to 25% of ₹16,53,88,121, i.e. approximately ₹4.13 crore, instead of ₹6.25 crore. The ITAT treated this 25% as the profit likely embedded in the unproved purchases, rather than disallowing the entire purchase amount. The appeal was partly allowed.
Key takeaway: Even where purchases are held non-genuine, an estimated profit addition cannot mechanically be applied to the assessee’s entire purchases. It must be confined to those purchases whose genuineness has actually been found unproved. At the same time, banking payments, invoices and E-way bills may not by themselves establish genuineness where surrounding evidence-including supplier verification, GST status, transport evidence and books/audit records-points otherwise.
Cases Discussed
