DCIT-19(3) Vs S. Rasiklal and Co. (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, has dismissed an appeal by the Deputy Commissioner of Income Tax (DCIT) and upheld an order by the Commissioner of Income Tax (Appeals) [CIT(A)] that restricted an addition for bogus purchases to a 12.5% gross profit rate. The case involves S. Rasiklal and Co., which was assessed for the Assessment Year 2009-10.
The original assessment by the tax authorities disallowed the entire amount of Rs. 3,73,60,738 in purchases made from two firms, M/s Impex Gems and M/s Jewel Diam. These firms were identified as being controlled by “hawala dealers.” The assessing officer (AO) added the entire sum to the company’s total income.
On appeal, the CIT(A) reduced the addition, concluding that a 100% disallowance was not warranted. The CIT(A) instead directed the AO to restrict the addition to 12.5% of the total purchases, representing the gross profit margin on these transactions. The CIT(A)’s decision was based on judicial precedents, including the Bombay High Court’s ruling in the case of PCIT vs. S.V. Jiwani [(2022) 145 taxmann.com 230 (Bom)].
The ITAT, in its review, noted that the assessee did not appeal the 12.5% addition, and the CIT(A)’s decision was in “deference to the binding precedent of the Hon’ble jurisdictional High Court” and in “adherence to the principles of judicial discipline.” The tribunal found no reason to interfere with the lower appellate authority’s order and dismissed the revenue’s appeal. The ruling reinforces the principle of limiting additions on unverified purchases to a reasonable profit rate, particularly when the sales from those purchases are not disputed.
