PCIT Vs Mohommad Haji Adam & Co. (Bombay High Court)
Bombay High Court in PCIT vs. Mohommad Haji Adam & Co. dealt with multiple appeals filed by the Revenue against a common judgment of the Income Tax Appellate Tribunal (ITAT). The core issue in all appeals was whether the ITAT was justified in not confirming the entire addition made by the Assessing Officer (AO) towards alleged bogus purchases shown by the assessee through accommodation bills issued by certain entities.
The assessee, a trader in fabrics, had shown purchases worth approximately Rs. 29.41 lakh from three concerns — M/s Manoj Mills, M/s Astha Silk Industries, and M/s Shri Ram Sales & Synthetics. During survey operations, the Income Tax Department discovered that these entities were engaged in issuing bogus purchase bills without supplying any goods. Based on statements recorded during the survey, the AO concluded that the purchases were fictitious and added the entire amount of Rs. 29.41 lakh as the assessee’s additional income.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] accepted that the purchases were not genuine. However, the CIT(A) noted that the Revenue had accepted the assessee’s sales and there was no dispute regarding them. He reasoned that since sales were accepted, it was not logical to treat purchases as completely non-existent because sales could not occur without corresponding purchases. He, therefore, held that the entire purchase amount could not be added to income. Instead, the CIT(A) deleted the full addition and restricted it to 10% of the purchase amount as an ad hoc disallowance. He also directed the AO to make an addition only to the extent of the difference between the gross profit (GP) rate on genuine purchases and that on the purchases made from the disputed parties.
