PCIT Vs Kanak Impex (India) Ltd. (Bombay High Court)
In the case of PCIT vs. Kanak Impex (India) Ltd., the Bombay High Court ruled on the disallowance of Rs. 20.06 crore claimed as bogus purchases by the assessee. The court held that the assessee failed to substantiate the purchases during reassessment proceedings, despite multiple notices from the Assessing Officer (AO). The appellate authorities—CIT(A) and Tribunal—restricted the disallowance to 12.5% of the claimed purchases, citing estimated profit margins. However, the High Court criticized this approach, stating it contradicted Section 69C of the Income Tax Act, which disallows deductions for unexplained expenses. It emphasized that when purchases are proven to be non-genuine, the entire amount must be disallowed, as partial disallowance effectively legitimizes bogus claims. The court referred to precedents such as N.K. Industries Ltd. and Shoreline Hotel (P.) Ltd., supporting the principle that accommodation entries for purchases recorded in the books without evidence render the entire expense disallowable. The assessee’s reliance on documents from the original assessment proceedings was deemed insufficient, as the reassessment targeted the genuineness of purchases revealed to involve hawala operators. The court highlighted the assessee’s failure to address this issue or appear during reassessment, thereby justifying the AO’s full disallowance. It concluded that the appellate authorities erred in estimating profits instead of confirming the AO’s decision, reiterating that the entire bogus purchase amount must be disallowed to prevent misuse of provisions like Section 69C.
