ITO Vs Ashokkumar Kothari (ITAT Mumbai)
Only Profit Element Taxable in Bogus Purchase Cases: ITAT Mumbai Upholds 20% Estimation Where Sales Are Accepted
The Mumbai Bench of the ITAT dismissed the Revenue’s appeal for AY 2010-11 and affirmed the order of the CIT(A) restricting the disallowance on account of alleged bogus purchases to 20% of the purchase value, instead of the 100% disallowance made by the Assessing Officer. The assessee, engaged in trading of plywood, timber and laminate sheets, was alleged to have obtained accommodation purchase bills from hawala operators based on information received from the Directorate of Investigation, Mumbai.
The Tribunal noted that the Assessing Officer had not doubted the sales declared by the assessee, nor had he recorded any adverse finding regarding quantitative details, stock consumption or realization of sale proceeds. On these admitted facts, the ITAT held that it could not be presumed that no purchases were made at all. At best, the case was one of purchases made from the grey/open market with accommodation bills obtained to regularize the transactions.
Relying on settled judicial principles, the ITAT reiterated that where sales are accepted as genuine, the entire purchase amount cannot be disallowed, as that would result in taxation of gross receipts rather than real income. Only the profit element embedded in such non-genuine purchases can be brought to tax. The estimation of profit at 20% adopted by the CIT(A), having regard to the nature of business and surrounding circumstances, was held to be reasonable and not excessive.
Finding no perversity or arbitrariness in the CIT(A)’s approach and noting that the Revenue failed to bring any material to justify a 100% disallowance, the ITAT upheld the restricted addition and dismissed the Revenue’s appeal
FULL TEXT OF THE ORDER OF ITAT MUMBAI
