ITO Vs Anil Transport Service (ITAT Mumbai)
The appeal before the Tribunal arose from an order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year 2009–10, concerning additions made on account of alleged bogus purchases and disallowance of expenses.
The assessee, a partnership firm, had declared total income of ₹19,78,876, reporting sales of ₹4.53 crore and purchases of ₹3.57 crore. The Assessing Officer (AO), based on information from the Investigation Wing and statements recorded during search proceedings in related group concerns, alleged that the assessee had made purchases of ₹2,17,94,500 from entities providing accommodation entries. The AO relied primarily on the statement of a group director who admitted to booking bogus purchases across group entities. Accordingly, the AO added the entire amount of ₹2.17 crore as bogus purchases and also disallowed 10% of certain expenses (₹1,04,000).
On appeal, the CIT(A) examined the matter in detail. It was observed that although there were statements indicating accommodation entries, the AO had not disputed the sales declared by the assessee. The CIT(A) held that in a trading activity, sales cannot occur without corresponding purchases. Therefore, treating the entire purchases as non-genuine would effectively amount to taxing gross receipts, which is not permissible. Relying on various judicial precedents, the CIT(A) concluded that only the profit element embedded in such purchases could be taxed. The profit element was estimated at 15% of the disputed purchases, resulting in a sustained addition of ₹32,69,175, while the balance addition of ₹1.85 crore was deleted.
