ITO Vs Deepak JagshibhaiVisaria (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT), Mumbai, has dismissed two appeals filed by the Income Tax Officer (ITO) against separate orders issued by the National Faceless Appeal Centre (NFAC), Delhi, for the assessment years 2009-10 and 2011-12. The appeals, both dated June 18, 2024, challenged the NFAC’s decisions that partially allowed relief to Deepak Jagshibhai Visaria concerning additions made by the Assessing Officer (AO) under Section 143(3) of the Income-tax Act, 1961. The AO had, based on information from the Maharashtra Sales-tax Department, alleged that Visaria made bogus purchases amounting to ₹2,50,59,386 and added back a gross profit of 12.5% on this amount to the assessee’s total income.
The NFAC, while acknowledging the alleged bogus nature of the purchases, reduced the addition to 4% of the purchase amount, citing several judicial precedents. This led the revenue to file the current appeals before the ITAT. Although the revenue’s appeals fell below the monetary threshold set by the Central Board of Direct Taxes (CBDT) for ITAT filings, the Departmental Representative (DR) argued that the case fell under an exception concerning organized tax evasion and accommodation entries, which allowed the appeals to be heard on merit. The assessee’s representative did not object to this contention.
The ITAT, after hearing both sides and reviewing the documents, upheld the NFAC’s decision. The Tribunal relied heavily on the judgment of the Bombay High Court in the case of PCIT Vs. Mohammad Haji Adam & Co. ([2019] 103 taxmann.com 459), which established that when sales are not disputed, additions for bogus purchases should be restricted to the profit element embedded in those purchases, rather than disallowing the entire purchase amount. The NFAC had followed this precedent and applied a gross profit rate of 4%.
The ITAT also took note of a similar case involving the assessee’s brother, where both the ITAT and the Bombay High Court had granted relief. Furthermore, the Tribunal cited another Bombay High Court ruling in PCIT vs. S.V. Jiwani ((2022) 145 taxmann.com 230), which reiterated that only the profit component of bogus purchases should be considered as the assessee’s income. Considering these binding judicial precedents from the jurisdictional High Court, the ITAT found no fault in the NFAC’s order and consequently dismissed the revenue’s appeals. The decision in the lead case (ITA No. 4082/Mum/2024 for AY 2009-10) was applied mutatis mutandis to the other appeal (ITA No. 4077/Mum/2023 for AY 2011-12).
FULL TEXT OF THE ORDER OF ITAT MUMBAI
