ITO Vs Arvind Ratanchand Jain (ITAT Mumbai)
The Mumbai ITAT upheld the restriction of addition to 12.5% of alleged bogus purchases, rejecting the AO’s higher addition of 25%, and reaffirmed the settled principle that only profit element embedded in such purchases can be taxed.
The AO had treated purchases of ₹54.27 crore as non-genuine due to:
- Suppliers having cancelled GST registrations,
- Circular trading patterns,
- Lack of proper transport and documentation,
- Non-commensurate banking transactions.
Accordingly, AO made 25% addition (₹13.56 crore).
However, the CIT(A):
- Noted that sales were accepted, hence purchases cannot be entirely bogus,
- Held that goods must have been procured from grey market,
- Applied judicial precedent (Simit P. Sheth) and restricted addition to 12.5% (₹6.78 crore).
The ITAT upheld this view, observing:
- Acceptance of sales implies existence of purchases,
- Entire disallowance is unjustified; only embedded profit is taxable,
- Estimation of 12.5% is reasonable and consistent with jurisprudence.
The Tribunal emphasized:
- In bogus purchase cases, substance over form applies,
- Estimation depends on facts, nature of business, and margins,
- No uniform rate, but 12.5% is widely accepted benchmark in such cases.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Both the appeals of the revenue filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2020-21 and 2021-22, date of orders 24.11.2025 and 27.11.2025 respectively. The impugned orders emanated from the order of the Assessment Unit Income Tax Department (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 144B of the Act date of order 26.09.2022 and 19.12.2022 for A.Y. 2020-21 and 2021-22 respectively.
