ITO Vs Kruti Sandeep Shah (ITAT Mumbai)
After Rejecting Books, AO Can’t Tax Entire Purchases: ITAT Mumbai Sets Aside 100% Bogus Purchase Addition
Mumbai ITAT disposed of the Revenue’s appeal by reiterating the settled principle governing additions in bogus purchase cases.
The AO had reopened the assessment on the basis of information from the Investigation Wing alleging bogus purchases of ₹34.20 lakh from hawala parties. In the absence of compliance, the AO rejected the books of account u/s 145(3) and proceeded to add the entire purchase amount as non-genuine, determining assessed income at ₹38.25 lakh against returned income of ₹4.05 lakh.
The CIT(A) deleted the 100% disallowance and restricted the addition to 10% of the alleged bogus purchases as estimated profit element.
Upholding the legal position, the ITAT held that once books of account are rejected, the AO cannot pick & choose individual items from the rejected books for separate addition. The only permissible course thereafter is to estimate net profit on a reasonable basis, such as past accepted results or industry norms. Accordingly, the Tribunal set aside both the AO’s 100% disallowance and the CIT(A)’s ad-hoc estimation, and remanded the matter to the AO for fresh estimation of net profit. Only the differential profit, if any, over the declared profit can be brought to tax.
The Revenue’s appeal was thus disposed of in terms of the above directions.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
