ACIT Vs KDM Impex (ITAT Mumbai)
Grey Market Sourcing? Entire Bogus Purchases Can’t Be Disallowed – Only 3% Profit Element Taxable : ITAT Mumbai
Mumbai ITAT has once again upheld the principle that where sales are accepted as genuine, entire bogus purchases cannot be disallowed & only the profit element embedded in such purchases can be taxed.
In the case of a diamond trader AO made an addition of ₹2.73 crore treating entire purchases from Jewel Diam & Rose Impex as bogus. These concerns were found to be part of the Bhanwarlal Jain group, well-known accommodation entry providers unearthed during search operations. AO, holding that purchases were non-genuine, added the entire amount u/s 69C.
On appeal, CIT(A) observed that assessee’s sales were not disputed & stock registers were maintained. Hence, rejection of entire purchases was not justified. It was held that assessee procured goods from the grey market at lower prices, thereby saving on purchase cost & earning extra margin. Relying on consistent judicial precedents, CIT(A) restricted the addition to 3% of purchase value (₹8.20 lakh).
Revenue carried the matter before Tribunal arguing that once purchases were found bogus, 100% addition ought to have been sustained. Reliance was placed on the decision of the Supreme Court in N.K. Proteins Ltd. & the Bombay High Court in Kanak Impex (India) Ltd..
