Kuppaswamy Murthy Vs ITO (ITAT Bangalore)
In the case of Kuppaswamy Murthy, the Bangalore ITAT deleted the addition of ₹20.16 lakh made on account of alleged bogus purchases from a supplier flagged by the Commercial Tax Department.
The AO had treated purchases as bogus solely because the supplier (M/s Royal Enterprises) was identified as a bill trading/entry provider, despite the assessee furnishing:
- Purchase invoices,
- Bank payment proof,
- Sales and books of account.
However, ITAT found critical flaws in the assessment (pages 12–14):
- No independent enquiry was conducted by the AO,
- No verification of stock, transport, or actual movement of goods,
- Addition was based purely on third-party information (“borrowed satisfaction”),
- Even more glaring—only part of purchases was disallowed (₹20.16L out of ₹30.99L) without identifying specific bogus invoices → purely ad hoc.
Key observations:
- Information from another department is only a starting point, not conclusive evidence,
- Sales were accepted, hence purchases cannot be disallowed in isolation without disproving actual business activity,
- No cross-examination or material provided- violation of natural justice,
- Suspicion cannot replace evidence, even applying “human probability” test.
Outcome:
- Entire addition deleted,
- ITAT held disallowance was based on presumption, not proof,
- Appeal allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
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