Case Law Details
Ketan Gokuldas Badiani Vs ITO (ITAT Mumbai)
Mumbai ITAT: In Bogus Purchase Cases, Addition Restricted to Gross Profit Element; 917-Day Delay Condoned
The Mumbai ITAT condoned a 917-day delay in filing the appeal after accepting the assessee’s explanation that the CIT(A)’s order had not come to his knowledge due to the auction of his residence under the SARFAESI Act, and that he discovered the order only upon checking the income-tax e-filing portal following an email regarding outstanding demand. On merits, the Tribunal found that the issue of bogus purchases had already been decided in the assessee’s own case for an earlier assessment year. Following its earlier order and the Bombay High Court’s decision in PCIT v. M. Haji Adam & Co., the Tribunal reiterated that where sales are accepted as genuine, the entire alleged bogus purchases cannot be disallowed. Instead, the addition should be restricted to the profit element embedded in such purchases by applying the same gross profit rate as that earned on genuine purchases. The matter was accordingly restored to the Assessing Officer for recomputation after granting the assessee an opportunity of hearing, and the appeal was partly allowed.
Cases Discussed
- Principal Commissioner of income tax vs. M Haji Adam & Co. (Bombay High Court), ITA number 1004 of 2016 dated 11/2/2019
- Nikunj Eximp Enterprises (Bombay High Court), writ petition no 2860, order dt 18.6.2014
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], dated 31.07.2023 for the assessment year 2010-11.
2. In spite of issuance of notice, none appeared on behalf of the assessee, nor any adjournment was sought.
3. On perusal of the grounds of appeal, it is noticed that the identical issue appears to have been decided in assessee’s own case for the assessment year 2009-10 in ITA No. 3094/Mum/2019. Therefore, we dispose of this appeal after hearing the Ld. DR.
4. The appeal is filed with a delay of 917 days, and the assessee has filed a petition for condonation of delay supported by an affidavit explaining the reasons for the delay as under:
“The delay is caused due to following reasons:
i) An order dated 31/07/2023, issued by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, under section 250 of the Income Tax Act, 1961 for A.Y. 2010-11. was decided on 31/07/2023 but. to the best of my knowledge, was not served upon me either physically or via valid electronic communication. This may be attributed to the fact that my residence was auctioned by the bank under the SARFAESI Act, 2002.
ii) I learned about the appellate order on 20.02.2026 when I received an email titled “Response in E-filing portal for Outstanding demands-reg”, which led me to log into the Income Tax e-filing portal.
iii) That upon logging into the portal and verifying the outstanding demand details, I discovered for the first time that my appeal before the Learned CIT(A) had been dismissed vide order dated 31/07/2023.
iv) That immediately thereafter, I contacted my Chartered Accountant and took steps to obtain a copy of the appellate order from the e-filing portal and to file the present appeal before the Hon’ble ITAT without any further delay.”
5. Upon perusal of the reasons explained by the assessee, we are of the view that there was reasonable cause for not filing the appeal within the prescribed time. Therefore, the delay of 917 days in filing the present appeal is condoned, and the appeal is admitted for hearing on merits.
6. On perusal of the assessment order, we observe that the Assessing Officer disallowed and treated an amount of ₹1,92,16,451/- as bogus purchases on the ground that the assessee had obtained only sales bills, invoices / accommodation entries without any movement of goods. The same was sustained by the Ld. CIT(A). We observe that the identical issue came up for consideration before the Tribunal in ITA No. 3094/Mum/2019 and the Tribunal vide order dated 01.01.2021, restricted the addition to the gross profit rate on such purchases at the same rate as applied to the genuine purchases, observing as under:
“This is an appeal by the Revenue wherein the Revenue is aggrieved that the
learned Commissioner of Income Tax (Appeals)-45, Mumbai (*Id.CIT(A) for short) dated 21.01.2019 has reduced the addition for bogus purchase of Rs.3,12,24,345/-done @100% by the Assessing Officer (A.O. for short) by sustaining only 5% for the assessment year (A.Y.) 2011-12.
2. The assessee in this case is engaged into the business of trading in personal articles like belts, wallets and buckles, etc.
3. The assessment was reopened upon information from the Sales Tax Department that the assessee has made Rs.3,12,24,345/- purchases from bogus dealers. The A.O. made 100% addition of the bogus purchase.
4. Upon assessees appeal, the ld. CIT(A) noted that the sales has not been doubted. Accordingly, placing reliance upon several case laws and upon the facts of the case, he sustained 5% disallowance out of the bogus purchases.
5. Against the above order, the Revenue is in appeal before the ITAT.
6. We have heard the learned departmental representative and perused the records. We find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon’ble Jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt 18.6.2014). In this case the Hon’ble High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However, the facts of the present case indicate that the assessee has made purchase from the grey market.
Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer.
7. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that as held by Hon’ble Bombay High Court in its recent judgement in the case of Principle Commissioner of income tax vs. M Haji Adam & Co (in ITA number 1004 of 2016 dated 11/2/2019 in paragraph 8 there off), the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases.
8. We respectfully following the aforesaid judgment of the Hon’ble High Court set aside the matter to the file of the assessing officer with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases. Needless to add the assessee should be granted adequate opportunity of being heard.
9. In the result, the Revenue’s appeal is partly allowed.”
7. Respectfully following the order of the Tribunal in assessee’s own case, we direct the Assessing Officer to restrict the addition in respect of bogus purchases by making the addition only to the extent of the gross profit rate on such purchases at the same rate as applied to the genuine purchases declared by the assessee. Needless to say, the assessee should be granted an opportunity of being heard.
8. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 21/07/2026
Author Bio
