Drisha Impex Pvt. Ltd. Vs PCIT-12 (Supreme Court of India)
Summary: The Supreme Court of India dismissed the Special Leave Petitions filed by Drisha Impex Pvt. Ltd. against the Bombay High Court’s judgment restoring additions made on account of bogus purchases. The Supreme Court, after hearing the petitioner’s counsel and examining the materials on record, found no good reason to interfere with the High Court’s orders. Consequently, the Special Leave Petitions were dismissed, leaving the High Court’s decision undisturbed. The underlying dispute concerned Assessment Years 2009-10 and 2010-11, where the Revenue had challenged the Mumbai Income Tax Appellate Tribunal’s decision restricting additions arising from non-genuine purchases to an estimated profit percentage.
Read Bombay HC Judgment in this case: Bombay HC Restores Full Bogus Purchase Addition, Rejects 3% Estimation
Drisha Impex Pvt. Ltd., engaged in trading electronic items, toys and other goods, had claimed purchases from certain suppliers whose genuineness was questioned during reassessment proceedings. For Assessment Year 2009-10, the Assessing Officer found that the assessee had failed to produce audited books of account, stock registers, delivery challans, supplier confirmations, relevant purchase ledgers and other essential documentary evidence. Summons issued to suppliers were returned unserved, their addresses could not be verified, and the assessee claimed that its accounting records were unavailable. Although the disputed purchases amounted to ₹9,12,33,855, the Assessing Officer restricted the addition to the peak amount of ₹6,15,71,284. The Commissioner (Appeals) subsequently reduced the disallowance to 1%, while the ITAT enhanced it to 3% on the reasoning that the recorded sales were not disputed, payments had been made through banking channels and only the profit element allegedly arising from grey-market purchases should be brought to tax.
The Bombay High Court held that the ITAT’s approach was legally unsustainable because the Tribunal had expressly found that the assessee failed to discharge the primary burden of proving the genuineness of the purchases. Those adverse findings had attained finality because the assessee had not challenged them. Significantly, the assessee had never contended before the Assessing Officer, Commissioner (Appeals) or Tribunal that the goods were purchased from the grey market. The Tribunal had introduced that explanation on its own, without any supporting factual foundation. The High Court characterised this reasoning as speculative and perverse, particularly because the Tribunal had also recorded that the gross profit and net profit rates did not show abnormal variations. The Court held that, once the purchases were found to be bogus on the evidence available, the Tribunal could not arbitrarily substitute an estimated 3% addition based on a theory never advanced or established by the assessee.
The High Court also rejected the assessee’s objections concerning the absence of evidence showing a return flow of cash, denial of cross-examination of suppliers and failure to expressly invoke Section 69C of the Income-tax Act, 1961. It observed that the Assessing Officer had undertaken independent investigations and that the addition was not based solely on statements obtained from the Sales Tax Department. The assessee had failed to substantiate the underlying purchase transactions despite adequate opportunities. Regarding Section 69C, the Court held that the provision was enabling in nature and that the substance of the unexplained expenditure issue had been examined throughout the assessment proceedings. Mere failure to specifically mention the provision in the notices or orders did not invalidate the addition when the statutory authority existed and no prejudice was caused to the assessee. The Court relied particularly on PCIT Vs Kanak Impex (India) Ltd. and referred to the principles discussed in La Medica and Kaveri Rice Mills concerning purchases found to be bogus.
Accordingly, the Bombay High Court reversed the orders of the Commissioner (Appeals) and ITAT and restored the additions made by the Assessing Officer, answering the substantial questions of law in favour of the Revenue. The Supreme Court subsequently declined to interfere and dismissed the Special Leave Petitions through a brief order without independently examining the merits. The combined outcome establishes that where the factual findings conclusively establish failure to substantiate purchases, and no evidence supports an alternative explanation such as procurement from the grey market, an appellate authority cannot automatically restrict the disallowance to an estimated profit percentage merely because sales are recorded or payments were made through banking channels. The decision must, however, be understood in the context of the particular evidentiary findings and the assessee’s failure to challenge them.
FULL TEXT OF THE SUPREME COURT ORDER
1. Having heard the learned counsel appearing for the petitioner and having gone through the materials on record, we find no good reason to interfere with the impugned orders passed by the High Court.
2. The Special Leave Petitions are, accordingly, dismissed.
3. Pending applications, if any, also stand disposed of.
