- Case
- PR. COMMISSIONER OF INCOME TAX -12, MUMBAI v. DRISHA IMPEX PVT. LTD. (Bombay High Court, 07-04-2025)
- Law
- Income-tax Act.
Facts: The Respondent-Assessee, engaged in trading electronic items, toys, and electronics, filed a return declaring a total income of Rs. 10,60,910, which was accepted under Section 143(1) of the Income-tax Act. Subsequently, the case was reopened because purchases made by the Assessee were deemed non-genuine. The Assessing Officer (AO) added Rs. 6,15,71,284, representing the peak of the alleged bogus purchases, to the Assessee's income. The Assessee could not produce regular books of accounts, supplier confirmations, or addresses. Summons to suppliers were returned unserved, and the Assessee claimed loss of a hard disk containing accounts.
Procedural Posture: The Commissioner (Appeal) granted relief, confirming only 1% of the purchases as bogus. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which increased the disallowance to 3% of the peak purchases. The Revenue then appealed to the High Court challenging the ITAT's order, arguing for a 100% disallowance of the bogus purchases.
Issue: Whether the ITAT erred in restricting the disallowance to 3% of the impugned purchases after concluding that the purchases were bogus, and whether the Tribunal should have disallowed the whole of the peak purchases.
Holding: Yes, the High Court held that the ITAT erred in estimating only 3% of the alleged bogus purchases for disallowance. The High Court reversed the orders of the CIT(A) and the Tribunal, restoring the addition made in the assessment order by the Assessing Officer, thereby disallowing the entire amount of bogus purchases.
Reasoning: The Court found that the Assessee failed to discharge the onus of proving the genuineness of the purchases. The Assessee could not provide evidence of actual delivery of materials, confirmatory letters from suppliers, or produce audited books of accounts. The Tribunal's finding that the gross profit/net profit rate did not show abnormal variation was deemed insufficient justification for limiting the disallowance to 3%. The Court emphasized that the ITAT's approach contradicted established legal principles, particularly the decision in Kanak Impex (Supra), which confirmed the disallowance of the whole of the purchases in similar circumstances. The Court also noted the Assessee's non-cooperation in providing vital information.
