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Issues: (i) Whether the delay of 169 days in filing the appeal before the Tribunal should be condoned; (ii) Whether the addition of Rs. 10,22,92,928/- made under section 69C of the Income-tax Act, 1961 on account of alleged bogus purchases is sustainable or requires modification.
Issue (i): Whether the delay of 169 days in filing the appeal should be condoned.
Analysis: The assessee filed a sworn affidavit explaining delay due to seeking legal advice and serious ill health of a director's son; the delay was neither wilful nor deliberate; no mala fide intent or benefit from delay shown; Revenue raised no objection.
Conclusion: Delay of 169 days is condoned and the appeal is admitted for adjudication on merits.
Issue (ii): Whether the addition of Rs. 10,22,92,928/- under section 69C on account of alleged bogus purchases is sustainable.
Analysis: The assessee produced purchase invoices, consignment notes, purchase and sales registers, ledger entries, bank statements showing payments, audited accounts, one-to-one reconciliation and GST Form 2A which were not controverted by independent enquiry. The sole basis for treating purchases as bogus was a statement of the Director recorded under section 131 by another authority; that statement, read in entirety, indicated sale-in-transit (a recognised commercial practice) and did not record admission of receipt of cash, accommodation entries, or circular movement of funds. The Tribunal examined the binding precedent relied upon by Revenue (Kanak Impex) and held that its full-rigor application depends on presence of foundational incriminating material (e.g., sales-tax investigations, VAT fraud findings, hawala operator linkage, cash trails), which are absent here. The factual matrix warranted a calibrated approach between complete disallowance and full deletion.
Conclusion: The addition under section 69C cannot be sustained to the extent of the entire purchase amount. The addition is restricted to an estimated 6% of the impugned purchases to account for gross profit and possible suppression; the remainder (94%) of the addition is deleted. The Assessing Officer is directed to recompute accordingly.
Final Conclusion: The appeal is partly allowed; delay in filing is condoned and the section 69C addition is reduced to 6% of the impugned purchases, with directions for recomputation.
Ratio Decidendi: Where documentary evidence of purchases is complete and remains uncontroverted and there is no independent corroborative incriminating material (such as investigation reports, cash-trail or findings of VAT fraud), section 69C cannot be applied to disallow the entire purchase amount merely on the basis of a statement; in such factual matrices the addition may be restricted to a reasonable estimation of the profit/suppression element.
Addition under section 69C for alleged bogus purchases reduced to estimated 6% profit inclusion after factual calibration of precedent
Disallowance for unexplained purchases cannot rest solely on a director's statement absent independent enquiry or corroborative evidence; documentary proof and commercial practices (sale in transit) must be considered. A binding precedent requiring full disallowance applies only when its foundational facts exist, and cannot be mechanically applied here. The factual matrix showed opacity suggesting possible profit suppression but not wholly fictitious purchases, warranting calibration of the precedent and sustaining an estimated addition equal to the profit element (6% of purchases); appeal is partly allowed with the reduced addition upheld.
Addition u/s 69C - bogus purchases - Likelihood of profit suppression - addition based on statement of the Director of the assessee company, recorded u/s 131 by another authority - contention of the AR that the statement of the Director has been misread and misunderstood merits serious consideration HELD THAT:- In the absence of any independent enquiry, corroborative evidence, or material establishing bogus purchases or unexplained expenditure, the addition of the entire purchase amount under section 69C is not sustainable merely on the basis of a statement, particularly when the documentary evidences remain uncontroverted. The ratio laid down in Kanak Impex [2025 (3) TMI 230 - BOMBAY HIGH COURT] to be followed namely that where the assessee fails to prove the genuineness of purchases and the source of expenditure, the provisions of section 69C mandate disallowance of the entire amount, is binding. It is equally well settled that the application of a binding precedent is contingent upon the existence of the foundational facts on which such precedent rests. A judgment cannot be mechanically applied divorced from its factual matrix. The Hon’ble Supreme Court has repeatedly held that a decision is an authority for what it actually decides and not for what may logically follow therefrom. In the present case, sole basis for the impugned addition is the statement of the Director, wherein it is stated that goods were sold in transit and physical delivery was not taken. When read in its entirety, the statement does not contain any admission of bogus purchases, accommodation entries, or receipt of cash. Sale of goods in transit, as explained by the assessee, is a recognised commercial practice in the textile trade, and in the absence of corroborative material, such statement by itself cannot be elevated to conclusive proof of unexplained expenditure within the meaning of section 69C. At the same time, we are unable to lose sight of the fact that the nature of transactions, coupled with sale-in-transit mechanism, does introduce an element of opacity, which cannot be entirely ignored. While the evidentiary threshold required to sustain 100% disallowance under section 69C, as upheld in Kanak Impex, is not met in the present case, the factual matrix does justify a reasonable inference of possible suppression of profit. The present case, therefore, stands on a distinct factual footing, falling between two extremes: i. it is not a case where the purchases are proved to be entirely fictitious so as to warrant full disallowance under section 69C, nor ii. is it a case where the transactions are so transparent as to warrant deletion of the addition in toto. Thus, we are of the considered view that restricting the addition to the profit element embedded in such transactions would best subserve the ends of justice. Such an approach does not dilute the ratio of Kanak Impex, but represents a fact-based calibration of its application, consistent with the statutory scheme and principles of judicial discipline. Considering the likelihood of profit suppression, an estimated addition at 6% of the impugned purchases, comprising gross profit and suppression element, is justified and is accordingly sustained. Appeal of the assessee is partly allowed.