2025 (7) TMI 1168 - AT - Income Tax

Bogus purchases under section 69C: Only profit element taxable, not entire purchase value disallowed

Ramjibhai Kesaraji Patel Versus Income Tax Officer, Ward 1 (2) (2), Vadodara

The ITAT Ahmedabad addressed additions under section 69C for alleged bogus purchases. The assessee provided documentary evidence including VAT invoices, ... Estimation of income - Addition u/s 69C - bogus purchases - HELD THAT:- From the documentary evidence submitted by the assessee, including VAT invoices, bank statements, and audited books of accounts, it is evident that the sales disclosed by the assessee have not been disputed or doubted by the AO with complete evidences. It is also fact on record that concerns have been raised regarding the genuineness of certain suppliers, particularly in light of the history and evidences of accommodation entry providers. In this context, it is a well-settled principle of law, as consistently upheld by various decisions that in cases involving suspected bogus purchases, the entire value of such purchases should not be disallowed. Instead, only the profit element embedded within such purchases, being the portion that may represent unexplained or unverifiable expenditure, is liable to be brought to tax, so as to prevent the leakage of revenue. We consider it fair and reasonable to restrict the disallowance to 8% of the impugned purchase. ISSUES: Whether the addition of Rs. 15,28,644/- under section 69C of the Income-tax Act, 1961, on account of alleged bogus purchases, was justified.Whether the entire value of alleged bogus purchases can be disallowed or only the profit element embedded therein is taxable.Whether delay in filing the appeal before the Commissioner of Income-tax (Appeals) was justified and if the delay should be condoned.Whether the Commissioner of Income-tax (Appeals) has jurisdiction under amended section 251 of the Act to set aside the assessment and refer the matter back to the Assessing Officer. RULINGS / HOLDINGS: The addition of Rs. 15,28,644/- under section 69C was not fully justified as the assessee furnished documentary evidence including VAT invoices, bank statements, and audited books of accounts substantiating the genuineness of purchases.It is a well-settled principle that in cases involving suspected bogus purchases, the entire purchase value should not be disallowed; instead, only the profit element embedded in such purchases is liable to be brought to tax to prevent leakage of revenue.The delay in filing the appeal before the Commissioner of Income-tax (Appeals) was condoned by the Appellate Tribunal, implying that the CIT(A) erred in dismissing the appeal in limine for delay without proper inquiry.In the interest of justice and considering the peculiar facts, the disallowance was restricted to 8% of the impugned purchase amount rather than the entire amount. RATIONALE: The Court applied the statutory provisions of section 69C of the Income-tax Act, 1961, which deals with unexplained investments and purchases, and relied on precedents from the Gujarat and Bombay High Courts that consistently hold that only the profit element embedded in suspected bogus purchases should be disallowed.The Tribunal referred to multiple authoritative decisions affirming the principle that the entire value of alleged bogus purchases cannot be disallowed without independent inquiry, and a reasonable percentage representing profit margin should be estimated for disallowance.The Tribunal found that the Assessing Officer did not dispute the sales and accepted payments through banking channels, supported by audited accounts and VAT compliance, thus weakening the basis for full disallowance.The Tribunal exercised discretion to condone delay in filing the appeal, emphasizing the necessity of adjudication on merits rather than dismissal on procedural grounds.No dissent or doctrinal shift was noted; the decision follows established legal principles and applies them to the facts of the case.