2025 (9) TMI 35 - AT - Income Tax

Assessee must file details for purchases alleged bogus under s. 69C; AO keeps 12.5% estimated addition, gross profit allowed

Rajesh Harishbhai Shah (HUF) Versus ITO, Ward – 24 (3) (1), Mumbai

Rajesh Harishbhai Shah (HUF) Versus ITO, Ward – 24 (3) (1), Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether grounds challenging jurisdiction of Assessing Officer, breach of natural justice and validity of reassessment (grounds 1-3) were pressed and require adjudication. 2. Whether disallowance of purchases aggregating Rs. 36,92,969/- by treating them as alleged bogus/non-genuine purchases and making 100% addition under the facts is justified. 3. If full disallowance is not justified, what is the appropriate quantum and method of adjustment (i.e., whether an estimated addition or allowance of gross profit as per books should be applied)? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Abandonment/not-pressing of grounds challenging jurisdiction, natural justice and reassessment (grounds 1-3) Legal framework: Grounds which are not argued or pressed at hearing may be treated as not pressed and dismissed. Precedent Treatment: The Court treated unpressed grounds as not pressed and dismissed them without further adjudication. Interpretation and reasoning: The Tribunal recorded that no specific submissions were advanced in support of grounds 1-3 at the hearing; accordingly those grounds were treated as not pressed. Ratio vs. Obiter: Ratio - procedural principle that unpressed grounds may be dismissed; Obiter - none. Conclusion: Grounds 1-3 dismissed as not pressed. Issue 2 - Validity of 100% disallowance of purchases as alleged bogus entries Legal framework: A.O. relied on an Investigation Wing report (based on Sales Tax information identifying certain parties as hawala/accommodation entry providers) to disallow purchases wholly; assessee produced purchase and sale details and books; sales and books were not disputed by revenue. Precedent Treatment: Tribunal considered and applied principles from decisions including PCIT v. Mohammad Haji Adam & Co. and Tribunal decision in Amrat B Prajapati (used to support allowing reasonable profit on alleged bogus purchases). A contrary High Court decision (PCIT v. Kanak Impex) relied upon by Revenue was distinguished on facts. Interpretation and reasoning: The Tribunal found that (i) the assessee produced details of purchases and corresponding sales, (ii) sales were not disputed and books of account were not rejected, and (iii) sale of goods is not feasible without purchases. On these facts, reliance on the Investigation Wing report to disallow 100% of purchases was held to be unjustified. The Tribunal accepted that once the assessee discharged primary onus by furnishing details, a full disallowance solely on departmental/investigation information and non-response of counterparties to s.133(6) notices is not warranted. Accordingly, the Tribunal concluded that a reasonable estimated addition rather than 100% disallowance meets the ends of justice. Ratio vs. Obiter: Ratio - where assessee furnishes purchase and sale details, and sales and books are not disputed, a 100% disallowance of purchases based solely on departmental investigation/third-party non-response is not justified; a reasonable estimated addition may be appropriate. Obiter - comments distinguishing the Kanak Impex authority on factual matrix. Conclusion: 100% disallowance of purchases is not justified; disallowance must be moderated to an estimated addition. Issue 3 - Quantum and manner of relief: Allowing estimated addition and deduction of gross profit Legal framework: Having found full disallowance excessive, the Tribunal considered application of a reasonable estimated addition on alleged bogus purchases and allowance of gross profit declared in books. Precedent Treatment: Tribunal relied on the approach in PCIT v. Mohammad Haji Adam & Co. and Amrat B Prajapati to sustain an estimated profit allowance instead of full disallowance; distinguished PCIT v. Kanak Impex because that case involved assessment under section 144 and failure to substantiate purchases. Interpretation and reasoning: Given that the assessee engaged in trading of hardware items, sold all purchased items, declared consistent gross profits across relevant years (3.16% to 7.15%, and 6.55% in the year under consideration), and had not had its books rejected, the Tribunal held that allowing deduction for gross profit already recorded in books while retaining a modest estimated addition on impugned purchases would be equitable. The Tribunal quantified the estimated addition at 12.5% of the impugned purchases from the two questioned parties and directed that deduction be allowed towards gross profit already declared in regular books. Ratio vs. Obiter: Ratio - where primary onus is discharged by production of purchase/sale particulars and books are not rejected, the Tribunal may impose an estimated addition (here 12.5%) on impugned purchases while permitting deduction for gross profit shown in books; Obiter - numerical selection of 12.5% as fact-specific estimation. Conclusion: The appeal is partly allowed by setting aside the 100% disallowance; the Assessing Officer is directed to retain an estimated addition of 12.5% of the impugned purchases from the two suppliers and to allow deduction for gross profit declared in the regular books of account. Cross-references and treatment of rival authority The Tribunal distinguished the High Court decision relied on by Revenue (where assessment under section 144 and failure to substantiate purchases were key) as factually different and therefore inapplicable; it followed precedent permitting reasonable estimated additions when purchaser has discharged primary onus and books/sales are not disputed.