S. 69C : Unexplained expenditure-Bogus purchases-Information from Sales-Tax Department-Failure to prove genuineness of purchases- Addition is justified-Order of the Appellate Tribunal holding that only profit estimation at 12.5% can be made is set aside-Order of the Assessing Officer is affirmed. [S. 133(6), 143(3), 144, 147, 148, 260A]
The respondent-assessee, Kanak Impex (India) Ltd., engaged in trading of iron and steel declared an income of Rs. 2,84,700/- in its return under section 139, and the original assessment was completed under section 143(3) determining total income at Rs. 3,86,250/-. Subsequently, the case was reopened under section 147 based on information from DGIT (Inv.), Mumbai/Sales Tax Department regarding bogus purchases amounting to Rs.20,06,80,150/-. Notice under section 148 was served via email and affixture, as notices sent via post remained unserved. Due to non-compliance, an order under section 144 r.w.s. 147 was passed, adding the entire amount of Rs. 20,06,80,150/- as bogus purchases since the assessee failed to prove the genuineness under section 69C of the Act . On appeal, the CIT(A) upheld the reassessment proceedings, rejecting the assessee’s contention of non-service of notice, and confirmed the addition of bogus purchases. However, instead of sustaining the entire addition, the CIT(A) estimated 12.5% of the bogus purchases as taxable profit, relying on CIT v. Simit P. Sheth. (2013) 356 ITR 451 (Guj)( HC) Both the revenue and the assessee appealed before the ITAT. The revenue contended that the entire bogus purchases should be disallowed, while the assessee challenged the estimation. The Tribunal, relying on PCIT-17 v. Mohammad Haji Adam & Co. (2019) 103 taxmann.com 459 (Bom.)( HC) directed the AO to restrict the addition to the extent of bringing the GP rate of disputed purchases in line with genuine purchases. The Revenue appealed to the Bombay High Court, while the assessee did not file an appeal. The High Court held that the assessee failed to prove the genuineness of purchases and merely provided details of sundry debtors and creditors in the original assessment which did not absolve them from proving the purchases during reassessment. The Court held that the CIT(A) and ITAT misdirected themselves by estimating profits instead of confirming the full addition. Relying on Shoreline Hotel (P.) Ltd. v. CIT(2018) 98 taxmann.com 234 (Bom)(HC) and N.K. Industries Ltd. v. DCIT (2016) 72 taxmann.com 289 ( Guj)( HC) , the court held that section 69C is applicable, and the entire expenditure was to be disallowed. It further observed that the assessee intentionally avoided reassessment proceedings and could not later claim insufficient opportunity. Accordingly, the High Court allowed the revenue’s appeal, restored the AO’s order allowing the addition of Rs. 20,06,80,150/-, and reversed the order of the ITAT. However, it directed that the total addition should not exceed Rs. 20,06,80,150/-. (ITA No. 791/2021, dt. 3.3.2025) (AY. 2009-10)
PCIT v. Kanak Impex (India) Ltd. (Bom)(HC) www.itatonline org.
(Coram : Hon’ble Shri Justice M.S. Sonak & Hon’ble Shri Justice Jitendra Jain)