The failure of the respondent-assessee to prove the genuineness of bogus purchases justifies the addition of the entire amount as income under Section 69C of the Income Tax Act.

JUDGMENT :

(Per Jitendra Jain J)

1. The appellant-revenue has instituted this appeal for the assessment year 2009-10, challenging the order of the Income Tax Appellate Tribunal (‘Tribunal’) dated 26 June 2019.

2. On 22 January 2025, this Court admitted the appellant- revenue’s appeal on the following substantial questions of law under Section 260A of the Income Tax Act (‘the Act’).

“SUBSTANTIAL QUESTIONS OF LAW

(i) Whether the Tribunal after accepting that this is a case of bogus purchases, could have proceeded to determine profit rate without confirming the disallowance of purchases, without considering the provisions of Section 69C of the Income Tax Act, 1961 and without considering the decision of the Gujarat High Court in the case of N.K. Industries Ltd. Vs. Deputy Commissioner of Income Tax, (2016) 72 taxmann.com 289 since the Special Leave Petition against the said decision was dismissed by the Hon’ble Supreme Court in case of N. K. Protiens Ltd. Vs. Deputy Commissioner of Income Tax, on 16 January 2017, (2017) 84 taxmann.com 195 (SC) ?

(ii) On the facts and circumstances of the case and in law, the ITAT has erred in restricting the disallowance to profit margin on unproven purchases without considering the position of law established by the Hon’ble Apex Court in the case of N. K. Protiens Ltd, that 100 % disallowances on bogus purchases is upheld ?

Brief facts :-

Regular Assessment :

3. The respondent-assessee is a company engaged in the business of trading in Iron and Steel. The respondent-assessee returned income of Rs.2,84,700/- while filing its returns of income under Section 139 of the Act. The original assessment was completed under Section 143(3) of the Act on 13 December 2011 determining total income at Rs.3,86,250/-.

Reassessment Proceedings :

4. Subsequently, the case of the respondent-assessee was reopened under Section 147 of the Act on the basis of an intimation received from Director General of Income Tax (Inv.), Mumbai/Sales Tax Department regarding bogus purchases made from havala givers by the respondent-assessee to the tune of Rs.20,06,80,150/-. The notice under Section 148 of the Act was served by email at the email address mentioned in the return of income since the notice sent by the postal authorities was returned as “unserved.” The notice was also served by affixture by the Ward Inspector. Thereafter, the appellant-revenue made various unsuccessful attempts to serve a notice under sub-section (1) of Section 142 of the Act and ultimately the said notice was affixed on the front door of the office premises. There was no compliance of any of the notices either sent by email or by affixture, and hence an order under Section 144 read with Section 147 of the Act came to be passed. In the said order, Rs.20,06,80,150/- was added on account of bogus purchases since the genuineness of the purchases could not be verified. The Assessing Officer (AO) issued notices under Section 133(6) of the Act at the address of the persons from whom the respondent-assessee had purchased the goods but same were returned “unserved”. The details of these suppliers were made available by the Sales Tax Department. Since the respondent- assessee did not appear before the AO during the course of the reassessment proceedings and the respondent-assessee failed to prove genuineness of the purchases, the AO made the additions of Rs.20,06,80,150/- on account of bogus purchases.

Proceedings before CIT (A) :

5. The respondent-assessee filed an appeal before the Commissioner of Income-tax [CIT(A)] against the order passed under Section 144 read with Section 147 of the Act. It is important to note that the address mentioned in the assessment order of the respondent-assessee by the AO is the same address which the respondent-assessee has mentioned in his Form No.35 which is a Form for filing of an appeal to the CIT(A).

6. On 28 August 2016, the CIT(A) upheld initiation of the reassessment proceedings by rejecting the contention of the respondent-assessee