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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
M. S. Sonak, Jitendra Jain, JJ.
Pr. Commissioner of Income Tax-5, Mumbai – Appellant
Versus
Kanak Impex (India) Ltd. – Respondent
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 purchas
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.
The court established that acceptance of a percentage of unproven purchases necessitates full disallowance under Section 69C, emphasizing the burden of proof lies with the assessee.
The court ruled that when purchases are deemed bogus, the entire amount should be disallowed, rejecting the Tribunal's speculative estimation of profit margin.
The court established that the Assessing Officer must substantiate claims of bogus purchases with specific evidence rather than general information.
The court established that in cases of bogus purchases, only a reasonable percentage of the disputed amount should be added to income, reflecting industry practices.
In bogus purchase cases, where sales accepted, only profit element (GP rate) added to income, not entire purchase amount.
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