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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
M.S. Sonak, Jitendra Jain, JJ
Pr. Commissioner Of Income Tax-12, Mumbai Aaykar Bhavan, Maharshi Karve Road – Appellant
Versus
M/s Drisha Impex Pvt. Ltd. – Respondent
JUDGMENT :
Jitendra Jain, J.
1. These appeals, filed by the Appellant-Revenue for Assessment Years (AY) 2009-10 and 2010-11, challenges the common order of the Income Tax Appellate Tribunal (ITAT), Mumbai, dated 21 June 2017.
2. These appeals were admitted on 30 January 2025 on the following substantial questions of law:
SUBSTANTIAL QUESTIONS OF LAW
“(i) Whether the Tribunal after accepting that this 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 H
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 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 Revenue must provide cogent evidence to substantiate claims of bogus purchases; arbitrary disallowance without proper analysis is impermissible.
The appellate court affirmed the Tribunal's decision to reduce bogus purchase additions and emphasized adherence to prior judicial rulings as decisive in tax matters.
The court established that the Assessing Officer must substantiate claims of bogus purchases with specific evidence rather than general information.
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