2026 Supreme(Online)(ITAT) 13514

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
Kavitha Rajagopal, Judicial Member, Makarand Vasant Mahadeokar, Accountant Member
Sheetal Parag Dusane – Appellant
Versus
Income Tax Officer – Respondent
ITA No. 1155/Mum/2026

Where corresponding sales are accepted and payments are through banking channels, only the estimated profit element on alleged bogus purchases, not the entire purchase value, is taxable under Section 69C of the Income Tax Act, 1961.

Headnote:(A) Income Tax Act, 1961 - Sections 69C, 145(3), 143(3), 147, 148, 250 - Alleged bogus purchases from hawala dealers - Addition of entire purchase amount under Section 69C - Whether entire purchase amount or only profit element embedded therein is taxable - Where sales are accepted, books are audited, payments are through banking channels, and the supplier is identified as suspicious, addition of entire purchase amount is not justified; only the estimated profit element on such disputed purchases is taxable. (Paras 20-27, 31)

(B) Appeal - Consideration of supervening circumstances - Death of assessee - Inability of legal heir to retrieve decade-old business records - Such peculiar factual circumstances must be considered while evaluating the assessee's failure to produce further evidence. (Paras 22, 30)

(C) Precedent - Distinguishing on facts - The ratio of Principal Commissioner of Income-tax v. Kanak Impex (India) Ltd. [2025] 172 taxmann.com 283 (Bom.) (holding entire bogus purchases taxable under Section 69C) is not applicable where the assessee participated in proceedings, furnished purchase bills, and corresponding sales were accepted; it is closer to the ratio of Ramelex Private Ltd. v. Pr. Commissioner of Income Tax-3 Pune (H.C.) (upholding restriction of addition to gross profit percentage). (Paras 24-26)

Facts of the case:
The assessee, an individual engaged in the business of manufacturing engineering goods, filed a return declaring total income of Rs. 7,67,900/-. The Assessing Officer received information from the Sales Tax Department identifying two suppliers as hawala dealers issuing bogus purchase bills without actual supply of goods. Consequently, the assessment was reopened, and the Assessing Officer treated purchases of Rs. 10,73,994/- from those two parties as unexplained expenditure under Section 69C of the Act, rejecting the books of account. The assessee had furnished purchase bills, bank statements evidencing payments through banking channels, and had disclosed corresponding sales of Rs. 1,28,72,548/-. The CIT(A) confirmed the addition. The original assessee expired, and the appeal was pursued by his legal heir who stated that old business records were not traceable. (Paras 2-11, 13)

Findings of Court:
The Tribunal held that since the corresponding sales were accepted and the manufacturing activity was not doubted, adding the entire purchase value would lead to a distorted computation of business income. The Tribunal distinguished the case from Kanak Impex (Bom.) because the assessee here had participated in proceedings and furnished primary evidence. Considering the peculiar circumstances, including the assessee's death and the legal heir's inability to locate records, the Tribunal estimated the profit element embedded in the disputed purchases at 8% of Rs. 10,73,994/-. (Paras 20-34)

Issues: The main issue was whether the entire amount of alleged bogus purchases should be added under Section 69C or only the profit element embedded therein, considering the accepted sales and the peculiar facts of the case.

Ratio Decidendi: Where the Revenue has accepted the corresponding sales and the assessee has furnished primary evidence (bills, bank statements) for purchases, but the genuineness of the supplier is in doubt, the entire purchase value cannot be added. Only the estimated profit element (in this case, 8%) embedded in such disputed purchases is taxable. The peculiar facts of the case, such as the death of the assessee and the lapse of time for the legal heir, also weigh against a full addition. (Paras 20-34) Result : The appeal of the assessee was partly allowed; the addition was restricted to 8% of Rs. 10,73,994/-. (Para 35)