Upholding the Principle of Consistency: ITAT Mumbai Rules on Bogus Purchases

In a recent ruling regarding the assessment year 2012-13, the Income Tax Appellate Tribunal (ITAT) Mumbai Bench has reinforced the "principle of consistency" in tax litigation. The bench, comprising Shri Sandeep Gosain (Judicial Member) and Shri Om Prakash Kant (Accountant Member), dismissed concurrent appeals filed by the assessee, Bhagwana Ram Bishnoi, and the Revenue, thereby upholding a 12.5% profit addition on alleged bogus purchases.

Case Background: The "Accommodation Entry" Dispute

The dispute originated when the Revenue received information from the Director General of Income Tax (Investigation), Mumbai, alleging that the assessee had obtained "accommodation entries" to the tune of ₹35.75 lakh from M/s. Sundha Steel Pvt. Ltd. The Assessing Officer (AO) reopened the assessment under Section 148 of the Income Tax Act, 1961, concluding that these purchases were non-genuine and sought a 100% disallowance.

Following an initial appeal, the Commissioner of Income Tax (Appeals) restricted the addition to 12.5% of the total amount, citing prior assessment years where the same entity’s transactions were similarly treated. Both the assessee and the Revenue challenged the CIT(A)’s restrictive approach before the ITAT.

Arguments from the Trench

The Revenue contended that the CIT(A) erred in restricting the addition to 12.5%, arguing that once the purchases were deemed "non-genuine," the total amount should be disallowed. They invoked the potential for "unexplained expenditure" rather than just a profit margin estimation.

Conversely, the assessee challenged the very foundation of the reopening of the assessment under Section 148, arguing that the notice was bad in law. Furthermore, they maintained that even if the purchases were disputed, the 12.5% addition was excessive and lacked a factual basis in record.

Legal Analysis: Why Consistency Matters

The ITAT’s decision centered on the Doctrine of Consistency. Citing landmark precedents such as Radhasoami Satsang vs. CIT and Bharat Sanchar Nigam Ltd. vs. Union of India , the Tribunal highlighted that in the absence of any change in material facts or law, a different view should not be taken for subsequent assessment years.

Since the factual matrix and the parties involved remained identical to those in the assessment years 2009-10 and 2011-12, the bench determined that the Revenue could not deviate from the established precedent of the 12.5% disallowance.

Key Observations

The tribunal’s reasoning was clear in its assessment of the "grey market" benefits:

• "By purchasing from the grey market, the appellant would have benefited by the savings of taxes."
• "Considering non-compliance on the part of appellant in the assessment proceedings, this cannot be considered to be unreasonable."
• "The principle of consistency... mandates that in the absence of any change in material facts or law, a different view ought not to be taken for subsequent years."
• "If all the evidences point to the fact that no actual goods were supplied... then the argument of assessee that it purchased goods in good faith is not tenable."

The Verdict and Its Implications

The ITAT ultimately dismissed both appeals. By refusing to interfere with the 12.5% limit set by the CIT(A), the Tribunal has shielded taxpayers from arbitrary fluctuations in tax treatment for recurring issues while simultaneously confirming that "accommodation entries" cannot go unscathed.

For legal professionals and business owners, this case serves as a vital reminder that while the tax authorities may probe the genuineness of expenses, they are bound by the procedural history of the case. For the taxpayer, it reinforces the necessity of maintaining robust records, as the "non-genuineness" of entities like M/s. Sundha Steel continues to be a focal point for current and future assessment scrutiny.