Income Tax Act, 1961 – Section 69C – Bogus Purchases – Profit Rate Determination – Full Disallowance – Validity of Tribunal’s Decision
Failure to provide complete documentary evidence, particularly bank statements, shifts the burden of proof on the assessee under Section 69C. The absence of such verification justifies full disallowance of purchases. (Paras 11, 17, 19, 24, 25, 27)
The Bombay High Court partially allowed the appeal, ruling: (a) Purchases from M/s Neptune Trading Co. and Hari Om Traders were not fully verified due to missing bank statements – entire purchase amount of Rs. 1,00,10,773/- to be disallowed.
(b) For other suppliers, the concurrent findings of lower authorities regarding genuineness were upheld.
Appeal partly allowed; total disallowance on unverified purchases ordered.
Acts and Sections Discussed: Income Tax Act, 1961 – Section 69C – Section 68 – Section 143(3)
Subjects: Bogus Purchases – Profit Rate – Full Disallowance – Unverified Transactions – Burden of Proof
Nature of Litigation: Income Tax Appeal filed by the Principal Commissioner of Income Tax against the order of the Income Tax Appellate Tribunal (ITAT) regarding disallowance of alleged bogus purchases.
Relief Sought: The appellant-revenue sought complete disallowance of purchases deemed non-genuine rather than the 12.5% profit margin disallowance upheld by the ITAT.
Reason for Filing: The appellant-revenue contended that the ITAT erred by restricting disallowance to profit margin without confirming the entire amount of alleged bogus purchases under Section 69C of the Income Tax Act, 1961.
Previous Decisions:
Assessment Order (25 March 2013) added Rs. 14,30,90,442/- for alleged bogus purchases and Rs. 50,00,000/- under Section 68.
CIT (A) (29 May 2015) deleted most additions except 12.5% of purchases from M/s Neptune Trading Co. and Hari Om Traders.
ITAT (24 May 2017) upheld the CIT (A) order in full.
Issues: (a) Whether the ITAT was justified in restricting disallowance to profit margin without considering Section 69C.
(b) Whether the entire amount of unproven purchases should be disallowed following the decision in N.K. Industries Ltd. v. Deputy Commissioner of Income Tax.
Submissions/Arguments:
Appellant: Asserted the need for 100% disallowance of purchases due to lack of bank statements and supporting documents from certain suppliers.
Respondent: Argued that most suppliers had provided adequate evidence and the remand report confirmed no cash withdrawals from their accounts, proving the genuineness of purchases.
Case Title: The Principal Commissioner of Income-tax – 25 Versus Shree Ganesh Developers
Citation: 2025 LawText (BOM) (3) 54
Case Number: INCOME TAX APPEAL NO. 719 OF 2018
Date of Decision: 2025-03-05
