The Bombay High Court has held that the bogus purchase under Section 9C of the Income Tax is fully disallowed.
The bench of Justice M. S. Sonak and Justice Jitendra Jain has observed that assessee has offered no explanation of the source of the expenditure incurred on account of purchases of Rs.20,06,80,150 and, therefore, the AO was justified in making an addition of the amount and the Appellate Authorities were not justified in estimating the profit rate and thereby impliedly grant deduction of such unexplained expenditure which is contrary to the express provision of Section 69C of the Income Tax Act.
The respondent-assessee, Kanak Impex is a company engaged in the business of trading in Iron and Steel. The respondent-assessee returned income of Rs.2,84,700/- while filing its returns of income under Section 139 of the Income Tax Act.
The original assessment was completed under Section 143(3) of the Income Tax Act on 13 December 2011 determining total income at Rs.3,86,250.
The case of the respondent-assessee was reopened under Section 147 of the Income Tax Act on the basis of an intimation received from Director General of Income Tax (Inv.), Mumbai/Sales Tax Department regarding bogus purchases made from havala givers by the respondent-assessee to the tune of Rs.20,06,80,150/-.
The notice under Section 148 of the Income Tax Act was served by email at the email address mentioned in the return of income since the notice sent by the postal authorities was returned as “unserved.”
The notice was also served by affixture by the Ward Inspector. Thereafter, the appellant-revenue made various unsuccessful attempts to serve a notice under sub-section (1) of Section 142 of the Act and ultimately the said notice was affixed on the front door of the office premises.
There was no compliance of any of the notices either sent by email or by affixture, and hence an order under Section 144 read with Section 147 of the Act came to be passed. In the said order, Rs.20,06,80,150/- was added on account of bogus purchases since the genuineness of the purchases could not be verified.
The Assessing Officer (AO) issued notices under Section 133(6) of the Income Tax Act at the address of the persons from whom the respondent-assessee had purchased the goods but same were returned “unserved”. The details of these suppliers were made available by the Sales Tax Department. Since the respondent- assessee did not appear before the AO during the course of the reassessment proceedings and the respondent-assessee failed to prove genuineness of the purchases, the AO made the additions of Rs.20,06,80,150/- on account of bogus purchases.
The CIT(A) upheld initiation of the reassessment proceedings by rejecting the contention of the respondent-assessee that no notice was served on them.
Being aggrieved by the order of the CIT(A), the appellant-departmnet and the respondent-assessee both, filed cross-appeals before the Tribunal, which were heard on 13 June 2019 and the impugned order was pronounced on 26 June 2019. The revenue before the Tribunal took a specific ground that the CIT(A) erred in considering the GP at 12.5% on alleged bogus purchases instead of adding 100% as the AO did. The assessee challenged the findings of the CIT(A) on whether the addition of 12.5% could at all be made.
The tribunal directed the AO to restrict the additions to the extent of bringing the GP rate of disputed purchases to the same rate as that of other genuine purchasers. Against this backdrop, the appellant-revenue is in appeal before this Court.
The department contended that the respondent-assessee failed to prove the genuineness of the purchases and, therefore, the additions made in the assessment order were justified.
The issue raised was whether additions of Rs.20,06,80,150 made by the AO on account of the failure of the respondent-assessee to prove the genuineness of the purchases can be said to be valid.
The court held that the respondent-assessee having consciously and intentionally decided not to join the investigation, cannot now contend that the appellant-revenue should have given them all the details before making the addition.
The court held that uch a conduct of the respondent-assessee cannot be accepted. It was incumbent upon the respondent-assessee to have joined the re- assessment proceedings, discharge the initial onus of proving the purchases and seek details, if any. Having not joined the re- assessment proceedings, the contentions raised by the respondent- assessee on this issue are to be rejected.
The court noted that the respondent-assessee has not appeared in the re-assessment proceedings to discharge its onus on proving purchase transactions under consideration. Before the CIT(A) for the first time, scanty details of sundry debtors, creditors and stocks were given. The CIT(A) gave a finding of the respondent-assessee’s involvement in bogus transaction. Therefore, the finding of the AO on the genuineness of the purchases was confirmed by the CIT(A).
The court allowed the department’s appeal and decided against the assessee.
Case Details
Case Title: PCIT Versus Kanak Impex (India) Ltd.
Case No.: Income Tax Appeal No. 791 Of 2021
Date: 3 March 2025
Counsel For Appellant: Suresh Kumar
Counsel For Respondent: Subramaniam
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