The Bombay High Court while disallowing the bogus purchases under section 69C of the Income Tax Act, held that in the absence of bank statements, the purchases cannot be said to have been proved.
The bench of Justice M.S. Sonak and Justice Jitendra Jain observed that the provision of Section 69C, which is an enabling provision, would become redundant. Section 69C provides that where an assessee has incurred any expenditure and offers no explanation about the source of expenditure or the explanation offered is not in the opinion of the AO satisfactory, then the amount of expenditure may be deemed to be the income of the assessee and such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.
The respondent/assessee, Ganesh Developers is engaged in the business of real estate. In the assessment order, Rs.14,30,90,442 was added on account of alleged bogus purchases from various parties. A sum of Rs.50,00,000 was also added under Section 68 of the Act. The said order was challenged by filing an appeal to the Commissioner of Income Tax (Appeals).
The CIT (A) with respect to the alleged bogus purchases deleted the additions with regard to all the suppliers except M/s Neptune Trading Co. and Hari Om Traders. With respect to these two parties, the additions made by the Assessing Officer (AO) was confirmed to the extent of only 12.5% of the purchases made from these parties.
The department challenged the order of the CIT (A) by filing an appeal to the Tribunal. On the grounds of appeal, the department challenged the deletion of the purchases made from various parties.
With respect to M/s Neptune Trading Co. and Hari Om Traders, a specific ground was also taken by the department to the effect that the CIT (A) erred in estimating profit at 12.5% on the bogus purchases.
The respondent-assessee has not challenged the additions sustained by the CIT (A) to the extent of 12.5% on the purchases made from M/s Neptune Trading Co. and Hari Om Traders.
The Tribunal upheld the order of the CIT (A) in toto insofar as the issue of bogus purchases is concerned. It is on the above backdrop that the department has challenged the order of the Tribunal on substantial questions of law reproduced above.
The issue raised was whether the purchases made from various parties can be said to have been proved as genuine by the respondent-assessee for the purpose of claiming deduction of these expenditures.
The court noted that if the approach of the CIT(A) and the Tribunal is accepted, then it would amount to endorsing outright conduct of illegality contrary to the express provisions of Section 69C of the Income Tax Act, which the Appellate Authorities have entirely ignored.
The court reversed the order of the CIT(A) and the Tribunal is reversed insofar as the purchases from these two parties namely M/s Neptune Trading Co. and Hari Om Traders are concerned. However, the total additions would not exceed Rs.1,00,10,773, which is the total purchase from M/s Neptune Trading Co. and Hari Om Traders.
Case Details
Case Title: The Principal Commissioner of Income-tax Versus Ganesh Developers
Case No.: Income Tax Appeal No. 719 Of 2018
Date: 5 March 2025
Counsel For Petitioner: Ms. Gokhale
Counsel For Respondent: Ajay R. Singh
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