Case summary, Income Tax

Is the CIT(A)’S order that provides for a 25% disallowance of bogus purchases is erroneous?


Listen to the case summary ITO -WD- 3 (1) vs BHADRESH JAYANTILAL SHAH DOMBIVALI, ITAT MUMBAI here


  1. The assesee who was engaged in the business of trading had shown certain bogus purchases against returned income.
  2. Consequently, order of re-assessment was passed under section 143(2)
  3. CIT(A) disallowed 25% of the bogus purchases.
  4. Revenue hence filed an appeal in the ITAT praying for disallowance of the purchases in their entirety.

Revenue’s arguments:

The Revenue discovered that the assessee’s purchases were bought from a non-existent entity and that they are bogus. The entity who had allegedly sold the material to the assesse did not respond to the notice served to it. Hence, the Revenue argued that as all the purchases made are unverifiable and bogus, they should be disallowed in their entirety as opposed to only 25%.

Assessee’s arguments:

The Assessee defended the purchases alleging that these were genuine purchases. However, the notice served to the vendor entity was not responded to and the assesse failed to prove that any goods were delivered as part of these purchases.

Tribunal’s holding:

  • There can be no sale without actual purchase of the materials given that the assesse was in the business of trading. The assesse had the primary purchase documents but he failed to prove the purchases. The vendor entity did not respond to the notice served and the assesse too failed to prove the delivery of the material.
  • In this situation, valid addition would be to account for profit element contained in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases.
  • The CIT(A) has rightly done so, hence, the ITAT dismissed the appeal.

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