SHAHENSHAH KHAN,VASAI vs. INCOME TAX OFFICER WARD 42(1)(5), MUMBAI, MUMBAI

In the instant case, the Assessee, being an individual, filed the return of income on 28.12.2019, declaring a total income of Rs.9,78,360/-. The Assessing Officer, vide assessment order dated 26.02.2025 passed u/s 147 of the Act, made an addition of Rs.29,58,849/- by disallowing the purchases u/s 37(1) of the Act, mainly on the ground that the transactions entered into by the Assessee with M/s Moksh Alloy Pvt. Ltd. were bogus and non-genuine. The said conclusion was drawn on the basis of the enquiry conducted by the GST Department and the subsequent investigation carried out by the Investigation Wing of the Income Tax Department.

The Assessee therefore has claimed that though the Assessee during the assessment proceedings, furnished the purchase invoices, ledger account of M/s Moksh Alloy Pvt. Ltd. and bank statements highlighting the payments made to the said party. It is also an admitted fact that the Assessing Officer accepted the corresponding sales and did not reject the Assessee’s books of account. However, the Assessing Officer still disallowed the entire amount of purchases under consideration.

On appeal, the Ld. Commissioner affirmed the aforesaid addition, mainly by relying upon the judgment of the Hon’ble Jurisdictional High Court in the case of PCIT v. Drisha Impex (P.) Ltd. [(2025) 479 ITR 315 (Bom.)] wherein the addition relating to bogus purchases was considered.

We observe that the facts in Drisha Impex (P.) Ltd. (supra) are distinguishable from the facts of the present case. In that case, the Assessee failed to produce evidence establishing the confirmation letters furnished by the alleged suppliers and therefore held that bogus transaction had attained finality in the absence of any challenge by the Assessee. The Assessee therein also failed to produce the audited books of account and quantitative details. It was in these peculiar circumstances that the purchases were treated as non-genuine. However, the Tribunal concluded that the goods had been procured from the grey market and, therefore, restricted the addition to the profit element embedded in such purchases, estimating @ 3% of the alleged bogus purchases. As the said finding on merit was not challenged by the Assessee therein, therefore the issue before the Hon’ble High Court was confined to the sustainability of the addition restricted to 3% of the alleged bogus purchases.

Whereas, in the present case, the Assessee’s books of account are neither disturbed nor rejected. Further, the Assessee has furnished the computation of total income along with the financial statements, purchase invoices, delivery challans, ledger account of M/s Moksh Alloy Pvt. Ltd., bank statements highlighting the payments made to the said party and copies of GSTR-1, GSTR-2A, GSTR-3B and the GST reconciliation statement. Thus, the Assessee prima facie discharged the primary onus of substantiating the purchases.

We further observe that the addition is made merely on the basis of information received from the GST Department, without bringing any independent or substantive material on record to establish that the purchases claimed by the Assessee were not actually made.

It is an admitted fact that, for cross-verification, a notice u/s 133(6) of the Act was issued to M/s Moksh Alloy Pvt. Ltd. through the Verification Unit of the Department and the said notice was duly served upon the supplier, which establish existence of supplier. However, the supplier failed to furnish a reply. Mere non-compliance by the supplier with the notice issued u/s 133(6) of the Act cannot, by itself, be taken as conclusive evidence against the Assessee, particularly when the Assessee has furnished the relevant documentary evidence, the corresponding sales are accepted and the books of account are not rejected. The documents furnished by the Assessee have also not been independently disproved by the Revenue.

However, considering that the material available on record does not conclusively establish, whether the profit element embedded in the alleged non-genuine purchases has already been offered to tax, we deem it appropriate, as also agreed by the Assessee, as a precautionary measure, to restrict the addition to the profit element embedded in such purchases. 4

Thus, the Assessing Officer is directed to consider the average gross profit rate declared by the Assessee during the preceding 03 years and the subsequent 03 years, for which comparable figures are available and apply such average rate as GP, to the purchases under consideration. The balance addition is directed to be deleted.

Thus, in view of the above, the Assessee’s appeal is partly allowed.