HC Slams ITAT for Restricting Disallowance to 3% of Bogus Purchases; Restores AO’s Order

Case Details: Principal Commissioner of Income-tax vs. Drisha Impex (P.) Ltd. - [2025] 173 taxmann.com 571 (Bombay)

Judiciary and Counsel Details

• M.S. Sonak & Jitendra Jain, JJ.
• Ms Shilpa Goel, for the Appellant.
• K. Gopal & Ms Neha Paranjape for the Respondent.

Facts of the Case

The assessee was engaged in trading in electronic items, toys, electronics, etc. Subsequently, the assessee’s case was reopened on the ground that the purchases made by the assessee from certain parties were non-genuine. The Assessing Officer (AO) disallowed the peak of these purchases and added the amount to the assessee’s income, giving reasons that the assessee had not discharged its onus to establish the genuineness of the purchases from these parties.

On appeal, the Tribunal increased the disallowance from the 1% estimated by the Commissioner (Appeals) to 3% of the peak of the purchases. The matter then reached the Bombay High Court.

High Court Held

The High Court held that the assessee failed to discharge the primary onus of proving the purchases since it could not produce evidence to show actual delivery of material and could not produce confirmatory letters of the alleged suppliers. Further, the assessee failed to produce audited books of accounts and quantitative details. Based on these findings, the Tribunal concluded that these purchases are bogus.

The Tribunal also found that the assessee had not established the genuineness of the purchases, failed to provide the correct address of the suppliers, and that a payment by an account payee cheque is not sacrosanct. No proof by way of documentary evidence is filed. An enquiry made through the ward inspector revealed that such suppliers do not exist at the relevant places. Further, there is no correlation between the purchase and sales.

Therefore, the Tribunal erred by estimating only 3% of the alleged purchases as bogus to justify disallowance. There was a clear error of law, and the Tribunal’s approach contradicted several decisions on the subject. The Tribunal should not have estimated only 3% instead of confirming the disallowance of all the purchases.

List of Cases Reviewed

• Order of Tribunal, Mumbai in IT Appeal no. 2855/MUM/2016, dated 21-6-2017 (para 34) reversed.
• Pr. CIT v. Kanak Impex (India) Ltd. [IT Appeal No. 791 of 2021](para 30)
• CIT v. La Medica [2001] 117 Taxman 628 (Delhi) (para 33)
• Kaveri Rice Mills v. CIT [2006] 157 Taxman 370 (All.) (para 33) followed.
• Pr. CIT v. Shree Ganesh Developers [IT Appeal No. 719 of 2018] (para 32) distinguished.

List of Cases Referred to

• Kalyani Medical Stores v. CIT [2017] 80 taxmann.com 158/[2016] 386 ITR 387 (Calcutta) (para 12)
• CIT v. La Medica [2001] 117 Taxman 628/250 ITR 575 (Delhi) (para 12)
• Kaveri Rice Mills v. CIT [2006] 157 Taxman 376 (Allahabad) (para 12)
• Pr. CIT v. Mohommad Haji Adam & Co. [2019] 103 taxmann.com 459 (Bombay) (para 13)
• Pr. CIT v. Shapoorji Pallonji & Co. Ltd. [2020] 117 taxmann.com 625/273 Taxman 167/423 ITR 220 (Bombay) (para 13)
• Pr. CIT v. Tejua Rohit kumar Kapadia [2018] 94 taxmann.com 324/(256 Taxman 213 (SC) (para 13)
• Pr CIT v. Tejua Rohitkumar Kapadia (2018) 94 taxmann.com 324 (Guj.) (HC) (para 13)
• CIT v. Century Plyboards (I) Ltd. [2019] 103 taxmann.com 179/262 Taxman 13 (SC) (para 13)
• CIT v. Century Plyboards India Ltd. (2019) 103 taxmann.com 178 (Cal.)(HC) (para 13)
• CIT v. Odeon Builders (P.) Ltd. [2019] 110 taxmann.com 64/266 Taxman 461/418 ITR 315 (SC) (para 13)
• Babulal C. Borana v. Third ITO [2005] 144 Taxman 674/[2006] 282 ITR 251 (Bombay) (para 13)
• CIT v. Nikunj Eximp Enterprises (P.) Ltd. [2013] 35 taxmann.com 384/216 Taxman 171/[2015] 372 ITR 619 (Bombay) (para 13)
• Krishna Textiles v. CIT (2009) 310 ITR 227 (Guj.) (para 13).