The Bombay High Court has held that the entire purchase cannot be disallowed even if it is a Bogus purchase.
The respondent Pinaki D. Pinaki who carries on business as a Civil Contractor had filed the return for the Assessment Year 2009-10 on 29 September 2009 declaring a total income of Rs.48,65,060/-. The assessment was completed under Section 143(3) of the Income Tax Act on 7 December 2011. Thereafter the assessment was reopened under Section 147 of the Income Tax Act. Information was received from the Sales Tax Department that Respondent-Assessee had taken bogus purchase entries of Rs.1,69,48,368/- from the different parties. The reassessment order was accordingly passed on 17 February 2014 determining the total income of Rs.2,18,13,430/-.
An appeal was filed by the Respondent-Assessee to the Commissioner of Income Tax (Appeals) who partly allowed the Appeal by order dated 21 October 2014 and sustained addition of Rs.50,44,947/- and deleted Rs.1,19,03,421/- out of addition of Rs.1,69,48,368/-. The Commissioner of Income Tax (Appeals) also observed that the Assessee had approached the Settlement Commission for the subsequent years and the case was settled accepting the additional income offered by the Respondent-Assessee based on the net profit @ 5.76% on the total contracted amount. Aggrieved by this order the Revenue Department filed an appeal at the Income Tax Appellate Tribunal(ITAT) which is dismissed by without any change.
Justice M.S. Karnik and Justice Nitin Jamdar while dismissing the appeal held that even if the purchases made from the parties in question are to be treated as bogus, it does not necessarily mean that the entire amount should be disallowed and that no benefit should be given to the Respondent-Assessee.
“Assuming that the purchasers from whom the purchases were made were bogus, in view of the finding of fact that the material was consumed, the question would be of extending the percentage of net profit on total turnover. This would be a matter of calculations by the concerned authority:”, the Court also added
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