No Estimating Profit on Bogus Purchases: ITAT Confirms Full Addition u/s 69C of Income Tax Act [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the assessee's appeal and confirmed the full addition of ₹15.08 Lakhs towards bogus purchases under Section 69C of the Income Tax Act, 1961 holding that once purchases are found to be bogus, estimating a profit rate on them is legally impermissible.

Anowar Hossain Mondal, the proprietor of ‘New Bengal Hardware’, filed the appeal challenging the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi. The Assessing Officer (AO) had reopened the assessment for AY 2018-19 based on information from the Investigation Wing, which revealed that the assessee had purchased goods from M/s Rajbhar Trade Commercial, an entity found to be issuing fake GST invoices and providing accommodation entries.

While the assessee produced invoices and bank payment details, the AO rejected the purchases as bogus, noting that the supplier was a paper entity with no fixed assets and that the transport details were unverifiable.

The Department, represented by Kallol Mistry, Sr. DR, supported the addition, while the assessee’s counsel, Palas Chattapadhyay, argued that since the corresponding sales had been accepted and payments were made through banking channels, the entire purchase amount could not be treated as bogus. The assessee requested that only a reasonable Gross Profit (GP) rate be applied to the disputed sales rather than disallowing the entire expenditure.

The Bench comprising Sonjoy Sarma (Judicial Member) and Rakesh Mishra (Accountant Member) rejected the assessee's contention regarding profit estimation. The Tribunal relied on recent judgments from the Bombay High Court in the cases of Principal Commissioner of Income-tax vs. Drisha Impex (P.) Ltd. and Principal Commissioner of Income-tax vs. Kanak Impex (India) Ltd., as well as the jurisdictional Calcutta High Court’s decision in Principal Commissioner of Income-tax v. Mrs. Premlata Tekriwal.

The Tribunal observed that if an appellate authority estimates a profit percentage on bogus purchases (e.g., 10%), it effectively allows a deduction for the remaining 90% of the expenditure. This approach contradicts Section 69C of the Act, which explicitly deems unexplained expenditure to be income and bars its deduction.

The Bench noted that estimating profit implies the assessee made sales out of books, which was not the case here, as the sales were recorded but the purchases were found to be accommodation entries.

Furthermore, the Tribunal held that the assessee failed to discharge the onus of proving the genuineness of the purchases during the reassessment proceedings. Relying on the Supreme Court’s decision in N.K. Proteins Ltd. v. DCIT, the ITAT held that once it is established that the assessee obtained accommodation entries and not actual goods, the entire amount of such bogus purchases is liable to be added.

The Tribunal held that the CIT(A) was justified in confirming the full addition, as the issue was the failure to prove the purchases, not the rate of profit. Consequently, the appeal was dismissed, and the order confirming the addition of ₹15,08,950/- under Section 69C was upheld.

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