ITAT Upholds Partial Disallowance of Bogus Purchase Addition

ITAT Upholds Partial Disallowance of Bogus Purchase Addition

The Income Tax Appellate Tribunal (ITAT) has upheld a partial disallowance of a bogus purchase addition, dismissing both the Revenue’s appeal and the assessee’s cross objection for Assessment Year 2011-12.

• The ITAT restricted the disallowance to Rs.2,16,393 as against the addition of Rs.17,31,143 made by the Assessing Officer.
• The CIT(A) had already offered Rs.9,98,998 as income under Section 41(1) in later years through write-off of balances.
• The Assessing Officer failed to provide details of the alleged bogus bill providers and relied on information from the Investigation Wing without conducting any independent enquiry.

Readers should treat this as a tax and compliance update, not as personal advice. This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.

Entire Purchase Cannot Be Treated as Bogus When Sales Are Accepted; ITAT Upholds Partial Disallowance as Assessee Already Offered Income Under Section 41(1); Bogus Purchase Addition Reduced Because AO Failed to Identify Alleged Bill Providers; ITAT Dismisses Revenue Appeal Against Relief Granted in Bogus Purchase Case.

The Income Tax Appellate Tribunal (ITAT), Pune Bench, dismissed both the Revenue’s appeal and the assessee’s cross objection for Assessment Year 2011-12 in a case concerning alleged bogus purchases. The Revenue challenged the order of the CIT(A), which had restricted the disallowance to Rs.2,16,393 as against the addition of Rs.17,31,143 made by the Assessing Officer. The assessee, through a cross objection, contended that a substantial portion of the alleged bogus purchases had already been offered to tax under Section 41(1) of the Income Tax Act in subsequent assessment years, and therefore any further addition would amount to double taxation.

The assessee had originally declared income of Rs.13,38,741, and the return was processed under Section 143(1). Reassessment proceedings were later initiated under Sections 147 and 148 based on information received from the Investigation Wing regarding beneficiaries of fictitious purchase and sale transactions involving shell entities linked to Maharashtra VAT cases. During reassessment, the Assessing Officer identified purchases of Rs.17,31,143 from parties allegedly acting as bogus bill providers. Although the assessee maintained that the purchases were genuine, sales were undisputed, and stock records were maintained, the Assessing Officer rejected the explanation and added the entire amount to income.

The CIT(A), while considering the matter, noted that the assessee had already offered Rs.9,98,998 as income under Section 41(1) in later years through write-off of balances. The CIT(A) also observed that the sales were not disputed and quantitative stock records had not been doubted. Relying on judicial precedents, the CIT(A) held that the entire purchases could not be treated as bogus and estimated the disallowance at 12.5% of the disputed purchases, resulting in a sustained addition of Rs.2,16,393.

Before the Tribunal, the Revenue sought restoration of the full addition, while the assessee supported the CIT(A)’s order. The Tribunal observed that the Assessing Officer had not provided details of the alleged bogus bill providers and had merely relied on information from the Investigation Wing without conducting any independent enquiry. The Tribunal further noted that the books of account were audited under Section 44AB and that the assessee had voluntarily offered a major portion of the disputed amount as income in subsequent years. Finding no infirmity in the order of the CIT(A), the Tribunal upheld the restricted disallowance and dismissed the Revenue’s appeal. Since the assessee’s cross objection merely supported the CIT(A)’s findings, it was dismissed as infructuous.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal filed by the Revenue and the Cross Objection by the assessee pertaining to A.Y. 2021-22 is directed against the order dated 01.09.2025 passed by Addl/JCIT(A) Panchkula arising out of Assessment Order dated 24.12.2018 passed u/s.143(3) r.w.s.147 of the Income Tax Act, 1961 (in short ‘the Act’).

2. Revenue’s sole grievance is that ld.CIT(A) erred in estimating the disallowance for alleged bogus purchases at Rs.2,16,393/- as against Rs.17,31,143/- made by the Assessing Officer.

3. Assessee has raised Cross Objection in support of the finding of ld.CIT(A) raising a ground that major portion of the alleged bogus purchases has already been offered to tax u/s.41(1) of the Act and therefore the disallowance is in the nature of double addition.

4. I have heard the rival contentions and perused the record placed before me. I observe that the assessee is an individual and declared income of Rs.13,38,741/- in the return for A.Y. 2011-12 furnished on 29.09.2011. Return has been processed u/s.143(1) of the Act. Thereafter, based on the information from Investigation Wing about the beneficiaries of fictitious sale and purchase of shell companies in Maharashtra VAT cases, notice u/s.148 of the Act issued and re-assessment proceedings u/s.143(3) r.w.s.147 of the Act were carried out. During the course of proceedings, ld. Assessing Officer took note of the purchases of Rs.17,31,143/- which was from the parties identified by the Investigation Wing as bogus bill providers. Though the assessee has contented that the purchases are genuine, sales are not in dispute, additions cannot be made based on third party statements and also the assessee has already offered the amount equivalent to Rs.9,98,998/- by writing off of the balances in the returns for A.Y. 2013-14 to A.Y. 2015­16, however, ld. Assessing Officer was not satisfied and made addition for the bogus purchases at Rs.17,31,143/- and assessed income at Rs.30,69,614/-.

5. I note that when the assessee carried the matter before ld.CIT(A), on one hand ld.CIT(A) has taken note that the assessee has offered Rs.9,98,998/- as income u/s.41(1) of the Act in the subsequent period but disregarding the same, ld.CIT(A) making reference to judicial precedents has observed that since the sales are not in dispute and quantitative stock records are not doubted the entire purchases cannot be held as bogus and accordingly concluded the proceedings giving part relief to the assessee restricting the disallowance at Rs.2,16,393/-.

6. Before me, on one hand, the Revenue is contending to confirm the action of the Assessing Officer. On the other hand, ld. Counsel for the assessee supported the order of ld.CIT(A) and also referred to the income offered in the subsequent period. I observe that in the assessment order ld. Assessing Officer has not mentioned any detail about the party who has given the alleged bogus bills. Ld. Assessing Officer has only referred to the information received from the Investigation Wing but thereafter neither the details of the alleged party providing bogus bills is discussed nor there is any reference to any independent enquiry, if any, conducted by the Assessing Officer. Further, ld.CIT(A) on considering that the sales are not in dispute has estimated the disallowance at 12.5%. On due consideration of the facts and circumstances and also observing that books of account of the assessee are audited u/s.44AB of the Act, there is no independent enquiry by the Assessing Officer and that the assessee has suo motu offered major amount of the alleged purchases as income in the subsequent period, I fail to find any infirmity in the finding of ld.CIT(A) confirming the disallowance at Rs.2,16,393/-. Grounds of appeal raised by the Revenue are dismissed.

7. The cross objection filed by the assessee is only in support of the finding of ld.CIT(A) and therefore the said cross objection is dismissed as ‘Infructuous’.

8. In the result, the appeal of the Revenue as well as the cross objection of the assessee is dismissed.

Order pronounced on this 29th day of April, 2026.

Readers should treat this as a tax and compliance update, not as personal advice.

This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.