Entire Purchases Cannot Be Treated As Bogus Merely Relying on Information Received From Sales Tax Dept: ITAT

In a case involving alleged bogus purchases amounting to Rs 44.40 lakh, the Income Tax Appellate Tribunal (ITAT) Mumbai Bench has granted significant relief to Marvell Nutex Private Limited. The case pertains to the Assessment Year 2011-12.

In the present matter, the assessee company’s assessment was reopened based on the information received from the Maharashtra Sales Tax Department. The department had identified three suppliers as suspected “hawala” dealers issuing fake purchase bills.

Initially, during the assessment proceedings, the tax authorities had disallowed the entire purchase amount after notices sent to the suppliers were returned unserved, and the suppliers could not be produced for verification despite the assessee having furnished all the relevant documents, including purchase invoices, bank statements, stock registers, sales invoices, delivery challans, and other records to prove the genuineness of the purchases made by it.

When the assessee company approached the ITAT Mumbai, it was noted that the company had properly cooperated during the proceedings and had also furnished all the relevant documents sought by the tax authorities. It was further noted that the tax authorities had not rejected the company’s books of account and also never raised objections to the sales made by the company. Additionally, no specific defects were found in the documentary evidence furnished by the assessee company.

Based on the aforementioned findings, the tribunal held that the tax authorities cannot treat the disputed purchases as bogus, solely relying on the general information received from the Sales Tax Department without conducting an independent verification of the specific transactions. To announce the final decision, the tribunal cited several Bombay High Court decisions, which state that where sales are accepted and supporting documents are available, the entire purchase amount cannot be added to income.

Accordingly, the Tribunal ruled that only the profit element embedded in the disputed purchases could be taxed, if any, and not the entire purchase amount. The tax authorities have been instructed to calculate the difference between the gross profit rate on genuine purchases and the disputed purchases and make an addition only to that extent. As a result, the assessee’s appeal was partly allowed.