ITAT Restricts Section 69C Addition to 6% on Sale-in-Transit Purchases

Maharashtra Corporation Limited, engaged in textile trading, filed its return for AY 2017-18 declaring income of Rs. 98,130. The assessment was reopened under Section 147 based on information that purchases of Rs. 10.22 crore from Indo Count Industries Ltd. were made without physical delivery of goods. During reassessment, the Assessing Officer relied primarily on the statement of the company’s Director recorded under Section 131, wherein it was stated that goods were sold in transit.

The Assessing Officer made a full addition of ₹10.22 crore under Section 69C. The CIT(A), NFAC, upheld both the reopening and the entire addition, holding that once purchases are bogus, no restriction to gross profit is permissible.

Issue Raised: Whether the entire purchase amount could be added under Section 69C solely on the basis of a director’s statement alleging sale-in-transit, despite complete documentary evidence and absence of corroborative material.

ITAT’s Decision: The ITAT noted that the assessee had produced purchase invoices, consignment notes, bank statements, purchase-sales reconciliation, and GST Form 2A, none of which were disproved by the Assessing Officer. The Tribunal held that sale-in-transit is a recognised commercial practice in the textile trade and the director’s statement did not amount to an admission of bogus purchases or cash transactions.

The Tribunal observed that the foundational facts present in that case were absent here. However. the ITAT restricted the addition to 6% of the impugned purchases. Thus, 94% of the addition was deleted, and the appeal was partly allowed.

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