The court had held that when purchases are treated as bogus, only the income or the benefit portion can be brought to tax, and the entire purchases cannot be disallowed.
Nidhi | Feb 8, 2026 |
Only Income Component of the Alleged Bogus Purchases Can be Taxed, Not the Entire Purchases: High Court
The Gujarat High Court has ruled that the tax authorities can only disallow the benefit derived from the bogus purchase transaction, rather than disallowing it entirely.
The Assessing Officer had made an addition to the income of the assessee by disallowing 100% of the alleged bogus purchase. However, the CIT(A) restricted this disallowance to only 6% of the bogus purchases, holding that only profit elements in such transactions can be taxed. The respondent revenue challenged this before the Tribunal but did not succeed. Therefore, the revenue approached the Gujarat High Court.
The court observed that this issue had been covered by this court in the case Keshri Exports (supra), where the court had held that when purchases are treated as bogus, only the income or the benefit portion can be brought to tax, and the entire purchases cannot be disallowed. Upholding the same, the court rejected the appeal filed by the revenue.
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