Supreme Court dismisses Revenue’s SLP, upholding disallowance of bogus purchases restricted to six percent.

Supreme Court dismisses Revenue’s SLP, upholding disallowance of bogus purchases restricted to six percent.

Issue

Facts

• Assessment Years: AY 2007-08 and AY 2008-09.
• Bogus Purchases Found: The assessee was found to have obtained non-genuine purchase bills amounting to approximately ₹38.51 crores from entities linked to the Bhanwarlal Jain Group.
• Assessing Officer Action: The Assessing Officer made a full addition of ₹38.51 crores under Section 69C on account of unexplained expenditure/bogus purchases.
• Tribunal Decision: On appeal, the Income Tax Appellate Tribunal (ITAT) partly allowed the assessee’s appeal and restricted the disallowance to 6 percent of the bogus purchases.
• High Court Judgment: The High Court dismissed the Revenue’s appeal, noting that in several similar cases involving the Bhanwarlal Jain Group, departmental appeals against the Tribunal’s 6 percent disallowance benchmark had consistently been dismissed, and no substantial question of law arose.
• Revenue’s Appeal: The Revenue filed a Special Leave Petition (SLP) before the Supreme Court challenging the High Court’s ruling.

Decision

• Dismissal of SLP: The Supreme Court found no valid grounds to interfere with the High Court order and accordingly dismissed the Special Leave Petition filed by the Revenue. [Para 2] [In favour of assessee]

KeyTakeaways

1. Estimation of Profit Element: In cases of non-genuine or bogus purchases where actual consumption or sales are not disputed, tribunals often restrict additions to the estimated embedded profit percentage (e.g., 6%) rather than disallowing the entire purchase value.
2. Consistency in Precedent: Higher judicial authorities will refrain from interfering with factual findings regarding profit estimations when a consistent view has been upheld across multiple cases involving the same supplier group.
3. Absence of Substantial Question of Law: Factual determinations made by the Tribunal regarding the quantification/estimation of disallowances do not give rise to a substantial question of law for appellate intervention.