Revenue Precluded From Challenging 10 Per Cent Bogus

Revenue Precluded From Challenging 10 Per Cent Bogus Purchase Addition Having Accepted CIT(A) Order

Issue

Whether the Revenue is precluded from challenging the Tribunal’s estimation of bogus purchase additions at 10% when it did not file an appeal against the CIT(A)’s order restricting the addition to 12.5%.

Facts

Assessment Year: The dispute relates to Assessment Year 2009–10.
Original Disallowance: The Assessing Officer made additions under Section 69C treating certain purchases as unexplained/bogus expenditure.
First Appellate Relief: The CIT(A) partly allowed the assessee’s appeal, directing that only 12.5% of the alleged bogus purchases be added to the income.
Revenue’s Acceptance: The Revenue accepted the CIT(A)’s order and did not prefer any appeal against the restriction of the addition to 12.5%.
Tribunal’s Estimation: Upon further appeal by the assessee, the ITAT reduced the addition from 12.5% to 10% of the bogus purchases.
Revenue’s Appeal before High Court: The Revenue filed an appeal under Section 260A before the High Court challenging the 10% estimation fixed by the Tribunal.

Decision

Acceptance of Principle: By not appealing the CIT(A)’s order restricting the addition to 12.5%, the Revenue accepted the principle that the entire purchase amount could not be disallowed.
Precluded from Raising Challenge: Having acquiesced to the partial addition at the first appellate stage, the Revenue was precluded from questioning the validity or quantum of the percentage addition fixed by the Tribunal at 10%.
Appeal Dismissed: The High Court dismissed the Revenue’s appeal, deciding the issue in favor of the assessee.

Key Takeaways

Binding Effect of Non-Appealed Orders: If the Revenue accepts a lower authority’s order restricting additions to a percentage and fails to challenge it, it cannot subsequently challenge further percentage reductions granted by higher appellate forums.
Estimation of Profit Element in Bogus Purchases: In cases of alleged bogus purchases where sales are not disputed, additions are restricted to estimating the profit element embedded in such purchases rather than disallowing the gross purchase value.

HIGH COURT OF BOMBAY

Principal Commissioner of Income-tax-27

Jain Dalichand Gosalia^*

Suman Shyam and Advait M. Sethna, JJ.

IT APPEAL NO. 2109 OF 2019^†

JUNE 25, 2026

Arjun Gupta for the Appellant.

ORDER

1. Heard Mr. Arjun Gupta, learned counsel appearing for the Appellant.

2. This appeal has been preferred under Section 260A of the Income Tax Act, 1961, against the judgment and order dated 20^th December, 2018, passed by the learned Income Tax Appellate Tribunal (for short “I.T.A.T”), Mumbai in Jatin Dalichand Gosalia v. ITO [Appeal No.2555/ Mum/2018] (A.Y. 2009-10), whereby, the appeal preferred by the Assessee/Respondent was partly allowed. The crux of the mater is that, by the assessment order dated 20^th December, 2018, the Assessing Officer had made addition of Rs.38,13,697/- being unexplained expenditure under Section 69C of the Income Tax Act, on account of the bogus purchases.

3. The Assessee preferred appeal before the CIT(Appeals), which had passed order dated 8^th February, 2018, directing the Assessing Officer to make addition of 12.5% of the bogus purchases and restricted the addition to Rs.11,03,894/-. The Revenue did not prefer any appeal against the order of the CIT(Appeals). However, the Assessee had assailed the order dated 8^th February, 2018 before the learned I.T.A.T. The appeal was disposed of by order dated 20^th December, 2018, by further reducing the addition to 10% on account of the bogus purchase.

4. The Revenue is before this Court by filing the present appeal against the order dated 20^th December, 2018, seeking enhancement of the amount.

5. Mr. Arjun Gupta, learned counsel for the Appellant while addressing arguments has submitted in his usual fairness that Revenue did not prefer any appeal against the order of the CIT (Appeals). As such, in view of the order of the Co-ordinate Bench of this Court passed in the case of Pr. CIT v. Ravindra Bhaskar Deshmukh (Bombay), the issue raised in the appeal would be covered against the Revenue.

6. After perusing the observations made in the order of the Coordinate Bench in the case of Ravindra Bhaskar Deshmukh (supra), we are also of the opinion that since the Revenue has not preferred any appeal against the order of CIT (Appeals), hence, it will be precluded from raising any question regarding the validity of the percentage of addition fixed by the learned Tribunal at 10%. If that be so, in our opinion, there is no substantial question of law which would arise for consideration in this appeal.

7. The appeal is, therefore, dismissed.