ITAT Delhi Restricts Disallowance on Alleged Bogus Purchases to 6% in Section 153C Proceedings

In a recent judicial pronouncement, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has delivered a significant ruling concerning the estimation of income in cases involving alleged non-genuine purchases. In the case of Kapil Raj Anand Vs DCIT, the Tribunal modified the orders of the lower authorities, holding that a 100% disallowance of purchases is not warranted when sales are not disputed. Instead, the bench restricted the addition to a lump-sum rate of 6% of the disputed purchase value.

This ruling is particularly relevant for the construction sector and cases involving assessments under Section 153C of the Income Tax Act, 1961, where documentation regarding procurement from certain groups is called into question.

Case Background and Facts

The dispute arose from assessment proceedings for the Assessment Years (AY) 2020-21 and 2021-22. The assessee is professionally engaged in the business of construction. Following search and seizure operations on a third party, proceedings were initiated against the assessee under Section 153C read with Section 143(3) of the Act.

During the course of the assessment, the Revenue authorities flagged specific purchase transactions sourced from entities identified as the "Sanjay Jain Group." The Assessing Officer (AO) treated these transactions as non-genuine or "bogus." Consequently, the AO invoked the provisions of Section 69C (Unexplained Expenditure) and disallowed the entire value of these purchases.