ITAT Mumbai Reduces Alleged Bogus Purchase Addition to 5% in Ferrous & Non-Ferrous Metal Trading Matter
Overview of the Case
The Mumbai Bench of the Income Tax Appellate Tribunal, in the matter of Ravindrakumar Amratlal Jain Vs ITO (ITAT Mumbai), delivered a ruling that partially favoured the assessee concerning disputed purchases flagged for Assessment Year 2011-12. The Tribunal exercised its discretionary powers on estimation of profit element and ultimately brought down the percentage of addition from 12.5% to 5%, applying the principle of consistency with coordinate bench decisions and distinguishing the facts from a Bombay High Court ruling heavily relied upon by the Revenue.
This decision carries significance for assessees operating in the ferrous and non-ferrous metals trading space, as it reinforces that the quantum of addition in bogus purchase disputes is not a one-size-fits-all determination — it is inherently fact-dependent.
Background: How the Case Originated
The case traces its origins to a reopening of assessment proceedings under Section 147 of the Income Tax Act, 1961. The Assessing Officer issued a notice dated 10.03.2016 under Section 148 of the Act, acting upon information furnished by the DCIT (Investigation) Wing, Mumbai. The information indicated that the assessee had allegedly received hawala bills or accommodation entries from various parties aggregating to ₹6,61,31,668/-. The particulars of these transactions were detailed in Para No. 2 of the Assessment Order.
The Assessing Officer, upon examining the record, found discrepancies particularly concerning the mode of transportation — aspects that the assessee was reportedly unable to satisfactorily address. Treating the purchases as non-genuine, the Assessing Officer did not disallow the entire purchase amount but instead estimated the profit element at 12.5% of the alleged bogus purchases, resulting in an addition of ₹82,66,459/-.
It is noteworthy that the Assessing Officer chose to estimate only the profit margin rather than invoking a full disallowance, which itself became a significant factor in the Tribunal's eventual reasoning.
First Appellate Stage: CIT(A)'s Intervention
Aggrieved by the Assessment Order, the assessee filed a first appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] / National Faceless Appeal Centre (NFAC). The CIT(A), while not granting complete relief, made a partial correction at the foundational level:
- The quantum of alleged non-genuine purchases was revised downward from ₹6,61,31,668/- to ₹6,09,98,252/-.
- Correspondingly, the addition was restricted from ₹82,66,459/- to ₹76,24,782/-, maintaining the 12.5% rate but applying it to the corrected base figure.
The impugned order of the CIT(A) was passed on 15.03.2025 under Section 250 of the Income Tax Act, 1961.
Proceedings Before ITAT Mumbai
Legal Ground Raised but Not Pressed
Before the Tribunal, the assessee initially raised a legal challenge against the Assessment Order, contending that the Assessing Officer had passed the order without issuing a mandatory notice under Section 143(2) of the Act. However, at the time of hearing, the assessee chose not to press this ground and confined the effective dispute to the merits of the addition made on account of alleged bogus purchases.