Bogus Purchases And Profit Estimation: ITAT Mumbai Caps Disallowance At 5% When Sales Are Accepted

The SMC Bench of the Income Tax Appellate Tribunal, Mumbai, in the case of “Niraj Pravinchandra Doshi Vs ITO”, examined an addition made on account of alleged bogus purchases and ultimately reduced the disallowance to 5% of the disputed purchases, primarily because the assessee’s sales and books of account had not been disturbed.

Although the appeal involved multiple grounds, the controversy before the Tribunal effectively narrowed down to only the quantum of addition on alleged non-genuine purchases for AY 2009-10.

This write-up summarises and explains the key aspects of the decision, the reasoning adopted by the Tribunal, and its practical implications for similar bogus purchase cases.

Background Of The Case

Nature of business and reopening

  • The assessee, Niraj Pravinchandra Doshi, is engaged in the trading of ferrous and non-ferrous metals.
  • For AY 2009-10, the original assessment was later reopened under Section 147 based on information received from the DGIT (Inv.) and the Sales Tax Department.
  • The information suggested that the assessee had obtained accommodation purchase bills from six parties, who were allegedly entry providers issuing invoices without actual supply of goods.

Quantum of disputed purchases and addition

  • The total purchases from the six parties alleged to be bogus aggregated to ₹3,13,35,863 (approximately ₹3.13 crore).
  • The Assessing Officer treated these purchases as non-genuine and made an estimated addition at 12.5% of the value of such purchases.
  • The resulting disallowance came to ₹39,16,983, which was added as income on account of bogus purchases.
  • The CIT(A) affirmed this addition through a brief and cryptic order, mainly noting that notices issued under Section 133(6) to the concerned parties had remained unserved.

Grounds Raised Before The CIT(A) And ITAT

Grounds before the CIT(A)

The assessee challenged:

  • The validity of reopening under Section 147 (alleging borrowed satisfaction and lack of tangible material).
  • Violation of natural justice, including absence of cross-examination of third parties relied upon by the Assessing Officer.
  • The quantum of addition at 12.5% of purchases, arguing that the purchases were genuine and fully supported.

The CIT(A), however, upheld the action of the Assessing Officer, primarily on the basis that notices under Section 133(6) sent to the suppliers were returned unserved, which in his view justified treating the purchases as non-genuine and sustaining the 12.5% addition.

Grounds before the ITAT and what was pressed

Before the ITAT, the assessee initially raised multiple grounds, including:

  1. Challenge to reopening under Section 147.
  2. Grievance regarding denial of cross-examination and breach of natural justice, relying upon:
    • Kishanchand Chellaram v. CIT (1980) 125 ITR 713
    • Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006)
  3. Challenge to the confirmation of addition of ₹39,16,983 being 12.5% of alleged bogus purchases.

However, at the time of hearing:

  • The assessee did not press:
    • The ground relating to the validity of reopening under Section 147.
    • The ground on denial of cross-examination and other natural justice issues.
    • An additional ground earlier filed by application dated 10.09.2025.
  • The assessee pressed only the main ground against the quantum of estimated addition on bogus purchases.