Non-Cooperation Has Its Price: Bombay High Court’s upheld the disallowance of entire purchase amount as against GP Ratio in a Bogus Purchase Case
Let us have a Short Overview of the case of Bogus purchase before Bombay High Court.
In a landmark decision in Pr. CIT-5, Mumbai vs. Kanak Impex (India) Ltd. (2025), the Bombay High Court has reaffirmed the strict application of Section 69C. The ruling makes it unequivocally clear that where an assessee fails to engage with tax authorities by providing necessary details, the entire amount of dubious purchases may be disallowed.
Key aspects of the judgment include:
• When an assessee does not furnish supporting documentation or appear in reassessment proceedings, as was the case with the ₹20.06 crore purchase in question, the full purchase amount is subject to disallowance.
• Conversely, if basic details are provided and some transactions are substantiated, only the gross profit (GP) margin may be added rather than a blanket disallowance of the entire sum.
• The decision departs from previous ITAT and CIT(A) approaches, which had suggested a more lenient 12.5% profit addition. Here, the Court’s stance is uncompromising: without evidence to explain the source of expenditure, full disallowance is warranted.
This judgment sets a significant precedent. It underscores the imperative for companies to maintain thorough purchase records and actively engage with tax authorities. The Court’s message is clear—cooperation and meticulous documentation can mitigate tax liabilities, while non-cooperation leads to severe consequences.
A vital read for tax and finance professionals, this ruling serves as a timely reminder of the importance of transparency in corporate recordkeeping.
The Copy Of the judgment is as under:
