GP Estimation Rejected: Kanak Impex Becomes the Benchmark for Section 69C Cases
SC dismisses the SLP:
The Supreme Court has dismissed the SLP filed by Kanak Impex (India) Ltd., refusing to interfere with the Bombay High Court judgment dated 03.03.2025, thereby upholding the 100% disallowance of bogus purchases under Section 69C and not limiting the disallowance to the gross profit (12.5%) on bogus purchases.
Bombay HC judgement in brief:
1. The Bombay High Court (affirmed by the Supreme Court) had held that 100% of bogus purchases must be disallowed in the above case, where the assessee fails to appear in reassessment proceedings, produces no evidence, and cannot explain the source of funds.
2. Section 69C had squarely applied because unexplained expenditure cannot be allowed as deduction.
3. Thus, GP estimation (12.5% etc.) was incorrect since it indirectly allows deduction of bogus purchases.
How is this case different from other precedents which upheld limiting disallowances to the gross profit?
1. Odeon Builders (SC)
Assessee had participated in assessment proceedings, filed documents, sought cross-examination.
In Kanak case, there was no participation, no evidence was filed to prove the genuineness of purchases.
2. Shapoorji Pallonji (Bom HC)
Initial onus to prove purchases was discharged by the assessed by submitting stock details, correlation of purchases with sales, etc; only GP estimation was in dispute.
3. Mohammad Haji Adam (Bom HC)
Quantitative correlation of stock existed and so it was not a Section 69C case.
Conclusion:
1. 100% bogus purchases must be added back when the assessee fails to prove both the transaction and the source of funds.
2. Non-attendance in reassessment is fatal.
The copy of the order is as under:
