ITAT Grants Partial Relief in Bogus Purchase and Commission Dispute

Background

The Income Tax Appellate Tribunal Mumbai Bench has partly allowed the appeal of Mahendrakumar Danmal Mutha for Assessment Year 2010–11, offering significant relief on additions made towards alleged bogus purchases and disallowed commission expenses. The Tribunal condoned a delay of 356 days in filing the appeal after accepting the assessee’s explanation that the appellate order had landed in his email spam folder and came to his notice much later. The dispute arose after the Assessing Officer treated purchases of ₹34.08 lakh from three suppliers as non-genuine based on non-response to notices and their appearance in the Sales Tax Department’s list of suspicious dealers. Additionally, commission expenses of ₹14.18 lakh were disallowed for alleged lack of business expediency and verification.

Profit Estimation Allowed, Commission Disallowance Deleted

While the Tribunal acknowledged doubts regarding the identity of certain suppliers, it noted that sales were accepted, stock records were maintained, and books of accounts were not rejected. Holding that entire purchases could not be disallowed when corresponding sales stood confirmed, the Bench restricted the addition to 6.5% of purchases from two parties, representing the estimated profit element, and deleted the remaining addition. On commission payments, the Tribunal found that the assessee had produced ledger accounts, bank statements, and TDS details, and that no evidence showed the payments were bogus. Accordingly, the full disallowance of commission expenditure was set aside. The appeal was thus partly allowed, offering substantial tax relief to the assessee.