Palmon Impex Pvt. Ltd. v. ITO

Case snapshot

Sections / provisions: 69C

Questions before the Court / Tribunal

• Bogus purchases; profit estimation: The reported order sustains a 12.5% estimation rather than a full purchase disallowance and distinguishes the Bombay High Court's Kanak Impex decision on the factual record.

Material facts and background

The brief facts of the case as culled out from the orders of the

authorities below are that the the assessee M/s. Palmon Impex Pvt. Ltd., being a Private Limited Company, is engaged in the business of trading, export & import of garments, textiles, metal and computers. The assessee filed its Return of Income (ROI) for the impugned AY 2011-12 on 29.09.2011, declaring a total income of Rs.5,36,685/-. The ROI was processed u/s. 143(1) of the Act, accepting the returned income and the case was not selected for regular scrutiny u/s 143(3) of the Act. Subsequently, based on the information that, during the FY 2010-11, the assessee had availed accommodation entries in the form of bogus purchases from three concerns i.e. (i) M/s. Monica InternationalRs.18,21,402/-, (ii) M/s. Arihant Trading Co.- Rs.11,42,688/-; and (iii) M/s. Gold Star Trading Co.- Rs.1,89,69,081/-, totaling to Rs.2,19,33,171/-, the AO initiated proceedings u/s. 147 of the Act. 4.

Accordingly, the AO issued a notice u/s. 148 of the Act dated

18.03.2014 requiring the assessee to file ROI for the impugned AY 2011-12 within 30 days from the date of receipt of the notice. However, the assessee did not file the ROI within the due date stipulated in the notice u/s. 148 of the Act. Later, the assessee filed a letter dated 03.07.2014 requesting the Page | 3

ITA No. 2561/Mum/2026 & ITA No. 2939/Mum/2025

AO to treat the original ROI filed u/s. 139(1) of the Act on 29.09.2011 as return filed in response to notice u/s. 148 of the Act. 5.3 Subsequently, the AO issued a statutory notice u/s. 142(1) of the Act, along with the questionnaire, and also provided reasons recorded for reopening the assessment. 5.

In response thereto, the AR of the assessee appeared before the AO

Appellant / assessee submissions

We have heard Ld. AR and Ld. DR and examined the record. At the

outset, Ld. AR on behalf of the assessee submitted that assessee does not want to press ground no. 1 and 2 raised in his appeal which pertains to legality of the re-assessment order u/s 147 of the Act. Hence, the ground no. 1 and 2 are dismissed as not pressed. 10.

the revenue are real controversy raised before us pertaining to the addition of 12.5% on account of bogus purchase on estimation basis in the impugned order, therefore we proceed to consider these grounds simultaneously. Ld. AR argued that assessee is primarily aggrieved with the impugned order passed by Ld. CIT(A) because they conceded before the AO for addition @ 18.5% of the bogus purchase only to buy peace anticipating and expecting that no penalty proceeding will be initiated. Since the AO has initiated the penalty proceedings, hence the assessee filed the appeal before the Ld. CIT(A) who has confirmed the order of AO upholding the addition and reducing it to 12.5% of genuine purchases by treating the same as Page | 6

suspicious. Ld. AR further argued that the addition to the extent of 12.5% is also not justified in the given circumstances when the assessee has established all necessary requirements of genuineness of the transaction, identification of the parties and creditworthiness of the parties. 11.

Ld. AR further submitted that at the most, the addition should have

Revenue / respondent submissions

We have heard Ld. AR and Ld. DR and examined the record. At the

On the other hand, Ld. DR argued that assessee has failed to

Ld. DR further relied on the judgment of Hon‟ble Bombay High Court

and the assessing officer has not also not doubted the same and accepted specifically in the assessment order itself vide para 7(xii) for making the payment through banking channel. 9. The Ld. Counsel also submitted four judgments qua identical issue, by the Hon’ble Jurisdictional High Court, including in the case of Principal Commissioner of Income Tax-2 Vs Refrigerated Distribute Private Limited (ITA No. 1840/2018) decided on 05.03.2005, wherein the Assessing Officer estimated the gross profit @25%, which was confirmed by the then Ld. CIT(A). However, subsequently reduced by the tribunal to 10% and therefore, the Hon’ble High Court, by considering the peculiar fact that the issue involved relates to only estimation of profit; ultimately opined/decided that no substantial question of law can be said to have arisen in the instant case. 10. Thus this Court is in concurrence with the contention raised by Mr. Dhaval and the claim made by the Assessee that this case is factually dissimilar to the case dealt with by the Hon’ble High Court Principal Commissioner Of Income Tax-5 Vs. Kanak Impex (India) Ltd. in ITA No. 791/2021 decided on 03.03.2025. Hence the addition the addition @ 100%...

Court / Tribunal analysis and reasoning

been restricted on account of alleged non-genuine purchase to 5% of such purchases. In support of his argument, Ld. AR relied upon the case of Mumbai Tribunal in the case of Palmon Exports Kasez in ITA No. 1106 & 1107/Mum/2018, order dated 14.11.2018 and argued that in the said case the business of the assessee was also similar and the AO made the addition @ 12.5% on account of non genuine of purchases and the said addition was confirmed by the Ld. CIT(A) and further on appeal, the Coordinate Bench of ITAT while considering the facts and circumstances, reduced the addition by restricting the same to 5% of such alleged non genuine purchases. Ld. AR therefore, prayed that the addition be restricted to 5% instead of 12.5% of such alleged non genuine purchases. 12.

Impex (India) Ltd. (supra) does not apply in the assessee‟s case because the said case was on the issue of bogus purchase with important implications u/s 69C of the Act and the assessee therein did not attend reassessment proceedings or explain the source of fund and even at appellate level, there was no explanation or rebuttal to allegations of bogus purchase and at the time of assessment, the AO invoked the provision of section 69C of the Act and made 100% addition of bogus purchase of Rs. 20.06. crores. Ld. AR further submitted that the various Tribunal including Jurisdictional Tribunal have distinguished the ratio of Kanak Impex (India) Ltd. (supra). Therefore, we proceed to discuss each case one by one as under:-

Bombay in the case of Kanak Impex (India) Ltd. (supra). We have perused the said judgment. For the reliance placed by Ld. SR DR on the decision of Hon’ble Jurisdictional High Court of Bombay in the case of PCIT vs Kanak Impex (India) Ltd (supra) calling for addition of 100% of the alleged bogus purchases as against 25% made by the Ld.AO and confirmed by Ld. CIT(A), we have perused this aforesaid judgment. We observe that in para 4, Hon’ble Court noted the factual position that assessee did not appear before the Ld.AO during the course of assessment proceedings and failed to prove the genuineness of the purchase. The said assessment was completed ex-parte u/s. 144 r.w.s 147 of the Act. Hon’ble Court also observed in para 17 about the non-appearance of assessee before the Ld.AO for which there is no justification. Again, it noted in para 29 that the assessee chose not to attend the reassessment proceedings even though the notices were sent by post, email and affixture. Accordingly, in para 13, Hon’ble Court concluded that assessee having not joined the reassessment proceedings, the contention raised by the assessee are to be rejected. Observation of the Hon’ble Court while rejecting...

iii) ITO vs. Khimchand Okchand Bhansali (2025) 174 taxmann.com 148 (Mumbai Tribunal) dated 03.04.2025. “6. The revenue department being aggrieved is in appeal before this court and at outset has placed reliance on the judgment passed by the Hon’ble Jurisdictional High Court in the case of Principal Commissioner Of Income Tax-5 Vs. Kanak Impex (India) Ltd. in ITA No. 791/2021 decided on 03.03.2025, wherein the Hon’ble High Court restored the addition made by the assessing officer @100% of the bogus purchases, which was restricted to 12.5% by the Ld. Commissioner, and subsequently got affirmed by the Hon’ble Tribunal, restricting the disallowance qua profit margin, on unproven purchases. 7. Ld. Counsel Mr. Dhaval Shah, on the contrary has demonstrated that this case is factually dissimilar to the case dealt with the Hon’ble High Court, as the Hon’ble High Court considered the case, wherein the assessing officer has made the addition @100%, but in the instant case, the Assessing Officer himself has estimated the profit @12.5%. 8. This Court observe that the Hon’ble High Court, while deciding the issue, has also taken into consideration the relevant fact specific to the effects that...

Operative decision and relief

passed by the Ld. CIT(A). Resultantly, the Ground No. 3 raised by the assessee and Ground no. 1 and 2 raised by the revenue in their respective appeals are dismissed. 21.

dismissed in above terms. Order pronounced in the open court on 28.07.2025 Sd/(OM PRAKASH KANT) (ACCOUNTANT MEMBER) Mumbai / Dated 28.07.2025

Authorities and precedents appearing in the judgment

• PCIT vs. Kanak Impex (India) Ltd. (2025) 172 taxmann.com 283
• ITO vs. Pradeep
• Bombay High Court in case of PCIT vs Kanak Impex India Ltd. order dated
• ACIT CC-7(3) vs. Dhiraj Parbat Gothi (ITA No
• Jurisdictional High Court of Bombay in the case of PCIT vs Kanak Impex
• ITO vs. Khimchand Okchand Bhansali (2025) 174
• ITO vs. M/s Mangalam Drugs & Organics Ltd. (ITA No
• Bombay High Court in the case of PCIT vs Kanak
• Rajesh Shivji Shah vs. ITO (ITA No. 525/Mum/2025)
• Court in the case of Commissioner of Income-tax vs. Smt
• Surendra Singh v. State of U. P
• Madras v. Tractors Export

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Bogus purchases; profit estimation. The operative result is classified as Dismissed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Bogus purchases; profit estimation. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Build a transaction-level evidence file: confirmations, bank trail, invoices, ledger, tax/GST records and counter-party material rather than relying on a generic explanation.
• Where the addition depends on a third-party statement or investigation report, record the request for the relied material and cross-examination at the earliest stage.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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