ITAT affirms deletion of ₹43,33,606 Addition for Non-Genuine Purchases, Citing Consistent GP Rate [Read Order]

The Jaipur Bench of Income Tax Appellate Tribunal(ITAT) upheld the Commissioner of Income Tax(Appeals)[CIT(A)]'s decision to delete an addition of ₹43,33,606 related to non-genuine purchases. The ITAT's ruling emphasized that the assessee's gross profit rate was consistent with industry standards, justifying the removal of the disputed amount from his taxable income.

The revenue filed an appeal against the CIT(A)’s order dated February 6, 2024 for the assessment year(AY) 2012-13. In this case,Sunder Das Sonkiya,the respondent-assessee, was an individual engaged in exporting gems and jewellery under M/s S Naveen Jewellers. He filed a return of income declaring ₹24,000, which was processed under Section 143(1) without further scrutiny.

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The Assessing Officer (AO) initiated reassessment proceedings by issuing a notice under Section 148 on March 28, 2019, based on information about the assessee’s involvement in obtaining bogus purchase bills totaling ₹1,73,34,424 from entities linked to a group providing accommodation entries.

The AO concluded that these inflated purchases reduced the taxable business profit. After the assessee complied with the notice and filed objections, the reassessment was completed under Section 143(3)/147, resulting in a total income of ₹43,57,610, which included an addition of ₹43,33,606 for non-genuine purchases.

Aggrieved by the AO's order, the assessee, appealed to the CIT(A). The CIT(A) observed that the AO disallowed ₹43,33,606, or 25% of alleged unverifiable purchases of ₹1,73,34,424. He noted that past ITAT and Rajasthan High Court rulings suggested that unverifiable purchases should lead to income estimation based on average gross profit (G.P.) rates from previous years.

The CIT(A) referred to earlier cases involving the assessee, where similar additions were deleted based on estimated G.P. rates. In AY 2009-10, an addition was reduced using a G.P. rate of 19.25%, and in AY 2010-11, the ITAT deleted an addition due to changes in the nature of the business. Ultimately, the CIT(A) determined that the assessee's G.P. rate of 13.05% was higher than in previous years, leading to the deletion of the ₹43,33,606 addition and allowing the appeal.

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The tribunal heard the rival contentions and  affirmed the CIT(A)’s findings, emphasizing that the gross profit declared by the respondent-assessee was consistent with industry standards. The tribunal highlighted the Rajasthan High Court's ruling in Clarity Gold (P) Ltd., which established that income should be assessed based on reasonable G.P. rates.

The two member bench comprising Dr.S.Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member),noted that the assessee's G.P. rate surpassed the average rate. Consequently, the tribunal found no error in the CIT(A)'s decision to delete the addition and dismissed the revenue's appeal.

To Read the full text of the Order CLICK HERE

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