The Income Tax Appellate Tribunal Tribunal ( ITAT ), Mumbai held that no addition by way of disallowance of alleged bogus purchases is warranted when the GP rate exceeds genuine purchases.
The assessee, is a trader, importer and exporter of diamonds. The revenue conducted a search and seizure operation on October 3, 2013, at the premises of Rajendra Jain, Sanjay Choudhary, Dharmi Chand Jain, and their associated companies. The authorities claimed that these entities were engaged in issuing bogus sales invoices without actually supplying goods.
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The Assessing Officer ( AO ) reached a conclusion that the purchases were bogus in nature and reopened assessment proceedings for 2 assessment years, 2011-12 and 2012-13.
Before the AO, the assessee submitted detailed documentation, including purchase invoices, payment details, stock registers, and confirmations from the suppliers. The company argued that some of the disputed purchases had been directly linked to export transactions that had cleared customs, making it evident that genuine goods were purchased and sold.
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But in the end, the AO dismissed the company’s claims, relying entirely on the Investigation Wing’s report.
Although the assessee appealed before the Commissioner of Income Tax Appeals [ CIT( A ) ], there were no favourable results.
The assessee submitted before the ITAT that its financial records were duly audited, transactions were conducted through proper banking channels, and all purchases were backed by verifiable documents. The assessee contended that without actual purchases, it would have been impossible to fulfill its export commitments.
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The bench observed that the CIT( A ) had simply relied on the report of the investigation wing.
It noted that the suppliers had confirmed the transactions and that Aashna Diamond had successfully matched its purchases with sales. The tribunal also took into account that the GP rate for the disputed purchases was actually higher than the company’s overall GP rate, which is 9.06% compared to 6.71% in AY 2011-12 and 8.40% compared to 6.68% in AY 2012-13.
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Mumbai ITAT comprising Justice ( Retd.) C.V. Bhadang ( President ) and B. R Baskaran ( Accountant Member ) allowed the appeal of the assessee and set aside teh order od CIT( A ).
The bench directed the AO to delete the addition of alleged bogus purchases made in both the years.
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