Profit Embedded amount Purchase would be Subjected to Tax: ITAT directs AO to restrict Addition of Rs. 16.8 crores [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) directed the Assessing Officer to limit the addition of Rs. 16.8 crores, indicating that the profit-embedded amount from the purchase would be subjected to tax.

The assessee Sangam Wires firm was engaged in the business of trading in high tensile steel wires and other steel products. It filed its return of income on 04.01.2022 admitting total income of Rs.80, 64,210/-. The return was processed under Section 143(1)(a). Subsequently the case was selected for scrutiny and statutory notices under Section 143(2) and 142(1) were issued and served on the assessee in response to which the assessee filed the requisite details.

Mr. Chandramouleswara Rao representing the  assessee submitted that the fact of acceptance of sales automatically implies that there are purchases and even the purchases which were treated as ‘bogus’ by the Assessing Officer are also possessing all the characteristics of genuine purchases. He accordingly submitted that the addition made by the Assessing Officer was not justified. He accordingly submitted that the entire additions made by the Assessing Officer be deleted.

The two member bench of the tribunal comprising K.Narasimha Chary ( Judicial member) and R.K Panda ( Vice president)  found that the CIT (A) NFAC deleted the addition made by the Assessing Officer but directed the Assessing Officer to apply the rate of profit on other genuine purchases, the reasoning of which have already been reproduced in the preceding paragraph. It found any infirmity in the order of the CIT (A) NFAC on this issue. Further found that the assessee in the instant case has filed the details of stock, copies of purchases invoices, E-waybills, computerized receipts from weigh bridges etc. The payments were also made through banking channels and the sales have not been doubted by the Assessing Officer.

Further the various other decisions relied on by the counsel for the assessee also support his case to the proposition that only the profit element embedded in such alleged bogus purchases can be added and not the entire purchases especially when such purchases are recorded in the books of account, quantitative details are given and the sales have been accepted.

ITAT does not find any infirmity in his order. Accordingly, the same was upheld and the grounds raised by the revenue were dismissed.

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