The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) directed that the addition of Rs. 76.10 lakh on alleged bogus purchases under section 69C of Income Tax ACt,1961 be computed at 5% gross profit on verified purchases.

Savitri Jain, appellant-assessee, filed her return for Assessment Year 2018-19 declaring a total income of Rs. 2,98,550/-. The Assessing Officer (AO), under section 147, passed an assessment order on 30/03/2023, adding Rs. 76,10,580/- as unexplained expenditure under section 69C.

The assessee appealed to the Commissioner of Income Tax (Appeals)[CIT(A)], who partly allowed the appeal by directing the AO to compute the disputed addition at a gross profit rate of 12.5%, reducing it to Rs. 9,51,322/-. Aggrieved by the CIT(A) order dated 10/02/2025, she filed the present appeal.

The assessee counsel submitted that the assessee had produced books, purchase bills, and other documents to prove the purchases were genuine. He argued that since the AO never questioned the sales, the purchases must have been real. He also noted that both the AO and CIT(A) relied on a third-party GST return to treat the purchases as bogus, and there was no reason to restrict the addition to Rs. 9,51,322/-.

The Departmental Representative submitted that the CIT(A) was correct in restricting the addition to 12.5% of the purchases and there was no error in the order.

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The two member bench comprising Yogesh Kumar U.S (Judicial Member) and Naveen Chandra (Accountant Member) heard both parties and examined the records. It noted that the CIT(A) had observed the assessee produced bank statements, purchase bills, and other documents to prove the purchases were genuine, and the AO had not questioned the sales.

The CIT(A) had limited the addition to 12.5% of the disputed purchases, which were treated as bogus based on third-party GST information.

The tribunal observed that the assessee’s actual purchases from M/s Jai Bhagwani Sales in FY 2017-18 amounted to Rs. 30,42,821/- and not Rs. 76,10,580/-, and that the assessee had claimed input tax credit only on the admitted purchases. Verification of ledgers and accounts confirmed this.

The appellate tribunal held that incorrect GST reporting by the third party could not be a sole reason to make an addition. Considering the facts and nature of the business, it modified the CIT(A) order and directed the AO to estimate gross profit at 5% on the admitted purchases of Rs. 30,42,821/-.

Accordingly, the appeal was allowed partly.

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