Disallowance of ₹16.28 Lakh Bogus Purchase without Rejection of Books: ITAT Restricts Addition to ₹1.29 Lakh Applying GP Rate [Read Order]

The Ranchi Bench of Income Tax Appellate Tribunal ( ITAT ) partly allowed the appeal and restricted the addition of ₹16.28 lakh for alleged bogus purchases to ₹1.29 lakh by applying a 7.92% gross profit (GP ) rate, holding that the disallowance was not valid as the books of accounts were not rejected

Indra Trading Corporation, appellant-assessee, had filed its return of income for AY 2011-12 declaring ₹18,22,014. The case was reopened under section 148 on the ground of escaped income, and subsequent notices under sections 143(2) and 142(1) were issued.

During assessment, the Assessing Officer (AO) noted that the assessee failed to produce a purchase bill of ₹16,28,109 and made this addition along with ₹1,57,44,349 to the income. The Commissioner of Income Tax(Appeals)[CIT(A)] partly allowed relief but upheld the disallowance of the disputed purchase bill.

The assessee then appealed before the tribunal, arguing that the addition was invalid since the books of accounts were not rejected and purchases could not be disallowed when sales were accepted.

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The departmental counsel argued that the disallowance was justified as the assessee failed to produce purchase bills, and the AO as well as the CIT(A) had rightly upheld the addition.

In response, the assessee’s counsel submitted that while the addition was bad in law, the assessee was willing to accept estimation by applying a 7.92% gross profit rate on the purchases to avoid further litigation, and therefore the entire addition should not be sustained.

The two member bench comprising Sonjoy Sarma (Judicial Member) and Ratnesh Nandan Sahay (Accountant Member) held that the addition of ₹16,28,109 for alleged bogus purchases was not valid since the books were not rejected and sales were accepted.

As the assessee agreed to estimation at a 7.92% GP rate to avoid litigation, the tribunal restricted the addition to ₹1,28,950 and deleted the balance of ₹14,99,159. The appeal was thus partly allowed.

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