ITAT Restricts Addition to 5% Profit on Alleged ₹13.80 Crore Bogus Purchases as Sales Accepted and Books Not Rejected [Read Order]

The assessee-respondent, Metarolls Ispat Pvt. Ltd., engaged in the business of manufacturing steel products such as MS Billets and TMT Bars, filed its return of income on 26.12. 2020, declaring a total income of ₹19,48,06,480. The return was processed under section 143(1) of the Income Tax Act, 1961, and the case was selected for complete scrutiny.

During assessment, the Assessing Officer (AO) relied on the report of the Deputy Director of Income-tax (DDIT) based on information from the Directorate General of GST Intelligence (DGGI), which identified three suppliers that is Divya Enterprises, Waheguru Global Mines Pvt. Ltd. and Khushi Traders as entry providers issuing accommodation bills without actual supply of goods.

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As the parties did not respond to notices under section 133(6) of the Act, the AO disallowed purchases aggregating to ₹13,80,63,994 with GST and added the same as bogus purchases.

In appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition. The CIT(A) observed that the assessee had produced invoices prescribed under the GST Act, lorry receipts with vehicle details, e-way bills, weighment slips, photographs of vehicles at the factory gate and weighbridge, GST returns, bank payment proofs, and reconciliation of stock records. The CIT(A) noted that no infirmity was pointed out in these documents, the suppliers were registered under GST, and the sales of the assessee had not been doubted.

The CIT(A) relied on Bombay High Court rulings, such as CIT v. Nikunj Eximp Enterprises Pvt. Ltd.(2013), it was held that merely because the suppliers had not appeared before the AO, purchases could not be disallowed when supported by documentation and corresponding sales. Accordingly, the CIT(A) deleted the addition of ₹11,70,03,386 without GST.

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The Department appealed before the Tribunal and contended that when the GST Department had identified the suppliers as fraudsters, and when they failed to respond to statutory notices, the purchases could not be accepted as genuine.

The Revenue relied on the Supreme Court’s ruling in N.K. Proteins Ltd. v. DCIT(2003) to argue that the entire purchase should be disallowed. The assessee countered that no evidence of cash being returned was found, that all payments were made through banking channels, and that all possible evidence, such as invoices and e-way bills, was furnished.

The Bench comprising R.K. Panda (Vice President) and Astha Chandra (Judicial Member) noted that in the assessee’s case for Assessment Years 2016-17 to 2019-20, the AO had consistently estimated only 5% profit on such alleged bogus purchases rather than disallowing the entire purchase amount.

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The Tribunal observed that the assessee has filed various details such as lorry bills, invoices, e-way bills, etc., and such parties have not responded to notices issued under section 133(6) or appeared before the AO in response to summons issued under section 131. At the same time, it is also an admitted fact that the sales of the assessee have not been disputed, and the books of account have also not been rejected.

The ITAT set aside the CIT(A)’s deletion and directed the AO to restrict the addition to ₹69,03,200, being 5% of ₹13,80,63,994.

The assessee was represented by Rahul Kaul along with Anand Partani and Darshan Gattani, while Amol Khairnar along with Ramnath P. Murkunde, represented the department.

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