The Jaipur Bench of Income Tax Appellate Tribunal ( ITAT ) upheld a 20% addition on alleged bogus purchases due to unverified sellers. The tribunal reduced the original 25% disallowance, agreeing that the assessee failed to prove the genuineness of the transactions, and confirmed penalty proceedings.
K L Tambi & Company, the appellant-assessee, had received an assessment order on 08.12.2018 for the assessment year (AY) 2005-06. The Assessing Officer (AO) disallowed 25% of bogus purchases amounting to Rs. 15,13,844/- and added it to the income, bringing the total to Rs. 62,32,210/-. The AO also issued a notice for penalty proceedings under Section 271(1)(c) read with Section 274 of the Act.
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The assessee’s appeal was dismissed by the CIT(A) on 05.12.2023, who upheld the 25% disallowance, citing that the invoices were from bogus parties and the goods were sourced from unknown suppliers. The CIT(A) maintained that the assessee had not substantiated the genuineness of the purchases.
The assessee then appealed to the tribunal, marking the second round of litigation after the CIT(A) upheld the AO’s order. The tribunal’s review included the first round of litigation, where the AO’s assessment dated 24.12.2007 had set the income at Rs. 1,23,85,730/- and initiated penalty proceedings. The AO had rejected the books, applied a 17.5% Gross Profit (GP) rate, and disallowed Rs. 6,50,752/- in expenses.
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The CIT(A) had upheld this on 18.06.2008, directing a trading addition of Rs. 26,36,608/-, but the Appellate Tribunal allowed the assessee’s appeal on 09.09.2009. However, the High Court remitted the case for a fresh decision.
In the current appeal, the assessee’s counsel argued that the High Court’s order had aligned with the decision in CIT v. Gems Paradise and claimed that the CIT(A) had erred in upholding the 25% disallowance. The counsel highlighted an increase in export turnover and a minor drop in the GP rate as part of their argument. The revenue counsel, on the other hand, supported the CIT(A)’s decision, referring to previous rulings that justified the disallowance.
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The AO had noted the assessee’s failure to provide evidence for purchases from Abhay International and Girish Diam, leading to the disallowance. The tribunal agreed with the AO’s finding due to the lack of verification and supporting evidence. The assessee had reported GP rates of 17.10% and 16.87% for AY 2003-04 and 2004-05, respectively.
The tribunal also referred to the Gujarat High Court’s decision in Vijay Proteins Ltd vs CIT, which had upheld a similar 25% disallowance for bogus purchases. The court had found that despite maintaining books and making payments through crossed cheques, the purchases had been inflated using fictitious invoices from non-existent suppliers.
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The two member bench comprising Narinder Kumar (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) upheld the 25% disallowance of bogus purchases but reduced the GP rate from 25% to 20%. The appeal was dismissed, and the disallowance and penalty proceedings under Section 271(1)(c) were confirmed.
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