GP Ratio of Geniune Purchases applicable on Income Tax Addition on Bogus Purchases: ITAT

The assessee is a partnership firm engaged in the business of trading in non-ferrous metal and its allied items. The assessee filed its return of income for the impugned assessment year declaring a total income of Rs. 22,39,682. The assessee’s case was selected for scrutiny on information received relating to hawala bills and accommodation entries. It was found that the assessee had purchased from 13 parties around Rs. 1,76,04,450 and subsequently assessment was reopened and the assessment order under section 143(3) r.w.s. 147 of the Act, determining total income at Rs. 44,40,240. The AO had stated that the purchases were not genuine transactions and thereby made additions of Rs. 22,00,556. Penalty proceedings were also initiated under section 271(1)(c).

Appeal before CIT(A): Aggrieved the assessee was in appeal before the Ld.CIT(A), who confirmed the addition made by the Assessing Officer and dismissed the appeal of the assessee.

Appeal before ITAT:  The tribunal, in Nikunj Eximp Enterprises Pvt Ltd 372 ITR 619 (Bom) has dealt with a similar issue and had ruled that when sales are not in doubt, then 100% disallowance for bogus purchases cannot be made and set aside the matter to the file of the AO with directions to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases.

The tribunal did not find any infirmity in this decision and thereby set aside the matter to the Assessing Officer with the direction to restrict the addition on gross profit rate of bogus purchases at the same rate as that of the genuine purchases after giving an opportunity to the assessee to present its case. Further, it was held that levy of interest under section 234B and 234C are consequential and initiation of penalty under section 271(1)(c) is premature. Thus, the appeal was partly allowed on merits.

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