ITAT Restricts Bogus Purchase Addition to 5% GP; Deletes Protective Rebate & Discount Disallowance

A search conducted on 06.05.2014 in the Jaswant Group covered Jagatjit Industries Ltd., leading to assessments under Section 153A read with Section 143(3) for AYs 2011-12 to 2013-14. For AYs 2011–12 and 2012-13, the Assessing Officer treated purchases of Rs. 65.71 lakh and Rs. 41.30 lakh as bogus, relying mainly on the statement of an alleged accommodation entry provider and the absence of supplier infrastructure.

Before the CIT(A), the assessee relied on cross-examination, banking payments, confirmations and consistent GP ratios. The additions were deleted. Separately, rebate and discount claims were disallowed on a purely protective basis, with the Assessing Officer observing that substantive additions would be made in another person’s hands. The Revenue appealed before the Tribunal.

Main Issue: Whether deletion of bogus purchase additions was justified, and whether protective additions for rebate and discount could survive without a corresponding substantive addition.

ITAT’s Decision: The Tribunal held that while the supplier’s statement created doubt, the Department had not disturbed sales or overall book results.  The Tribunal directed estimation of additional gross profit at 5% of the disputed purchases, clarifying that the direction was case-specific. Revenue’s appeals for AYs 2011–12 and 2012–13 were partly allowed to this extent.

The Tribunal held that a protective addition cannot stand independently without a substantive addition in another person’s case. Relying on judicial principles including Suresh K. Jajoo v. ACIT, the Tribunal deleted the protective additions in full. Therefore, Revenue’s appeal for AY 2013-14 was dismissed and the assessee’s cross-objections were allowed.

To Read Full Judgment, Download PDF Given Below