ITAT Restricts Bogus Purchase Addition to Rs 10 Lakh And Deletes Balance Rs 87.03 Lakh

The Income Tax Appellate Tribunal (ITAT) Delhi has granted relief to Shyam International by restricting an addition made on account of bogus purchases, estimating the profit element at Rs 10 lakh, and deleting the addition of Rs 87.03 lakh.

The assessee, Shyam International, is engaged in the business of manufacturing cotton bags and similar products. During assessment proceedings under Section 143(3) of the Income Tax Act, 1961, the AO received information from the Investigation Wing about some suspicious transactions involving the proprietor of M/s Ganpati Traders. The investigation revealed that Ganpati Traders was a non-genuine concern that was providing accommodation entries.

Based on the said information, the AO concluded that the assessee had obtained bogus purchase bills amounting to Rs 97.03 lakh from Ganpati Traders. Since the assessee’s explanation was unsatisfactory, the entire amount of Rs 9,703,300 was added to its income as bogus purchases.

The addition was later upheld by the CIT(A), and aggrieved by the appellate order, the assessee approached the Tribunal.

Before the Tribunal, the assessee argued that the AO had accepted the books of account and had not invoked any provisions for their rejection. The Tribunal observed that both the AO and the CIT(A) had mainly relied upon the findings of the Investigation Wing and the non-availability of the supplier. The Tribunal noted that no specific material had been brought on record to justify the addition of the entire purchase value.

The Tribunal held that complete disallowance of the purchases was unjustified in the circumstances and ruled that only a reasonable profit element should be estimated. Accordingly, it restricted the addition to Rs 10 lakh against the purchases of Rs 97.03 lakh and directed the deletion of the balance addition of Rs 87.03 lakh. The appeal was partly allowed in favour of the assessee.