ITAT Restricts Bogus Purchase Disallowance to 1%, Slashes Addition from Rs 50.95 Lakh to Rs 50,950:

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has granted partial relief to Anupama Gupta by restricting the disallowance of alleged bogus purchases to 1% instead of the 20% addition made by the Assessing Officer (AO).

The assessee was engaged in the business of trading in finished fabrics and had reported total purchases of Rs 2.54 crore during Assessment Year 2022-23. The AO treated purchases worth Rs. 50.95 lakh as non-genuine and suspected that they represented accommodation entries. Accordingly, the AO completed the assessment under Section 144 read with Section 144B of the Income Tax Act, 1961, and disallowed 20% of the total purchases, amounting to Rs 50.95 lakh. The CIT(A) subsequently upheld the addition.

Aggrieved by the decision, the assessee approached the ITAT. During the proceedings, the Tribunal observed that the assessee was engaged in fabric trading, and the possibility of purchases from unregistered dealers could not be completely ruled out. It also noted that the corresponding sales had not been disputed by the lower authorities. Further, the authorities had accepted 75% of the purchases in principle.

After considering the facts and various judicial precedents concerning bogus purchases, the Tribunal held that "a lumpsum GP disallowance @ 1% of the assessee’s alleged bogus purchases amounting to Rs. 50,950/- u/s 37 and not u/s 115BBE of the Act, would be just and proper. The assessee’s book entries are hereby rejected to the very extent. Necessary computation shall follow as per law."

Accordingly, the ITAT restricted the disallowance to Rs 50,950 under Section 37 of the Income Tax Act instead of applying Section 115BBE. The Tribunal also directed that the assessee's books be rejected to that extent and allowed the appeal partly.