ITAT Upholds 6% Addition on Bogus Purchases, Dismisses Revenue Appeal

The Income Tax Appellate Tribunal (ITAT) recently dismissed an appeal filed by the revenue challenging CIT(A)’s order of restricting an addition at 6% of the alleged bogus purchases.

The case of the assessee was reopened based on an investigation alleging Rs. 6,66,602 in bogus purchases from M/s. Mohit Enterprises, a fake company run by the Bhawarlal Jain group, which allegedly provided fake invoices. The AO added the full amount to the income of the assessee. However, the CIT(A) reduced it to 6% at Rs 39,996, stating that the sales were accepted by the AO. Therefore, the Revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai.

The assesse submitted evidence, including purchasing bills, bank statement, Purchase register, sales register, stock book, Bank certificate, Affidavit from Mohit Enterprises’ proprietor confirming the genuineness of diamond sales and the payments. The assessee argued that the payments were made through cheques, the sales were accepted, so only the profit should be taxed, not the entire purchase. argued that the AO must have adopted a 3% GP rate.

The Tribunal agreed with CIT(A), saying that AO had issued notice under section 133(6) of the Income Tax Act, and the supplier confirmed the transactions. Additionally, the revenue did not prove any contrary evidence. Relying on a case of M/s Sai Diamond, the Tribunal concluded that the CIT(A) had correctly restricted the disallowance to 6% of the bogus purchases. Therefore, the assessee dismissed the appeal filed by the revenue and upheld the CIT(A)’s decision.