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Facts
The assessee filed its ITR for AY 2011-12. Subsequently, escaped income was found, leading the AO to issue notice u/s 148 and make additions, including Rs. 16,28,109/- for unproduced purchase bills. The CIT(A) sustained this specific addition, prompting the assessee to appeal, arguing it was bad in law without rejecting books of accounts, and offering a GP rate for estimation.
Held
The Tribunal held that the full addition of Rs. 16,28,109/- for bogus purchases was bad in law as books of accounts were not rejected and sales were accepted. However, acceding to the assessee's willingness to avoid litigation, the Tribunal directed the AO to apply a GP rate of 7.92% on the disputed purchase. This restricted the addition to Rs. 1,28,950/-, leading to the deletion of the balance Rs. 14,99,159/-.
Key Issues
Whether an addition for bogus purchases is valid without rejecting the books of accounts, and the appropriate method for estimating income when purchases are not fully substantiated.
Sections Cited
148, 143(2), 142(1)
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Income Tax Appellate Tribunal, “RANCHI BENCH”, RANCHI
Before: SHRI SONJOY SARMA, JM & SHRI RATNESH NANDAN SAHAY, AM
O R D E R
Per Sonjoy Sarma, JM :
The above captioned appeal is filed by the assessee against the order dated 22.08.2023, passed by the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2011-2012.
The assessee filed its income tax return for the assessment year 2011-12 showing an income of Rs 18,22,014. Subsequently, it was found that certain income of the assessee for the assessment year under consideration had escaped assessment. Accordingly, the AO issued notice u/s 148 of the Act with the prior approval of the competent authority and served upon the assessee. In response to the same, the assessee filed its return. Subsequently, notice u/s.143(2) & 142(1) of the Act were issued to the assessee for making certain compliances. After considering the submission of the assessee, the ld.AO found that the assessee did not produce the purchase bill amounting to Rs.16,28,109/-. Accordingly, the ld.AO made the addition along with a sum of Rs.1,57,44,349/- to the income of the assessee. Aggrieved by the above order, the assessee preferred appeal before the ld.CIT(A) where the appeal of the assessee was partly allowed by granting certain relief to the assessee but the issue relating to the bogus purchase bill amounting to Rs.16,28,109/- was sustained in the hands of the assessee. Aggrieved by the above order, the assessee is an appeal before the Tribunal raising various grounds, however, the main contention of the assessee is that when the additions were made in the case of the assessee without rejecting the books of accounts, the purchases were disallowed and added to the income of the assessee, which is bad in law. Since rejecting the books of accounts, when sales figures are correct in that case purchases cannot be isolated denying to the assessee. Therefore, the addition was bad in law and liable to be set aside.
On the other hand, ld.Sr. DR supported the decisions of the authorities below and stated that the assessee could not produce the supported bills in relation to the purchases made by the assessee, therefore, the AO and the ld.CIT(A) have rightly upheld the order of the AO by disallowing the claim of the assessee. On this ground the ld.AR further stated that although the addition was bad in law but the assessee is willing to accept estimation by applying a G.P. rate of 7.92% on such purchase in order to by peace of mind and without going into further litigation. Therefore, the ld.AR prayed that the whole addition cannot be sustained in the hands of the assessee.
We after considering the submissions of the ld.AR, find that although the purchase of Rs.16,28,109/- was added to the income of the assessee alleging the same as bogus purchase in the hands of the assessee which was not correct as without rejecting the books of account and when the sales figures are taken into consideration the figure of purchase cannot be kept in isolation for making addition. Therefore, the whole addition on alleged bogus purchase amounting to Rs.16,28,109/- was bad in law. However, the assessee expressed willingness to accept estimation by applying a GP rate @7.92% on disputed purchase in order to avoid further litigation. We, after considering the facts of the case, hold that the entire purchase of Rs.16,28,109/- cannot be sustained. Accordingly, we direct the Assessing Officer to apply GP rate of 7.92% on such purchase. The addition is accordingly restricted to Rs.1,28,950/-. Accordingly, balance addition of Rs.14,99,159/- is directed to be deleted.
In terms of the above, appeal of the assessee is partly allowed.
Order pronounced on 08/09/2025.