Bogus purchases: ITAT directed to restrict the addition to the GP Ratio
Here is an interesting case on the bogus purchase before ITAT Delhi as under:
ITAT DELHI
DIAMOND TRADEX CO. LTD.
VERSUS
ACIT CENTRAL CIRCLE – 17
NEW DELHI,
ITA No. 7385/Del/2018
Dated.- July 17, 2023
Let us have a short overview of the case:
Briefly stated the facts of the case are that on the basis of the information received from the Investigation Wing notice u/s. 148 was issued pursuant to which the assessee stated that the return already filed may be treated as a return of income filed in response to notice u/s. 148 of the Act.
The assessee was also asked to furnish copy of purchase bills in respect of the purchases made by it from Kothari Impex and Khushi Gem Pvt. Ltd. Assessee filed the necessary details. Taking a leaf out of the statement of Sh. Vijay Narendra Kothari given to Investigation Wing the AO came to the conclusion that there was no actual business of trading in diamonds carried out by Khushi Gem and Kothari Impex but these concerns were indulged in paper transactions only giving accommodation entries by issuing sale bills without affecting any sales.
The AO completed the assessment by treating the purchases made from Kothari Impex and Khushi Gem Pvt. Ltd. as bogus purchases and made addition of Rs. 13921785/-.
Proceeding further the AO was of the firm belief that the assessee must have paid some commission for taking accommodation entries and went on to make addition @ 2% and made addition of Rs. 278435/-.
Assessee carried the matter before the CIT(A) but without any success.
ITAT held as under:
As the alleged bogus purchases are part of the total sales made by the assessee and accepted by the AO. Assuming yet not accepting that the impugned purchases are bogus all that can be added is the profit element embedded there in as held in the case of Mohammed Hazi [2019 BOMBAY HIGH COURT] which has been followed by [2023 – ITAT DELHI_coordinate Bench in ITA No.7384/Del/2018.].
We find that the net profit shown by the assessee is 7.50%, therefore, the AO is directed to restrict the addition to 7.50% being the alleged bogus purchases and delete the balance amount.
We further direct the AO to delete the addition being alleged commission on accommodation entries as the said amount has been subsumed in the aforementioned addition. Decided partly in favour of assessee.
