Bogus Purchase: Addition sustained at reduced rate not under Section 69C, but as a trading addition by ITAT Delhi
ITAT Delhi has rendered a landmark decision in the case of DCIT, Circle Hisar vs. Tirupati Matsup Pvt. Ltd. (ITA No. 3326/Del/2023, CO No. 4/Del/2024), dated May 16, 2025 on the issue of unverifiable purchases and Section 69C.
Let us have a Short Overview of the case:
Assessee: Tirupati Matsup Pvt. Ltd.
AO: DCIT, Circle Hisar
Assessment Year: 2021–22
Nature of Business: Wholesale trade of building materials and civil contract work.
Returned Income: ₹47.24 lakhs
Addition by AO: ₹31.95 Cr u/s 69C on alleged bogus purchases from 3 parties.
AO’s Basis:
• No response to Section 133(6) from 2 parties.
• One party (Krishna Traders) found to be non-existent (proprietor denied any transactions).
• Despite banking payments, e-way bills and invoices, genuineness not proved.
CIT(A) Findings
• AO included GST in total purchase amount; correct value was ₹26.47 Cr (excluding GST).
• Accepted that purchases were unverifiable but entire purchases shouldn’t be disallowed.
• Applied G.P. rate of 2.39% on ₹26.47 Cr, based on declared results.
ITAT Ruling
Key Observations:
1. Genuineness not established for the three parties:
• No confirmations, no bank proofs by two parties.
• Krishna Traders was a fictitious entity, per GST dept. and proprietor’s admission.
2. Section 69C not invoked:
• Since goods were sold and revenue offered to tax, Section 145(3) not invoked.
• Entire purchases cannot be disallowed; only profit embedded in unverifiable purchases can be taxed (relying on SC in N.K. Proteins [292 CTR 354]).
3. G.P. Rate Revised:
• CIT(A) applied 2.39% – deemed too low.
• In absence of hard evidence of profit suppression, estimated a fair G.P. rate of 5%.
• Addition sustained only to the extent of 5% of ₹26.47 Cr, not under Section 69C, but as a trading addition.
The copy of the order is as under:
