If AO didn’t dispute purchase, only the profit element of alleged non-genuine purchases can be brought to tax.
When the Assessing Officer himself has not treated the purchases as entirely fictitious and Bogus, instead, he has merely applied a percentage/ profit element. Then, the department cannot place reliance on PCIT vs. Kanak Impex (India) Ltd. and PCIT vs. Drisha Impex Pvt. Ltd, and only the profit element of alleged non-genuine purchases can be brought to tax.
Fact of the case:
During reassessment, the Assessing Officer noted alleged non-genuine purchases aggregating to ₹11.88 crore. Without treating the purchases as entirely bogus, the AO applied a gross profit rate of 5.54% on such purchases and made an addition on account of estimated profit.
In appeal, the CIT(A) observed that the assessee’s declared GP rate of 3.41% had been consistently accepted in earlier years and that the AO had not led any material to justify a higher estimation. Accordingly, the addition was restricted by applying the assessee’s own GP rate.
The Revenue challenged this before the ITAT Mumbai, relying on decisions supporting 100% disallowance in bogus purchase cases. The Tribunal dismissed the appeal, holding that since corresponding sales were accepted and purchases were not held to be entirely fictitious, only the profit element could be taxed.
The copy of the order is as under:
