DCIT Vs Enrich Agro Food Products Pvt Ltd (ITAT Delhi)
Bogus Purchases: Only 6% Profit Element Taxable—Delhi ITAT Dismisses Revenue’s Appeals for Both Years
Assessee, a contract manufacturer for Coca-Cola India engaged in bottling aerated drinks, juices & packaged drinking water, was subjected to reassessment based on Investigation Wing information alleging bogus purchases of Rs.1,73,02,120 from certain parties linked to Shri Daya Shankar. AO treated entire purchases from four suppliers as non-genuine & , relying on Bharatram v. ACIT (Hyd ITAT), applied a 25% GP rate, making an addition of Rs.43,25,530. AO also made disallowance u/s 14A r.w. Rule 8D of Rs.16,90,507.
Assessee furnished extensive documentary evidence – GST invoices, e-way bills, GSTR-1 auto-populated entries, GSTR-2A reconciliation, quantitative stock registers, gate-entry registers, ledger accounts & bank statements. It was emphasised that under the GST regime purchase-sale chains are system-driven & input-tax credit flows only when supplier uploads valid invoices. AO, however, conducted no meaningful enquiry except issuing a few notices u/s 133(6) which returned unserved, & broadly presumed purchases to be bogus.
Before CIT(A), Assessee demonstrated average GP margin of 24%, including the disputed purchases, & highlighted that even in the original 143(3) assessment for the same year, no adverse inference on purchases had been drawn. Following judicial precedents (Mohd. Haji Adam (Bom HC), Sanvik Engineers (Delhi ITAT), Poeatial Nathalal Shah (Mum ITAT), Murtuza Abdul Gaffar Khan (Mum ITAT)), CIT(A) held that when sales are accepted, only the embedded profit in alleged bogus purchases can be taxed—not the entire purchase value. CIT(A) estimated embedded profit at 6% (24% regular GP + 6% enhancement) & restricted the addition accordingly.
