ITO Vs Silk Factory (ITAT Delhi)
Bogus Purchase Allegations Fail Where Sales and Stock Are Accepted – ITAT Delhi Upholds 5% Estimation
The Delhi Bench of the ITAT dismissed the Revenue’s appeal and upheld the order of the CIT(A) restricting disallowance of alleged bogus purchases to 5% for AY 2022-23. The AO had treated purchases of ₹21.83 crore from certain suppliers as entirely fictitious based on GST irregularities, non-filing of returns by suppliers, and non-response to notices under section 133(6), and consequently made 100% disallowance under section 69C.
The Tribunal noted that the assessee had discharged its initial onus by furnishing invoices, e-way bills, transport consignment notes, ledger accounts, bank statements, month-wise purchase and sales details, and stock records in both quantity and value. Importantly, the AO had not rejected the books of account, nor doubted the sales or turnover declared by the assessee.
The ITAT held that once sales are accepted and corresponding stock records are available, it is impermissible to disallow entire purchases merely on suspicion about suppliers, without proving that goods were never received. In such circumstances, only a reasonable profit element can be brought to tax. The Tribunal rejected the Revenue’s contention that full disallowance was mandatory in all bogus purchase cases and affirmed that estimation depends on facts of each case.
Accordingly, the restriction of disallowance to 5% of the disputed purchases was held to be justified, and the Revenue’s appeal was dismissed
FULL TEXT OF THE ORDER OF ITAT DELHI
