Virani Exports Vs ITO (ITAT Surat)
The Income Tax Appellate Tribunal (ITAT), Surat, partly allowed the assessee’s appeal by restricting the addition on alleged bogus purchases to a profit estimation instead of sustaining the entire purchase amount as income. The assessee’s case was reopened under Sections 147 and 143(3) of the Income Tax Act to examine alleged accommodation entries obtained from the Bhanvarlal Jain Group. During assessment, the Assessing Officer (AO) treated purchases of ₹5,95,728 from M/s Ankita Exports, an entity of the Bhanvarlal Jain Group, as bogus and added the entire amount to the assessee’s income.
The Commissioner of Income Tax (Appeals) upheld the addition. Before the Tribunal, the assessee contended that only the profit element embedded in the purchases could be taxed and relied on Gujarat High Court decisions. The Tribunal referred to various Gujarat High Court judgments, including Surya Impex, Premkumar B. Rathi, Simit P. Sheth, Bholanath Poly Fab Pvt. Ltd., and Kesari Exports, which consistently held that only the profit element in bogus purchases from accommodation entry providers is taxable, not the entire purchase value.
Following this settled position, the Tribunal directed the Assessing Officer to estimate the profit on the disputed purchases by applying a net profit rate 5% higher than the assessee’s normal net profit rate for the relevant year. Accordingly, the appeal was partly allowed.
