ITO Vs Reeta Goel (ITAT Delhi)
Only Embedded Profit Element Taxable: ITAT Delhi Restricts Bogus Purchase Addition to 12.5% – Sales Accepted, So Purchases Can’t Be Fully Disbelieved
These cross appeals by Assessee & Revenue arose from NFAC Delhi order dated 16.07.2024 in assessment u/s 143(3) for AY 2021-22.
AO had disallowed entire purchases of ₹23.50 Cr treating them as bogus u/s 69C, since suppliers did not respond to notices & were not produced. CIT(A) held that source of expenditure was explained through bank statements & invoices, sales were not doubted, and therefore entire disallowance was unjustified. He directed AO to estimate additional profit @20% on purchases, thereby granting partial relief.
Before Tribunal, Revenue pressed for restoring full disallowance, while Assessee argued that with sales accepted, purchases could not be fully disbelieved. Tribunal observed that although purchases could not be proved genuine in entirety, treating all as bogus was not justified since sales were accepted. Relying on PCIT Vs Mohd. Haji Adan & Co. (Bom HC), Tribunal restricted disallowance to 12.5% of purchases, representing profit element embedded in alleged accommodation entries. Accordingly, Revenue’s appeal was dismissed & Assessee’s appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
