ITO Vs Bhavya Pipe Industry (ITAT Delhi)
Bogus Bills, Real Sales- ITAT Says Tax Only the Profit—Not a Blind 25% Cut
Assessee, a PVC pipe manufacturer, filed a return declaring income of ₹12.61 lakh. The case was selected for scrutiny to verify purchases & creditors. During assessment, AO issued notices u/s 133(6) to 11 suppliers from whom purchases of ₹40.96 crore were made. None of the parties responded, & a verification unit physically inspected the addresses-no supplier was found at the stated locations.
Further, the AO noted that 6 suppliers had never filed Income Tax Returns & most GST registrations were cancelled, some even during the very year of purchase. AO held that purchases were bogus/unverifiable & made an addition of 25% of purchases u/s 69C (₹10.24 crore), treating it as unexplained expenditure, relying on the Supreme Court decision in N.K. Proteins Ltd..
Assessee argued that books of account were audited, sales were accepted, payments were through banking channels, purchases were supported by invoices & e-way bills, & input GST credit was allowed. Therefore, complete disallowance was unjustified.
Before CIT(A), it was admitted that suppliers were non-existent, hence purchases were not genuine. However, since sales were not doubted & books were not rejected, the CIT(A) held that only profit element could be added, not 25%. Relying on judicial precedents (including N.K. Proteins (Guj. HC) where only GP was taxed), the CIT(A applied Assessee’s own Gross Profit rate of 1.39% on bogus purchases & sustained only ₹56,94,317. Disallowance of carriage inward expenses was also restricted to ₹19,852.
