ITO Vs Mohd. Rizwan (ITAT Delhi)
From Doubt to Deletion: ITAT Rejects 25% Bogus Purchase Estimation- Books Not Rejected, Addition Not Permitted – ITAT’s Clear Message to AO
AO completed assessment u/s 144 estimating 25% of purchases as bogus, alleging suspicious/bogus purchases based on non-filing of ITR by suppliers, GST cancellation, non-response to notices, vehicle size mismatch, etc. However, AO did not reject the books of account & brought no concrete evidence.
CIT(A)’s Key Findings
- Books of account were audited & produced
- Sales were accepted – no dispute on turnover
- Payments to suppliers made through RTGS & reflected in bank statements
- Purchase & sales registers matched with financials
- Stock position supported purchases – closing stock ₹2.28 Cr vs purchases ₹13.78 Cr
- AO made only superficial/circumstantial observations without further enquiry
- No opportunity of cross-examination where a supplier allegedly denied sales
- Reliance on GST cancellation or vehicle size was insufficient
- Importantly, if purchases formed part of closing stock, no addition could be made, & AO never verified whether purchases were consumed or in stock.
- Profit comparison – Declared NP 2.12% vs preceding year 2.57%.
- If addition sustained- NP jumps to 13.77%, which is unrealistic without concrete proof.
Legal Principle Applied- Without rejecting books of account, AO cannot disallow purchases.
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