30% Ad Hoc Purchase Disallowance Without Evidence Deleted by ITAT Agra

Ziyauddin Traders Vs ITO (ITAT Agra)

Computer-Generated Bills, Absence of GST Number or Thumb Impressions Cannot Turn Genuine Livestock Purchases into Bogus Purchases: ITAT Deletes ₹9.45 Crore Addition

Summary: In a significant decision concerning ad hoc disallowance of purchases, the Agra Bench of the Income Tax Appellate Tribunal held that purchases cannot be treated as bogus merely because the invoices are computer-generated, do not mention a GST number, or contain the thumb impressions of rural sellers. Where the assessee had maintained quantitative records, produced purchase details and bank statements, and the corresponding sales had been accepted, an arbitrary disallowance of 30% of purchases was held to be unsustainable.

The assessee, M/s Ziyauddin Traders, was engaged in purchasing live buffaloes from local village markets, individual agriculturists and dairies and supplying them to slaughterhouses and dealers. For Assessment Year 2022-23, it disclosed total purchases of approximately ₹106.05 crore, sales of ₹108.46 crore and gross profit of ₹2.41 crore, representing a gross-profit rate of about 2.22%.

The case was selected for scrutiny because substantial payments had been made to persons who were not registered under GST. In the original assessment order, the Assessing Officer disallowed 20% of the entire purchases, resulting in an addition of approximately ₹21.21 crore under Section 69C. The Allahabad High Court subsequently set aside that order and directed the Assessing Officer to reconsider the matter after granting the assessee an opportunity to respond.