A.M Enterprises Vs ITO (ITAT Bangalore)
ITAT Bangalore held that entire bogus purchases cannot be considered for addition, however, only gross profit of such alleged bogus purchases needs to be considered. Accordingly, directed AO to consider gross profit when making any additions towards bogus purchases.
Facts- The assessee is a partnership firm and among other parties showed purchases from the parties, namely, M/s Ratan Enterprises and Royal Enterprises, amounting to Rs. 7,59,48,920/- and Rs. 76,78,500/- respectively, aggregating to Rs. 8,36,27,420/- only. AO, based on the information, found that both suppliers were subject to proceedings and were found guilty of economic offenses punishable under the relevant CGST Act, 2017, and KGST Act, 2017. Accordingly, AO treated the purchase of Rs. 8,36,27,420/- as bogus and added it to the total income of the assessee.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Held that if the assessee correlates the purchases with subsequent sales, such alleged bogus purchases cannot be added in entirety, otherwise, this would lead to double addition, which is unjustifiable. However, the AO can make an addition based on the impugned purchases to protect the revenue’s interests, as the assessee might have made purchases from the grey market without bills. If such unaccounted purchases are brought into the books, the assessee might have obtained bogus bills from M/s Royal Enterprises. Generally, in grey market rates are lower than those in the organized market. The AO should consider the gross profit declared by the assessee when making any additions. Thus, the ground of appeal of the assessee is allowed for statistical purposes.
