Riya Exim Private Limited Vs ITO (ITAT Ahmedabad)
Ahmedabad ITAT: Entire Bogus Purchase Cannot Be Added When Corresponding Sales Are Accepted—Addition Restricted to 12.5% Profit Element
The assessee-company, engaged in trading raw materials used for manufacture of medicines, had made purchases of ₹76,62,500 from Cannonball Trading Pvt. Ltd. (CTPL). Based on information from the GST authorities alleging that CTPL was providing bogus purchase bills without actual supply of goods, the assessment was reopened.
During reassessment, the assessee produced purchase orders, invoices, delivery notes, Form 403, goods receipt notes, bank statements and GST records, and also demonstrated subsequent sales to Prachem Laboratories. The AO, however, relied upon the GST investigation, statements recorded in the Germanium Trading Group case, non-compliance with notices u/s 133(6) and deficiencies in transport documents and disallowed the entire purchase of ₹76.62 lakh u/s 37(1). The CIT(A) confirmed the addition.
The ITAT noticed an important fact: while the purchases were alleged to be bogus, the AO had neither rejected the books of account nor disturbed the corresponding sales/turnover. The purchases were recorded in the books, payments were through banking channels, transactions appeared in GST records and documents evidencing movement of goods had also been produced, though there were certain discrepancies in the transport documentation.
The Tribunal held that in these circumstances disallowance of the entire purchases was not justified. Where corresponding sales are accepted, only the profit element embedded in the alleged bogus purchases can appropriately be brought to tax.
Following the Gujarat High Court decision in CIT v. Simit P. Sheth [2013] 356 ITR 451, and considering the deficiencies in the transport documents, the ITAT estimated the profit element at 12.5% of the disputed purchases. Accordingly, against the original addition of ₹76,62,500, only ₹9,57,812 was sustained and the balance addition was deleted.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
1. The present appeal preferred by the Assessee is directed against the Order, dated 16/01/2026, passed by the National Faceless Appeal Centre (NFAC) [hereinafter referred to as ‘the CIT(A)’, whereby the Learned CIT(A) had upheld the assessment framed on the Assessee under Section 147 read with Sections 144 and 144B of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] for Assessment Year 2018-2019.
