Bogus Purchase Addition Cut from 12.5% to 5%: Mumbai ITAT Follows Trader’s Own Earlier Year

Sumerlal K Sheth Vs ITO (ITAT Mumbai)

Bogus Purchase Addition Cut from 12.5% to 5%: Mumbai ITAT Follows Trader’s Own Earlier Year

Where purchases are disputed but the corresponding sales are not, the entire purchase value cannot automatically be treated as income. The question becomes what profit element should be estimated from those purchases. In the case of metal trader Sumerlal K. Sheth, the Mumbai Tribunal reduced that estimate from 12.5% to 5%, following its decision in the assessee’s own case for the immediately preceding assessment year.

How the addition arose

The assessee traded in ferrous and non-ferrous metals and filed his return for assessment year 2011–12 declaring income of ₹11,33,921. Information received through the Investigation Wing, based on Sales Tax Department material, suggested that he had obtained accommodation entries in the form of purchases from certain parties. The Assessing Officer reopened the assessment by issuing a notice under section 148 on 8 April 2013.

During reassessment, the Assessing Officer identified purchases of ₹3,84,57,177 from eight parties. Notices issued to them under section 133(6) were returned unserved. He also noted discrepancies in the purchase documents and the absence of a stock register. On that basis, he rejected the books under section 145(3) and treated the purchases as non-genuine.