ACIT Vs EI Instrumentation Pvt. Ltd. (ITAT Chennai)
Bogus Purchase Allegation Diluted: ITAT Upholds GP-Based Addition Where Sales Accepted and Adverse Material Not Confronted
The Chennai Bench of the ITAT, in ACIT v. EI Instrumentation Pvt. Ltd. (AY 2018-19), dismissed the Revenue’s appeal against restriction of addition on alleged bogus purchases. The AO had reopened the assessment based on Investigation Wing information alleging accommodation bills from M/s Barbrik Consultancy Pvt. Ltd. and disallowed the entire purchase amount of ₹1.21 crore under section 69C, despite the assessee producing purchase registers, bank payment proofs, sales records and GST returns.
The CIT(A) granted partial relief by restricting the addition to the profit element embedded in the purchases (8.87% of GP), noting that (i) corresponding sales were fully accepted and (ii) documentary evidence supporting purchases was on record.
While the Tribunal observed that the CIT(A)’s reliance on Simit P. Sheth was not strictly applicable in cases questioning genuineness of expenditure, it nevertheless upheld the relief, holding that the AO’s action was fundamentally flawed. The AO relied on third-party investigation material without confronting the assessee, discarded evidence without reasons, and incorrectly presumed that the supplier was struck off during the relevant year—whereas GST cancellation occurred only in a later year. Such additions, based purely on untested information, were held to be unsustainable.
Accordingly, the Tribunal upheld the restriction of addition to ₹10.73 lakh (8.87% GP) and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
