Ramayna Ispat Private Limited Vs DCIT (ITAT Delhi)
Bogus Purchase Cases: Only Profit Element Taxable; 4% GP Addition Upheld on ₹5.79 Cr Purchases
The Assessing Officer treated purchases of ₹5.79 crore as bogus accommodation entries and added the entire amount under section 69C, also invoking section 115BBE. In appeal, the CIT(A) agreed that the assessee could not fully substantiate the purchases from the named suppliers, indicating procurement from the grey market. However, since the corresponding sales were accepted and quantitative records existed, outright disallowance of the entire purchases was held to distort the true profit.
Relying on multiple High Court and Tribunal precedents, the CIT(A) adopted the settled principle that in such cases only the profit element embedded in the alleged bogus purchases can be taxed. Using the historical gross profit data (shown in the comparative GP chart on page 6), where the highest GP in surrounding years was 2.40%, the CIT(A) applied an enhanced GP rate of 4% (2.40% plus an additional 1.60% to cover possible revenue leakages) on the alleged bogus purchases. This resulted in a sustained addition of ₹23.16 lakh instead of ₹5.79 crore.
Before the Tribunal, neither the assessee nor the Revenue could dislodge this reasoning. The Tribunal found the estimation fair and consistent with judicial principles that once sales are accepted, only the embedded profit in unverifiable purchases should be brought to tax.
Accordingly, the 4% GP addition of ₹23,15,984 on the disputed purchases was upheld, and both the assessee’s and the Revenue’s appeals were dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
