DCIT Vs Tirupati Matsup Private Limited (ITAT Delhi)
ITAT Delhi held that in case of bogus purchases only profit element embedded should be taxed and entire amount of purchases cannot be taxed. Accordingly, AO directed to apply profit rate of 5% on unverifiable purchases.
Facts- The assessee is a company, engaged in the business of wholesale trade of building materials like Cement/TMT/Cables etc. and also was a civil contractor for various Government Departments and also with private companies.
During the course of assessment proceedings, AO concluded that purchases from three parties were bogus as the assessee has failed to substantiate the purchases made from them. Accordingly, the AO has made an addition of INR 31,95,74,125/- being the amount of purchases made from these three parties as unexplained expenditure u/s. 69C of the Act in terms of the order passed under s. 143 r.w.s 144B of the Act dated 15.12.2022. CIT(A) has restricted the same to the net profits on the said purchases by applying G.P. rate @ 2.39%. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Hon’ble Supreme Court in the case of K. Proteins vs DCIT reported in 292 CTR 354 (SC) has held that in case of unverifiable purchase, the profit element embedded should be taxed and not the entire amount of purchases.
