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of <h1>ITAT allows assessee's appeal, restricts addition for unapproved purchases to 12.5% based on gross profit ratio analysis</h1> <h3>ITO 18 (2) (1), Mumbai Versus Shri Kiritkumar Shatilal Mehta And Vice-Versa</h3> ITO 18 (2) (1), Mumbai Versus Shri Kiritkumar Shatilal Mehta And Vice-Versa - TMI Issues Involved:1. Addition u/s 69C of the IT Act on unapproved purchases from M/s. Shreeji Enterprises.2. Disallowance of commission and restriction of addition to 30%.3. Relevance of gross profit ratio in determining the addition for bogus purchases.Issue 1: Addition u/s 69C of the IT Act on unapproved purchases from M/s. Shreeji Enterprises:The Revenue contested the CIT(A)'s decision not to sustain the addition of Rs. 1,33,05,834 under section 69C of the IT Act for unapproved purchases from M/s. Shreeji Enterprises. The Revenue argued that the denial of transactions by the proprietor of M/s. Shreeji Enterprises and the fictitious addresses provided by the assessee warranted the addition. However, the ITAT found that the Assessing Officer's investigation concluded the purchases were unexplained under section 69C. The ITAT considered the gross profit ratio of preceding years and decided to restrict the addition to 12.5% of the bogus purchase amount, following precedents like M/s. Vijay Proteins Ltd. 58 ITD 428 and Simit P. Sheth 356 ITR 451.Issue 2: Disallowance of commission and restriction of addition to 30%:The Revenue also challenged the CIT(A)'s decision to limit the addition to 30% of the total unapproved purchase amount, arguing for a full addition. The ITAT, after considering arguments from both sides, found that the Assessing Officer's investigation supported the unexplained nature of the purchases. The ITAT disagreed with the CIT(A)'s approach and decided to restrict the addition to 12.5% of the bogus purchase amount, aligning with the gross profit ratio analysis and legal precedents.Issue 3: Relevance of gross profit ratio in determining the addition for bogus purchases:The ITAT extensively deliberated on the relevance of the gross profit ratio from preceding years in determining the addition for bogus purchases. The ITAT emphasized that the Assessing Officer's investigation, lack of new evidence, and precedents like M/s. Vijay Proteins Ltd. 58 ITD 428 and Simit P. Sheth 356 ITR 451 supported considering the profit embedded in the bogus purchases. Ultimately, the ITAT decided to restrict the addition to 12.5% of the bogus purchase amount, deviating from the CIT(A)'s 30% limitation.In conclusion, the ITAT partially allowed the assessee's appeal and dismissed the Revenue's appeal, setting aside the CIT(A)'s findings and restricting the addition for unapproved purchases to 12.5% of the bogus purchase amount, based on the gross profit ratio analysis and legal precedents cited during the proceedings.
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