Bogus purchase additions restricted to gross profit shortfall where sales were recorded and VAT was paid.

In a dispute over alleged bogus purchase additions, the analysis noted that the assessee was a manufacturer, had recorded sales from the disputed purchases, paid VAT on the goods, and declared gross profit rates of 16.47% for A.Y. 2009-10, 12.75% for A.Y. 2010-11, and 14.88% for A.Y. 2011-12. The addition was stated to rest only on Sales Tax Department information. The reported treatment was that the full addition was deleted for A.Y. 2009-10 because gross profit exceeded 15%, while for A.Y. 2010-11 and A.Y. 2011-12 the addition was confined to the shortfall in gross profit below 15%, namely 2.25% and 0.12% respectively.

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Issues: Whether the addition made on account of alleged bogus purchases was sustainable in full, or whether it was to be restricted having regard to the gross profit declared by the assessee.

Analysis: The assessee was engaged in manufacture and had shown sales arising from the disputed purchases, paid VAT on the goods, and declared gross profit rates of 16.47% for A.Y. 2009-10, 12.75% for A.Y. 2010-11, and 14.88% for A.Y. 2011-12. The addition had been made solely on information received from the Sales Tax Department. On the facts recorded, the declared gross profit for A.Y. 2009-10 was above 15%, while the rates for the other two years were below 15% by a small margin.

Conclusion: The full addition was deleted for A.Y. 2009-10. For A.Y. 2010-11 and A.Y. 2011-12, the addition was restricted to the shortfall in gross profit over 15%, being 2.25% and 0.12% respectively.

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