ITAT reduces bogus purchase addition by increasing GP to 9% instead of AO's 7.5% on Rs. 36.05 crores

The ITAT Surat allowed the assessee's appeal partly in a bogus purchase case. The AO had added 25% of alleged inflated purchases based on seized excel sheets from a search under section 132, but proceeded under section 147 instead of 153A. The Tribunal found no evidence of stock discrepancies, adverse seller statements, or comparable industry GP rates. While staff statements during search accepted inflated purchases (later retracted), the Tribunal noted the assessee's declared income of Rs. 10.87 crores was higher than previous years, with GP at 8.68% compared to 7.69% earlier. Considering only profit element should be taxed in bogus purchases, the Tribunal increased GP to 9.00% instead of the AO's 7.5% addition on Rs. 36.05 crores, finding the latter excessive.

---

---

Issues Involved:
1. Reopening of assessment under section 147 and issuance of notice under section 148.
2. Sustaining addition on account of alleged 7.5% G.P. calculated on total alleged purchase.
3. Addition on the basis of total alleged purchase inclusive of VAT, GST, and other taxes.
4. Initiation of penalty proceedings under section 270A r.w.s. 274 and request to grant stay on demand under section 156.
5. Rejection of books of account without showing any cogent evidence.

Summary:

Issue 1: Reopening of Assessment
The assessee challenged the reopening of the assessment under section 147 and the issuance of notice under section 148. However, no specific submission was made by the Ld. AR for the assessee during the hearing. Therefore, this ground of the assessee's appeal was treated as not pressed and dismissed.

Issue 2: Sustaining Addition on Alleged G.P.
The Ld. CIT(A) sustained the addition to the extent of 7.5% of the impugned purchase, reducing the addition from Rs. 9,01,25,099/- to Rs. 2,70,37,530/-. The Tribunal found that the gross profit (GP) of the assessee was higher than in previous years, and the consumption and sales were verified by an independent institution (SVNIT). The Tribunal concluded that only the profit element embedded in the alleged bogus purchase should be taxed. The GP was increased to 9.00% in place of 8.68%, and the addition was adjusted accordingly.

Issue 3: Addition Inclusive of Taxes
The Ld. CIT(A) noted that the purchases were supported by bills, payments were made through banking channels, and transactions were confirmed by suppliers. The suppliers had paid taxes on all supplies, and no discrepancies were found in the stock register. The Tribunal agreed with the Ld. CIT(A) that the purchases could not be treated as entirely bogus and adjusted the GP accordingly.

Issue 4: Penalty Proceedings and Stay on Demand
The assessee requested a stay on demand under section 156 and challenged the initiation of penalty proceedings under section 270A r.w.s. 274. The Tribunal did not specifically address this issue in the judgment, focusing instead on the substantive issues of addition and GP calculation.

Issue 5: Rejection of Books of Account
The Ld. CIT(A) and the Tribunal found that the books of account were properly maintained, and no major discrepancies were found during the search action. The quantitative details were verified and matched with the records. Therefore, the rejection of the books of account by the Assessing Officer was not upheld.

Conclusion:
The Tribunal partly allowed the assessee's appeal by adjusting the GP to 9.00% and dismissed the Revenue's appeal. The reopening of the assessment was not pressed by the assessee and was dismissed. The judgment emphasized the importance of proper verification of purchases and the necessity of taxing only the profit element in alleged bogus transactions.

---