ITAT rules only gross profit element taxable on bogus purchases, allows loss set-off under section 115BBE

The ITAT Mumbai held that where investigation wing found a party engaged in providing bogus bills without actual sales, only the gross profit element should be added to income rather than the full purchase amount. Since the assessee failed to provide supporting details despite opportunities, the tribunal adopted 12.5% of bogus purchases as taxable income, directing the AO to restrict additions accordingly. The tribunal also allowed set-off of losses against income determined under section 115BBE, following CBDT circular 11/2019 which clarified that such set-off was permissible for the assessment year 2010-11. Appeal was partly allowed in favor of the assessee.

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Issues:
1. Dismissal of appeal by the National faceless appeal Centre (NFAC) Delhi against the assessment order passed under section 147 read with section 144 of The Income Tax Act, 1961.
2. Upholding the addition of Rs. 980,000 as bogus purchases under section 69C of the act without allowing set off against the loss.
3. Non-compliance by the assessee with notices issued under section 142 (1) and failure to respond to notices served by the assessing officer.

Issue 1: Dismissal of Appeal by NFAC
The appeal was filed by the assessee against the appellate order passed by NFAC Delhi. The NFAC dismissed the appeal against the assessment order passed under section 147 read with section 144 of The Income Tax Act, 1961. The assessee raised grounds stating that the appellate order was wrong, unjustified, and invalid. The CIT (A) upheld the addition of Rs. 980,000 as bogus purchases under section 69C of the act without allowing set off against the loss. The assessee contested this decision, arguing that the purchases were genuine and duly accounted for. However, the NFAC confirmed the addition made by the assessing officer.

Issue 2: Addition of Rs. 980,000 as Bogus Purchases
The assessing officer determined that the assessee paid Rs. 980,000 to M/s Ankita enterprises for bogus purchases. The AO found that the genuineness of the purchases was not proved by the assessee, as there was no evidence of corresponding sales or primary records like sales bills or stock entries. Consequently, the AO passed an assessment order under section 147 read with section 144 of the act, adding Rs. 980,000 to the total income of the assessee. The CIT (A) upheld this addition, stating that the assessee failed to provide information on the genuineness of the purchases.

Issue 3: Non-Compliance with Notices
The assessee did not respond to notices issued under section 142 (1) by the assessing officer. Despite several notices, the assessee did not comply with the requirements. The assessing officer issued further notices to the directors of the company, but no response was received. The lack of cooperation from the assessee led to the assessing officer making the addition of Rs. 980,000 as bogus purchases without allowing set off against the loss.

In conclusion, the appellate tribunal partly allowed the appeal filed by the assessee. It directed the assessing officer to restrict the addition to 12.5% of the Rs. 980,000 bogus purchases made by the assessee. The tribunal also allowed the set off of the loss of Rs. 3,795,790 against the income determined under section 115BBE of the act, in line with CBDT circular number 11 of 2019.

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