2025 (12) TMI 721 - AT - Income Tax

CIT(A) Method of Higher Net Profit Rate Over Full Disallowance on Alleged Bogus Purchases Upheld on Appeal

The ITAT Delhi dismissed the Revenue's appeal challenging the relief granted by CIT(A) in respect of alleged bogus purchases. CIT(A) had adopted an ... Estimation of income - bogus purchases - CIT(A) restricted the disallowance by holding that the average NP in last three years comes at 1.84% - HELD THAT:- CIT(A) has given a categorical finding that the average NP in last three years comes at 1.84% and though the assessee has already paid the tax on the net profit emanated from the sales made out of the impugned bogus purchases, the net profit ratio on the impugned purchases is increased to 2.5% from 1.89%. Decided against revenue. Revenue appealed against CIT(A)/NFAC orders for AYs 2016-17 and 2017-18 where additions under section 69C were partly deleted. The assessment had been reopened under section 148 on information that the assessee obtained accommodation entries for purchases from a 'paper company'. The Assessing Officer, finding the assessee's explanation unsatisfactory, treated the purchases as bogus and made an addition of Rs. 3,33,45,268/- under section 69C. CIT(A) held, on examination of past results, that the assessee's average net profit (NP) rate for the last three years was 1.84% and that tax had already been paid on profits from the sales related to the impugned purchases. CIT(A) applied the 'profit element' approach, enhancing the NP rate on the impugned purchases of Rs. 3,15,33,812/- from 1.89% to 2.5%, and directed corresponding modification of income. The Tribunal, relying on CIT(A)'s 'categorical finding' and careful examination, upheld this estimation, found no infirmity, and dismissed Revenue's appeals.