Bogus purchases addition restricted to 1% where sales were accepted and later-year gross profit was held excessive.

In a trading concern where sales were accepted and routed through banking channels, purchases were treated as accommodation entries because suppliers did not respond to section 133(6) notices, leading to rejection of books under section 145(3). The Tribunal held that applying the gross profit rate of a later year was excessive for the years under appeal, given the assessee's consistent declared gross profit pattern. The addition on alleged bogus purchases was therefore not sustained at the Assessing Officer's rate and was restricted to 1% of the bogus purchases. Relief was granted partly in favour of the assessee.

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Issues: Whether the addition made on account of alleged bogus purchases and sales, after rejection of the books of account, required to be sustained in full or restricted by estimating gross profit at a lower rate.

Analysis: The assessee's sales were accepted and the transactions were reflected through banking channels. The parties from whom purchases were alleged to have been made did not respond to notices issued under section 133(6) of the Income-tax Act, 1961, and the Assessing Officer treated the purchases as accommodation entries, rejected the books under section 145(3), and applied a gross profit rate derived from a later year. The Tribunal noted that the assessee was engaged in trading, that the declared gross profit in the relevant years was much lower but consistent, and that adoption of the gross profit of AY 2019-20 was excessive for the years under appeal.

Conclusion: The addition was not sustained at the rate applied by the Assessing Officer and was restricted to 1% of the bogus purchases. The grounds were partly allowed in favour of the assessee.

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