2020 (2) TMI 1722 - AT - Income Tax

Estimation of income - Bogus purchases - AO in this case has made 12.5% addition - Assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed HELD THAT - We modify the order of learned CITA and direct that the disallowance in this case be restricted to 12.5% of the bogus purchases as reduced by the gross profit rate already declared by the assessee on these transactions. It goes without saying that if the gross profit already declared is more than 12.5% no disallowance is called for. Ld counsel of the assessee fairly accepted this proposition. Appeals filed by the assessee stand partly allowed.

Summary

The ITAT Mumbai upheld 12.5% disallowance on bogus purchases for A.Y. 2010-11 & 2011-12. The assessing officer's addition was based on information from the sales tax department without issuing notices to suppliers. However, ITAT restricted the disallowance to 12.5% of the bogus purchases after considering the assessee's gross profit rate. The appeals by the assessee were partly allowed on 4.2.2020.