Income Tax – Bogus purchases – Quantification of profit element – Appellant/assessee is a company engaged in the business of manufacturing and trading of rice bran oil, filed its return of income for the year under consideration

– During the course of assessment proceedings, AO found that assessee had claimed to have made purchases of paddy/broken rice from a party which is found to be a bogus firm in course of the investigation

– AO treated purchases in question as bogus and disallowed 25% of the value of bogus purchases and made a consequential addition to assessee’s returned income – Aggrieved assessee carried the matter in appeal before CIT(A), but without success

– Whether CIT(A) has erred in confirming addition made by AO on account of alleged bogus purchases – HELD – Assessee had failed to place on record copies of delivery challans a/w. other supporting documents to prove authenticity of purchase transactions in question

– As the assessee had failed to discharge the primary onus that was cast upon it as regards proving the authenticity of its claim of having made genuine purchases from the aforementioned party in question,

it can safely be concluded that it had procured goods in question not from said party but at a discounted value from open/grey market

– Addition in hands of assessee is liable to be restricted only to extent of profit which it would have made by procuring goods at a discounted value from open/grey market as against inflated value at which same were booked on basis of bogus bills in its books of account

– Profit made by assessee by procuring goods at a discounted value from open/grey market can safely be determined by bringing GP rate of such bogus purchases at same rate as that of other genuine purchases

– Matter restored to file of AO with a direction to him to restrict addition in hands of assessee with respect to impugned bogus/unverified purchases made by assessee by bringing GP rate of such bogus purchases at same rate as that of other genuine purchases – Appeals allowed.

INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR in CHAITANYA SOLVEX PRIVATE LIMITED Vs THE ASSISTANT COMMISSIONER OF INCOME TAX (05-Sep-2023) 2023-VIL-1269-ITAT-RPR