2025 (7) TMI 1592 - AT - Income Tax

Estimation of income - bogus purchases - AO determined the gross profit rate at 12.5% - HELD THAT - The assessee submitted a year-wise chart analyzing the gross profit for AY 2008-09 to 2012-13 which reflects an average gross profit rate of 2.73% in the assessee s line of business. Upon perusal of the impugned assessment order we observe that the assessee had furnished all relevant documents in support of the purchases and such evidence was not rejected by the Ld. AO. Respectfully following the decision of M/s. Nikunj Exim Enterprises Pvt. Ltd. 2013 (1) TMI 88 - BOMBAY HIGH COURT we restrict the addition to the extent of 2.73% gross profit rate on the alleged bogus purchases pertaining to the impugned assessment year. DR had not made any strong objection against the submission of the AR. Accordingly the matter is remanded to the file of the AO with a direction to modify the assessment order in light of the above observations and in accordance with law. Appeal of the assessee is allowed for statistical purpose.

Summary

ISSUES:

Whether the addition on account of alleged bogus purchases can be confirmed at a gross profit rate of 12.5% as determined by the Assessing Officer.Whether the gross profit ratio applicable to the alleged bogus purchases should be determined based on the assessee's historical gross profit ratios for preceding and succeeding years.Whether the evidence furnished by the assessee in support of the purchases is sufficient to rebut the presumption of bogus purchases.Whether the principles laid down by the Hon'ble Bombay High Court in the cited precedent apply to restrict the addition on account of alleged bogus purchases.

RULINGS / HOLDINGS:

The addition on account of alleged bogus purchases cannot be confirmed at the gross profit rate of 12.5% determined by the Assessing Officer, as the assessee's average gross profit ratio is 2.73% based on preceding and succeeding years.The gross profit ratio applicable to the alleged purchases is to be restricted to 2.73%, which reflects the assessee's actual business performance, and this rate is liable to be confirmed.The assessee furnished all relevant documents in support of the purchases, and such evidence was not rejected by the Assessing Officer; hence, the purchases cannot be presumed to be bogus solely on suspicion.Respectfully following the decision of the Hon'ble Bombay High Court in the case of M/s. Nikunj Exim Enterprises Pvt. Ltd., the addition on account of alleged bogus purchases is to be restricted in accordance with the actual gross profit ratio rather than an arbitrary higher rate.

RATIONALE:

The Court applied the provisions of the Income-tax Act, 1961, particularly sections 143(3), 147, 148, and 250, relating to reassessment and appeals.The Court relied on the principle that additions for bogus purchases must be supported by cogent evidence and not merely suspicion, especially where the assessee has furnished confirmations, invoices, and bank statements.The Court adopted the approach of determining gross profit ratio based on the assessee's historical data (preceding three years and succeeding one year), thus ensuring consistency and fairness in assessment.The Court followed the precedent set by the Hon'ble Bombay High Court which held that "merely because the suppliers have not appeared before the Assessing Officer CIT(A), one cannot conclude that the purchases were or were not made," emphasizing the need for substantive evidence rather than suspicion.No dissenting opinion was recorded; the decision reflects a doctrinal adherence to evidence-based assessment and proportionality in determining additions for alleged bogus purchases.