ITAT Ahmedabad Scales Down Bogus Purchase Addition to Profit Element Only

The Ahmedabad “B” Bench of the Income Tax Appellate Tribunal has partly allowed the Revenue’s appeal in the case of Pancham Developers for AY 2017–18, holding that only the profit embedded in bogus purchases can be taxed — not the entire purchase value.

The Assessing Officer had disallowed ₹3.50 crore of purchases after suppliers were found non-existent and failed to respond to statutory notices. While the CIT(A) restricted the addition to gross profit, the Tribunal further refined the approach, noting that construction activity, sales, and work-in-progress were never disputed, making total disallowance unrealistic.

Relying on consistent Gujarat High Court precedents, the ITAT directed the AO to tax purchases by applying the declared GP rate plus an additional 5%, representing the inflated profit earned through accommodation bills.

The ruling reiterates that in bogus purchase cases, only excess profit — not full expenditure — is taxable when business activity is genuine.