Bogus Purchase Addition Restricted to 12.5% Gross Profit: ITAT Upholds CIT(A)’s Order, Citing Judicial Precedent

The ITAT (Income Tax Appellate Tribunal) has restricted an addition on "bogus purchases" to 12.5% of the gross profit, upholding a CIT(A) order and citing judicial precedents. This ruling is significant as it prevents tax authorities from making a 100% disallowance of purchases deemed "bogus." The tribunal acknowledged that while the veracity of the suppliers may be in doubt, the business must have made some purchases to generate revenue. By restricting the addition to the profit component, the ITAT strikes a balance, penalizing for the bogus nature of the purchases without assuming that the transactions were entirely non-existent.