Income Tax Appellate Tribunal on Bogus Purchases: Profit Rate Reduced to 8%.

Headnote:

The Income Tax Appellate Tribunal partly allowed the assessee’s appeal by reducing the estimated profit rate on alleged bogus purchases from 12.5% to 8%. Although the assessee failed to appear and could not verify purchases amounting to ₹4.65 crore from five entities treated as non-genuine, the Tribunal held that estimating profit at 12.5% was excessive in the given factual matrix. The Tribunal upheld the finding of bogus purchases but granted partial relief by lowering the estimation rate.

Background:

• The assessee, a HUF operating the business “Love Kush Yarn,” filed its return for A.Y. 2018–19 declaring income of ₹7,11,350.

• The case was reopened u/s 147 on 29.03.2022 based on information about bogus purchases worth ₹4,65,88,878 made from five parties:

– Shree Balaji Wooltex

– Radha Kanheya Export

– Sri Rameshwaram International

– Soni Textiles

– Shree Bankey Bihari Enterprises

• Despite multiple notices u/s 148 and 142(1), the assessee did not respond; the AO treated the purchases as unverifiable and rejected books u/s 145(3).

• The AO estimated income by applying 12.5% profit rate on the alleged bogus purchases.

• The CIT(A) upheld the assessment and confirmed the addition.

• Before the Tribunal, the assessee remained unrepresented; the DR supported the lower authorities’ findings.

Court’s Observations:

• The Tribunal noted that the assessee itself alleged that one supplier, Shri Rajesh Mittal, issued fake GST invoices, strengthening the suspicion of bogus purchases.

• None of the five supplier parties responded to AO’s notices, preventing verification of transactions.

• The AO and CIT(A) were justified in holding the purchases as non-genuine.

• However, considering the circumstances, the Tribunal found 12.5% estimation excessive and applied judicial discretion to reduce the profit estimation.

• The Tribunal clarified that this reduction is based on the present factual scenario and does not create a precedent.

Decision:

• The profit rate on bogus purchases is reduced from 12.5% to 8%.

• The AO is directed to recompute income accordingly.

• Appeal partly allowed.

Legal Provisions Discussed:

• Section 147 – Income escaping assessment

• Section 144 – Best judgment assessment

• Section 145(3) – Rejection of books of account

• Section 144B – Faceless assessment procedure

• Section 148 & 142(1) – Issue of notice for reassessment and inquiry

Citation: ITA No. 1593/DEL/2024

Case: Suraj Narang (HUF) v. The Assessing Officer, Ward–1, Panipat

Court: Income Tax Appellate Tribunal, Delhi ‘G’ Bench

Coram: Shri Satbeer Singh Godara (Judicial Member) & Shri Naveen Chandra (Accountant Member)

Date of Decision: 04 November 2025

Appeal No.: ITA No. 1593/DEL/2024 (A.Y. 2018–19)