ITAT Restricts Addition to 5% Profit on Alleged ₹13.80 Crore Bogus Purchases as Sales Accepted and Books Not Rejected

The ITAT has restricted the income tax addition to a 5% profit on alleged bogus purchases of ₹13.80 crore. The tribunal’s decision provides a significant victory for the taxpayer. The ruling clarifies that a tax authority cannot disallow the entire amount of a purchase if the sales from those purchases are accepted and the books of accounts are not rejected. The ITAT’s decision is a crucial reminder that tax authorities must base their additions on a reasonable estimate of profit, rather than a full disallowance, in such cases.