Even in case of bogus purchases, entire purchases cannot be disallowed – ITAT

Even if, the assessee is engaged in the bogus purchases, the entire purchases cannot be disallowed – ITAT

In a recent judgment, ITAT Guwahati has held that even if, the assessee is engaged in the bogus purchases, the entire purchases cannot be disallowed.

ABCAUS Case Law Citation:
5076 (2026) (03) abcaus.in ITAT

The question involved in this appeal was whether even in the case of bogus purchases, can the entire purchases be disallowed?

In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the addition as made by the Assessing Officer under Section 69C of the Income Tax Act, 1961 (the Act) on account of bogus purchases by the assessee.

The Assessing Officer based on inputs from insight portal of the department was of the view that the assessee had made fictitious purchases.

The assessee furnished evidences qua the purchases made from the said party comprising copy of invoices, e-way bills, payment through banking channels etc.. However, all these evidences were disbelieved by the Assessing Officer on the ground that the creditor in question was found to be engaged in providing fraudulent/fake GST invoices for passing on wrong input tax credit to the business entities and the assessee was also the beneficiary of the same.

As a result, the Assessing Officer added the entire purchases under Section 69C of the Act to the income of the assessee in the assessment framed under Section 147 r.w.s. 144/144B of the Act. The CIT(A) affirmed the order of the Assessing Officer by holding that the addition of bogus purchases /accommodation entry was rightly made as unexplained expenditure under Section 69C as the Assessing Officer had concrete information in his possession that the supplier is engaged in providing fake/fictitious  GST invoices to various parties for passing of wrong input tax credit and thus, justified the addition as made by the Assessing Officer.

The Tribunal opined that even if, the assessee is engaged in the bogus purchases, the entire purchases cannot be disallowed specially when the corresponding sales were not doubted and books of account were not rejected under Section 145(3) of the Act.

The Tribunal held that at the most, the addition can be made by applying a certain percentage on estimated basis in order to assess the extra profit which is earned by the assessee by making purchases from the grey market while the actual invoices were taken from the accommodation entry providers.

The Tribunal applied a rate of 3% of profit on these purchases towards the estimation of income embedded in the said purchases and directed the Assessing Officer to estimate the income at the rate of 3% on the bogus purchases.

Accordingly, the order of the CIT(A) was set aside.

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