The appeal filed by the Revenue was directed against the order passed by the Commissioner of Income Tax (Appeals) for Assessment Year 2018-19. The assessee, EI Instrumentation Private Limited, is engaged in the business of trading electrical parts, instrumentation, and equipment.

The assessment was reopened on the basis of information received from the Investigation Wing, Kolkata, alleging that M/s Barbrik Consultancy Pvt. Ltd. was engaged in issuing accommodation invoices. The Assessing Officer observed that the assessee had claimed purchases amounting to ₹1,20,99,998 from the said entity and treated the entire amount as bogus, making an addition under section 69C of the Income-tax Act, 1961.

During the assessment proceedings, the assessee furnished documentary evidence including purchase registers, bank statements evidencing payments through banking channels, sales bills, GST returns, and ledgers relating to the transactions with M/s Barbrik. The Assessing Officer, however, disbelieved the explanation primarily relying on the investigation report and the allegation that the supplier was a paper entity and had been struck off, and consequently disallowed the entire purchase amount.

On appeal, the Commissioner (Appeals) did not agree with the complete disallowance of purchases. Taking note of the fact that the sales declared by the assessee were accepted in full and that relevant documentary evidence had been produced, the Commissioner (Appeals) restricted the addition to the profit element embedded in the purchases, estimating the same at 8.87% of the gross profit, amounting to ₹10,73,269. Reliance was placed on the judgment of the Gujarat High Court in CIT v. Simit P. Sheth and other judicial precedents, which hold that where sales are accepted, only the profit element in alleged bogus purchases can be brought to tax.

The Revenue carried the matter in appeal before the Tribunal. After examining the record, the Tribunal observed that the Assessing Officer had discarded the documentary evidence furnished by the assessee without pointing out any specific infirmity and had relied upon adverse material from the Investigation Wing without confronting the same to the assessee. It was also noted that there was no evidence to establish that the supplier had been struck off during the relevant assessment year and that the GST registration of the supplier was cancelled only in a subsequent period.

The Tribunal held that the action of the Assessing Officer in disallowing the entire purchase amount under section 69C was arbitrary and unsustainable in law. Since the assessee had not challenged the partial addition sustained by the Commissioner (Appeals), the Tribunal upheld the restriction of the addition to 8.87% of the gross profit and dismissed the Revenue’s appeal.

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