During the course of the search, the managing director had admitted that sometimes bogus purchases and sales were carries out which the Assessing Officer confirmed to have been undertaken to inflate expenses and reduce taxable income, along with a shortage in stock amount to Rs.450 Crores approximately. Thus 25 percent of the total purchase price from these parties was added to the total income of the assessee.

On appeal it was observed that the assessee was a trader in dry fruits and other grocery items and used to purchase and sell these items on a regular basis. The entire purchase and sale transactions were duly recorded in the regular books of account of all the parties and were carried out through banking channels. All such supporting documents were filed before the AO Officer and no incriminating documents were found during the search. Further, the books of account were duly audited under the Companies Act and the Income-tax Act and no defect was recognized by the lower authorities. The Assessing Officer made an addition at the rate of 25 percent of such purchases without conducting any enquiry. However, in the deviation proceedings, he held that no such addition should have been made and further, in the remand proceedings the Assessing Officer held that on enquiry made on test check the basis of the 50 per cent. of the items got confirmed. Thus, it could not be said that purchases made from these parties were bogus.CIT v. Winstral Petrochemicals P. Ltd. (2011) 330 ITR 603 (Delhi)(HC) relied on. (AY. 2012-13 to 2017-18)