Tribunal affirms deletion of addition under Income-tax Act, allows 10% disallowance on alleged bogus purchases.

The Tribunal upheld the First Appellate Authority's decision to delete the addition made under section 69C of the Income-tax Act, as the assessee proved the genuineness of purchases. The Tribunal also agreed with estimating the profit element in alleged bogus purchases, directing a 10% disallowance. Appeals by both the Assessing Officer and the assessee for all assessment years were dismissed.

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Issues Involved:
1. Deletion of addition made under section 69C of the Income-tax Act, 1961.
2. Verification and genuineness of purchases from certain parties.
3. Application of section 69/69C of the Income-tax Act.
4. Estimation of profit element in alleged bogus purchases.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made under Section 69C:
The primary issue in the appeal by the Revenue was the deletion of an addition of Rs. 22.27 lakhs made under section 69C of the Income-tax Act. The Assessing Officer (AO) had added the amount of Rs. 2.22 crores to the total income of the assessee, treating it as unexplained expenditure under section 69C. The AO's conclusion was based on information from the Sales Tax Department, which identified certain parties as hawala operators providing accommodation entries without actual business transactions. The AO issued notices under section 133(6) to these parties, which were returned undelivered. The assessee failed to produce these parties for verification and could not provide sufficient evidence of the transportation of goods. The First Appellate Authority (FAA) deleted the addition, holding that the assessee had discharged the onus by furnishing bills, delivery challans, and payment evidence through banking channels. The FAA noted that the AO had not doubted the sales arising from these purchases and that there was no evidence to show that the money paid had come back to the assessee in cash. The FAA concluded that the AO's addition was based on presumption and that no addition could be made under section 69C.

2. Verification and Genuineness of Purchases:
The AO had questioned the genuineness of the purchases from 11 parties identified as hawala operators. The assessee argued that it had provided complete details of purchases, including delivery challans and transport receipts, and that payments were made by account payee cheques. The FAA held that the purchases were reflected in the stock reconciliation and that the AO had not doubted the sales. The FAA concluded that the entire purchases could not be treated as bogus and that the AO had not provided the assessee with an opportunity to cross-examine the parties whose statements were relied upon. The FAA referred to case laws, including JMD Computers (320 ITR 6), and held that the purchases were recorded in the stock register and that the corresponding sales were not doubted.

3. Application of Section 69/69C:
The FAA held that the provisions of section 69C were not applicable as the source of expenditure was not in doubt, but the expenditure itself was. The FAA noted that the AO had doubted the expenditure in the form of purchases but had also added the income on the ground that the source of the expenditure was unexplained, which was mutually exclusive. The FAA referred to the case of Kirtila Kalidas Jewellers Pvt. Ltd. (54SOT29) and other Tribunal decisions, concluding that no addition could be made under section 69C in the case under consideration.

4. Estimation of Profit Element in Alleged Bogus Purchases:
The FAA, while deleting the addition under section 69C, held that some addition/disallowance was required on account of purchases from unverifiable parties. The FAA referred to the cases of Simit P Seth and Bholenath Poly Fab (P.) Ltd. and concluded that only the profit element embedded in such purchases should be added to the income of the assessee. The FAA directed the AO to disallow 10% of the alleged bogus purchases, amounting to Rs. 22.27 lakhs. The Tribunal upheld the FAA's decision, noting that the AO had accepted the sales and that corresponding purchases had to be accepted. The Tribunal referred to the judgment of the Hon'ble Gujarat High Court in the case of Sathyanarayan P. Rathi (351 ITR 150), which approved the estimation of the profit element in such cases. The Tribunal concluded that the FAA's order did not suffer from any legal or factual infirmity and dismissed the appeals filed by both the AO and the assessee.

Conclusion:
The Tribunal upheld the FAA's decision to delete the addition made under section 69C, holding that the assessee had discharged the onus of proving the genuineness of the purchases. The Tribunal also agreed with the FAA's estimation of the profit element in the alleged bogus purchases and directed the AO to disallow 10% of the purchases. The appeals filed by the AO and the assessee for all three assessment years were dismissed.

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