Tribunal upholds addition based on GP difference, directs deletion of adhoc addition. Revenue appeals dismissed.

The tribunal directed the AO to delete the adhoc addition made on the amount of bogus purchases but upheld the addition based on the difference in GP on undisputed purchases and sales from disputed parties. The appeals of the revenue were dismissed, while the appeals of the assessee were partially allowed.

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Issues Involved:
1. Validity and reopening under Section 147 of the I.T. Act.
2. Addition on account of bogus purchases.
3. Adhoc addition by CIT(A).
4. Gross Profit (GP) addition sustained by CIT(A).

Issue-wise Detailed Analysis:

1. Validity and Reopening under Section 147 of the I.T. Act:
The assessee did not press the ground regarding the validity and reopening under Section 147 of the I.T. Act. Consequently, grounds No.1 & 2 in the assessee's appeal were dismissed as not pressed.

2. Addition on Account of Bogus Purchases:
The AO observed that the assessee allegedly made purchases from concerns issuing only hawala bills. During a survey operation, it was found that these concerns were exclusively engaged in issuing accommodation (sales) bills. The AO concluded that the assessee had availed accommodation bills amounting to Rs. 29,41,083/- from these concerns. Consequently, the AO added this amount back to the total income as bogus and inflated purchases.

3. Adhoc Addition by CIT(A):
The CIT(A) upheld the addition of GP of 1.93% on the disputed amount of purchases of Rs. 29,41,083/- to cover possible leakage. Additionally, the CIT(A) made an adhoc addition of Rs. 3 lakhs. The CIT(A) noted that the purchases were disputed based on statements from third parties, but the assessee had shown that the items purchased were sold to other parties, and this fact remained uncontroverted. The CIT(A) concluded that an adhoc addition of Rs. 3 lakhs would suffice to cover any possible leakages.

4. Gross Profit (GP) Addition Sustained by CIT(A):
The CIT(A) observed that the entire purchases could not be treated as unexplained since the assessee had sold the goods and booked the sales as income. The CIT(A) directed the AO to uphold the addition to the extent of the difference between the GP as per books of account on undisputed purchases and the GP on sales relating to purchases from the disputed parties. The CIT(A) found that the GP on sales from disputed purchases was lower than the GP on undisputed purchases, leading to the addition.

Final Judgment:
The tribunal considered the rival contentions and found that the quantitative details of purchase and sales were not in dispute. The CIT(A) accepted the AO's contention that the suppliers were bogus but noted that the department had accepted the sales. Therefore, there was no justification for adding the entire purchase amount to the assessee's income. The tribunal directed the AO to delete the adhoc addition of 10% made on the amount of bogus purchases but upheld the addition to the extent of the difference in GP as per books of account on undisputed purchases compared to the GP on sales relating to purchases from the disputed parties. The tribunal instructed the AO to calculate the GP difference and make the addition accordingly.

Conclusion:
The appeals of the revenue were dismissed, whereas the appeals of the assessee were allowed in part, as indicated in the judgment. The order was pronounced in the open court on 28/10/2015.

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