Tribunal limits disallowance to 4% of bogus purchases, emphasizing only profit element is taxable.

The Tribunal partially allowed the assessee's appeal against the addition of unexplained investment related to bogus purchases. The Tribunal directed the Assessing Officer to limit the disallowance to 4% of the bogus purchases, emphasizing that only the profit element should be taxable. The Assessing Officer was instructed to compute the income accordingly, resulting in a favorable outcome for the assessee.

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Issues:
Challenge to addition of unexplained investment in respect of bogus purchases.

Analysis:
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) for the Assessment Year 2009-10, where the assessee contested the addition made by the Assessing Officer towards unexplained investment related to bogus purchases. The assessee, engaged in the business of supplying Ferrous and non-Ferrous metals, iron, steels, etc., had filed a return of income declaring &8377;2,42,751. The Assessing Officer reopened the assessment based on information indicating accommodation entries without actual material purchases. The assessee failed to prove the genuineness of purchases from five parties mentioned in the Assessment Order, leading the Assessing Officer to treat the purchases as non-genuine, adding &8377;17,55,675 to the income. The Ld.CIT(A) upheld this addition due to the absence of parties before them to defend the case of the assessee.

During the appeal hearing, the Ld. Counsel for the assessee reiterated submissions made previously, while the Ld. DR supported the lower authorities' orders. The Tribunal noted that although the sales were accepted as genuine, the entire purchases could not be deemed non-genuine. Citing precedents, the Tribunal highlighted that only the profit element embedded in such purchases should be taxable. Considering the nature of the business and the possibility of gray market purchases without proper documentation, the Tribunal directed the Assessing Officer to limit the disallowance/addition to 4% of the bogus purchases. Consequently, the Assessing Officer was instructed to restrict the disallowance of purchases to 4% and compute the income accordingly.

In conclusion, the appeal of the assessee was partly allowed by the Tribunal, with the order pronounced on 13th March 2020.

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