Tribunal Reduces Disallowance Percentage, Dismisses Revenue's Appeal, and Remits Matter for Fresh Adjudication

The Tribunal partly allowed the assessee's appeal by reducing the disallowance percentage to 10% of the original bogus purchases. The revenue's appeal for a full disallowance was dismissed. The Tribunal remitted the matter concerning one party back to the CIT(A) for fresh adjudication. The final decision was pronounced on 18th November 2016.

---

---

Issues:
- Dispute over bogus purchases in Assessment Year 2009-10.

Analysis:
1. The assessee, a Private Limited Company, faced a dispute regarding bogus purchases totaling Rs.2,47,15,690, which the Assessing Officer (AO) added to the income. The Commissioner of Income Tax (Appeals) [CIT(A)] partially upheld the addition after scrutinizing ledger accounts, purchase patterns, and discrepancies in documentation related to the alleged bogus suppliers. The CIT(A) observed similar patterns with three more parties, increasing the bogus purchases by Rs.1,58,00,987. The CIT(A) concluded that only the profit element embedded in the bogus purchases should be added to the income, resulting in a disallowance of 15% amounting to Rs.3,70,82,206. The assessee appealed, seeking a reduction in the disallowance percentage, while the revenue cross-appealed for a full disallowance.

2. The Tribunal noted that in similar cases, an ad hoc disallowance ranging from 5% to 12.5% of bogus purchases is considered reasonable when profit rates are comparable, and sales figures are undisputed. The Tribunal found discrepancies in the CIT(A)'s enhancement of bogus purchases without prior notice to the assessee, leading to a difference of Rs.34,34,471. The Tribunal directed a disallowance of 10% of the original bogus purchases amounting to Rs.2,47,15,690, totaling Rs.24,71,569. For the enhanced purchases related to three parties, the Tribunal decided not to make further additions for two parties already listed by the AO. The matter concerning the third party, "M/s Ramex Trading Impex Pvt. Ltd." for Rs.69,90,308, was remitted back to the CIT(A) for fresh adjudication with an opportunity for the assessee to substantiate its claim.

3. The Tribunal partly allowed the assessee's appeal by reducing the disallowance percentage and dismissed the revenue's appeal. The final decision was pronounced on 18th November 2016.

---