Tribunal Upholds 2.5% Purchase Disallowance Limit Decision

The Tribunal upheld the Commissioner's decision to restrict the disallowance on purchases to 2.5% of total turnover based on the decline in gross profit rate, rejecting the appeals by both the assessee and the Revenue.

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Issues:
Cross appeals against order of Commissioner of Income Tax (Appeals) regarding disallowance of purchases for lack of details.

Analysis:
The case involved cross appeals by the assessee and Revenue against an order pertaining to the assessment year 2014-15. The assessee, engaged in manufacturing, faced an estimated disallowance of 10% on total purchases due to lack of supporting details, resulting in additions of Rs. 3,55,57,472/-. The assessee contended that due to natural calamities, relevant records were destroyed, hindering the provision of complete purchase details. The Commissioner of Income Tax (Appeals) noted the reduction in gross profit margin but found the AO's disallowance unjustified. Instead, the Commissioner restricted the disallowance to 2.5% of total turnover, amounting to Rs. 1,32,85,764/-. The appeals challenged this decision.

The assessee argued that the books were audited as per legal requirements, with no adverse comments, and the lack of purchase records was due to the unforeseen circumstances of the floods. The AO and Commissioner were accused of disregarding these arguments and making arbitrary additions without proof of inflated purchases. On the other hand, the Revenue contended that relief granted lacked evidential support, emphasizing the failure to substantiate purchases.

Upon review, it was found that the assessee failed to provide necessary bills and vouchers to support purchases, despite expressing inability to do so. While the claim of record loss in floods was made, no evidence supported it. The AO's adhoc disallowance lacked adverse comments on the maintained books of accounts, which were audited without issue. The Commissioner's decision to limit the disallowance based on the decline in gross profit rate was deemed logical and estimative. Consequently, the Tribunal upheld the Commissioner's findings, dismissing both appeals.

In conclusion, the Tribunal upheld the Commissioner's decision to restrict the disallowance on purchases to 2.5% of total turnover based on the decline in gross profit rate, rejecting the appeals by both the assessee and the Revenue.

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