ITAT affirms case reopening on income escapement with 12.5% disallowance on bogus purchases. Appeal partly allowed.

The ITAT upheld the reopening of the case based on tangible material indicating income escapement. Legal precedents and factual circumstances were considered in determining the disallowance percentage, resulting in a 12.5% disallowance on bogus purchases. The appeal was partly allowed, modifying the CIT(A)'s order, with the judgment pronounced on 2nd November 2018.

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Issues:
1. Disallowance on account of bogus purchases - 9% sustained by CIT(A)

Analysis:
The appeal pertains to the disallowance of 9% on account of bogus purchases sustained by the Commissioner of Income Tax (Appeals). The assessee, engaged in trading ferrous and non-ferrous metals, filed its income tax return declaring total income. The Assessing Officer (AO) reopened the assessment based on information received regarding hawala transactions and bogus purchase bills. The AO added 12.5% of the total hawala purchases as income. The CIT(A) restricted the disallowance to 9%, considering the inability of the assessee to produce suppliers but reconciling purchases with sales. The assessee contended that the rate of 12.5% was high due to differences in sales tax rates. The ITAT noted the tangible material received by the AO, justifying the reopening based on incriminating evidence. The ITAT referenced legal precedents supporting the AO's reason to believe income escapement. The ITAT also considered a Gujarat High Court decision where disallowance was deleted due to documentary evidence. The ITAT concluded that a 12.5% disallowance out of bogus purchases was appropriate, considering the nature of the transactions and the need to avoid double taxation.

In summary, the ITAT upheld the reopening of the case based on tangible material indicating income escapement. It considered legal precedents and factual circumstances to decide on the disallowance percentage, ultimately directing a 12.5% disallowance on bogus purchases after adjusting for the gross profit already declared by the assessee. The appeal was partly allowed, modifying the CIT(A)'s order and pronouncing the judgment on 2nd November 2018.

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