ITAT allows appeal, excludes double jeopardy, upholds 12.5% disallowance on profit. Verification crucial for fair taxation.

The ITAT partly allowed the appeal, modifying the order to exclude double jeopardy for the assessee. A 12.5% disallowance on profit from bogus purchases was considered just, reducing the gross profit offered by the assessee. The judgment emphasized the need for thorough verification of purchases to uphold fair taxation practices.

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Issues: Appeal against sustaining 12.5% disallowance on account of bogus purchase.

Analysis:
1. Background: The assessee, a trading firm in timber, filed a return declaring total income of Rs. 28,760. The case was reopened based on information from the Investigation Wing regarding accommodation bills for purchases from hawala operators. The AO made a 12.5% addition on account of bogus purchases amounting to Rs. 1,37,557.

2. AO's Findings: The AO found that purchases totaling Rs. 11,00,457 were made from parties listed as suspicious dealers by the Sales Tax Department, involved in providing accommodation entries without actual goods delivery. The parties did not maintain stock, conduct genuine business, or transact goods, providing entries for commission.

3. Assessment Proceedings: The AO conducted inquiries, but notices to suppliers were unserved, and local inquiries reported non-existence of parties. The assessee failed to provide complete documentary evidence for purchases, like transportation bills. The AO disallowed Rs. 1,37,557 as 12.5% of the total purchase amount.

4. Judgment: The ITAT found the evidence for purchases unproved. While sales were not doubted, 100% disallowance for bogus purchases was deemed inappropriate. Referring to a High Court decision, a 12.5% disallowance was considered just for profit made on bogus purchases from the grey market. The gross profit offered by the assessee was to be reduced by the standard 12.5% disallowance to avoid double jeopardy.

5. Conclusion: The ITAT partly allowed the appeal, modifying the order to exclude double jeopardy for the assessee. The judgment highlighted the importance of verifying purchases and ensuring fair taxation practices.

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