Tribunal grants relief on bogus purchases, dismisses Revenue's appeals. Decision in line with precedent.

The Tribunal partly allowed the assessee's appeals, determining that a 10% addition on alleged bogus purchases was appropriate based on the facts of the case. The Tribunal dismissed the Revenue's appeals as academic since relief had already been granted in favor of the assessee. The decision aligned with the precedent set in M/s. Chhabi Electricals Pvt. Ltd. and others, with the order issued on March 19, 2019.

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Issues Involved:
1. Disallowance of 20% of purchases made from M/s. Ajanta Enterprises.
2. Verification of the genuineness of purchases from M/s. Ajanta Enterprises.
3. Ad hoc disallowance based on average gross profit.
4. Determination of appropriate gross profit percentage for disallowance.
5. Cross appeals by the Revenue challenging the CIT(A)'s decision.

Detailed Analysis:

Disallowance of 20% of Purchases:
The assessee contested the CIT(A)'s decision to confirm a 20% disallowance amounting to Rs. 33,93,705 out of total purchases of Rs. 1,69,68,524 from M/s. Ajanta Enterprises. The assessee argued that the purchases were genuine and supported by documentary evidence, thus making the disallowance unjustified. The CIT(A) had based the disallowance on the ground that the purchases were made from a suspicious dealer.

Verification of Genuineness of Purchases:
The Revenue's appeal questioned the CIT(A)'s decision, arguing that the Assessing Officer (AO) had not conducted proper inquiries to verify the genuineness of the purchases. The AO had relied on information from the Maharashtra Sales Tax Department indicating that M/s. Ajanta Enterprises was a bogus dealer. The CIT(A) had partially upheld the AO's addition but limited it to 20% of the purchases, acknowledging that the supplier was not a genuine concern.

Ad Hoc Disallowance Based on Average Gross Profit:
The assessee argued that the CIT(A) made an ad hoc disallowance based on presumptions and surmises, despite accepting that the appellant had established the receipt and consumption of the material purchased. The assessee contended that such disallowance was not justified and should be deleted.

Determination of Appropriate Gross Profit Percentage:
The assessee suggested that if any disallowance was warranted, the gross profit percentage should be 17.75% instead of 20%, as applied by the CIT(A). This would reduce the addition accordingly.

Cross Appeals by the Revenue:
The Revenue's appeals sought to vacate the CIT(A)'s order and restore the AO's decision, which had added the entire amount of Rs. 1,69,68,524 for the assessment year 2010-11 and Rs. 51,89,957 for the assessment year 2011-12 as bogus purchases.

Tribunal's Decision:

Assessee's Appeals:
The Tribunal considered the case of M/s. Chhabi Electricals Pvt. Ltd. and others Vs. DCIT, where it was established that the issue of bogus purchases should be decided based on the facts of each case. The Tribunal identified various scenarios, including cases where no evidence was received from the Sales Tax Department, cases with statements from hawala dealers, and cases where the assessee could establish the trail of goods.

Following this precedent, the Tribunal held that an addition by way of estimation should be made at the rate of 10% of the alleged bogus purchases, over and above the net profit shown by the assessee for both assessment years. Consequently, the assessee's appeals were partly allowed.

Revenue's Appeals:
The issues raised by the Revenue were deemed academic, as they related to the relief granted by the CIT(A) concerning the bogus purchases, which had already been adjudicated in favor of the assessee. Therefore, the Revenue's appeals were dismissed.

Conclusion:
The appeals filed by the assessee were partly allowed, and the cross appeals filed by the Revenue were dismissed. The Tribunal concluded that a 10% addition on the alleged bogus purchases was appropriate, aligning with the decision in the case of M/s. Chhabi Electricals Pvt. Ltd. and others. The order was pronounced on March 19, 2019.

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