Tax Tribunal emphasizes comparing gross profit rates for hawala vs genuine purchases in disallowance cases.

The cross appeals by the assessee and Revenue regarding disallowance of bogus purchases for assessment years 2010-11 and 2011-12 were adjudicated. The Tribunal remanded the matter to the Assessing Officer for reconsideration, emphasizing that disallowance should be based on a comparison of gross profit rates on genuine and hawala purchases rather than an ad-hoc basis. Both appeals by the assessee for the years 2010-11 and 2011-12 were allowed for statistical purposes, while the Revenue's cross appeals were dismissed.

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Issues:
1. Assessment year 2010-11: Disallowance of bogus purchases and reopening of assessment under section 148.
2. Assessment year 2011-12: Similar issues as in 2010-11.

Analysis:

Assessment year 2010-11:
The judgment involves cross appeals by the assessee and the Revenue regarding the disallowance of bogus purchases for the assessment years 2010-11 and 2011-12. The assessee contested the additions of confirmed amounts by CIT(A)-1, Nashik, arguing that the purchases were not bogus and were paid through bank transactions. The Assessing Officer and CIT(A) applied an ad-hoc rate of 25% for the disallowance. The assessee referred to a Tribunal decision for a lower disallowance rate of 10%. The Revenue, however, supported the Assessing Officer and CIT(A) decisions. The Tribunal observed that the issue of bogus purchases was reassessed through reopening of the completed assessment, with the assessee raising concerns about the violation of natural justice and "change of opinion." The Tribunal referred to a High Court judgment emphasizing that the disallowance should be based on the difference between gross profit rates on genuine and hawala purchases, not an ad-hoc basis. Consequently, the matter was remanded to the Assessing Officer for reconsideration, directing a speaking order after granting a reasonable opportunity for the assessee to be heard.

Assessment year 2011-12:
The judgment for the assessment year 2011-12 mirrored the decisions made for 2010-11. Since the issues raised in the cross appeals for 2010-11 were adjudicated and remanded, the same decisions were applied mutatis-mutandis to the cross appeals for 2011-12. Both the appeals by the assessee for the years 2010-11 and 2011-12 were allowed for statistical purposes, while the cross appeals by the Revenue for the same years were dismissed. The judgment was pronounced on June 27, 2019.

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