CIT(A) limits disallowance of bogus purchases to 12.5% from hawala dealers. Tribunal upholds decision.

The CIT(A) was justified in restricting the disallowance of bogus purchases to 12.5% of purchases from hawala dealers. The Tribunal upheld this decision, emphasizing the lack of contrary evidence and the appropriateness of taxing the profit on such purchases rather than the entire amount. The revenue's appeal was dismissed for both the Assessment Years 2009-10 and 2010-11 based on this reasoning.

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Issues:
- Whether the CIT(A) was justified in restricting the disallowance of bogus purchases to the extent of 12.5% of bogus/hawala dealers/non-existent vendors.

Analysis:
1. The appellant, engaged in Trading in Hardware, filed its return of income for Assessment Year 2009-10, declaring total income of Rs. 16,32,700. The assessment was re-opened under section 147 based on information from the Sale Tax Department regarding hawala operators providing accommodation bills without actual delivery of goods. The Assessing Officer noted purchases of Rs. 2,76,275 from a party listed as a hawala dealer, leading to re-assessment under section 147.

2. The Assessing Officer, after issuing notices and considering reports, disallowed the entire purchases made from the hawala dealer in the assessment order. On appeal, the CIT(A) restricted the addition to 12.5%, citing the decision of the Hon'ble Gujarat High Court and the possibility of purchases from the grey market leading to tax savings. The revenue challenged this decision.

3. The revenue's representative supported the Assessing Officer's order, claiming the purchases were bogus and aimed at inflating profits. However, the Assessing Officer did not dispute the sales made by the assessee. The CIT(A) considered the material presented, including the payment details, and various court decisions, concluding that taxing the possible profit on such purchases was appropriate.

4. The Tribunal affirmed the CIT(A)'s decision, noting the lack of contrary evidence presented by the revenue. The Tribunal emphasized that taxing the profit earned on bogus purchases, rather than the entire transaction, was the correct approach. As no contrary decision was brought to their attention, the appeal of the revenue was dismissed.

5. For the Assessment Year 2010-11, the revenue raised identical grounds of appeal regarding alleged bogus purchases. Following the decision made for the previous year, the appeal for the current year was also dismissed with similar direction, resulting in the dismissal of the revenue's appeal for both assessment years.

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