Tribunal dismisses assessee's appeal, partly allows revenue's appeal, directs AO to disallow 12.5% purchase value.

The Tribunal dismissed the appeal filed by the assessee and partly allowed the appeal filed by the revenue. It directed the AO to disallow 12.5% of the purchase value under dispute, noting that the results achieved by the assessee were not reasonable. The order was pronounced on 10th Feb 2020 after evaluating transactions from AY 2007-08 to 2013-14, where the AO disputed purchases but not sales.

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Issues Involved:
1. Bogus Purchase Bills
2. Reopening of Assessment under Section 147
3. Disallowance of 100% of Bogus Purchases
4. Estimation of Gross Profit (GP) Rate
5. Validity of Comparative Analysis of GP Rates
6. Relief Granted by CIT(A)
7. Grounds of Appeal by Assessee and Revenue

Issue-wise Detailed Analysis:

1. Bogus Purchase Bills:
The assessee, engaged in the business of scrap material and iron & steel, was found to have received bogus purchase bills from entities like Sidhivinayak and Surat Tube Corporation. The AO, upon receiving information from the Sales Tax Department, treated these transactions as bogus due to the lack of supporting documents such as transport and octroi bills, despite ledger accounts and cheque payments being provided by the assessee.

2. Reopening of Assessment under Section 147:
The assessment was reopened under Section 147 of the Income Tax Act by issuing a notice under Section 148, based on the information received from the Sales Tax Department regarding bogus purchase bills.

3. Disallowance of 100% of Bogus Purchases:
The AO disallowed 100% of the bogus purchases. The CIT(A) agreed with the AO's findings but only sustained 5.73% of the bogus purchases as suppressed profit, relying on various judgments.

4. Estimation of Gross Profit (GP) Rate:
The CIT(A) analyzed the GP rates for the hawala years, preceding two years, and subsequent two years. The GP rate for AY 2011-12 was found to be 3.07%, significantly lower than the 4.66% in AY 2007-08 (non-hawala purchase year). The CIT(A) concluded that the appellant had suppressed its profits by booking alleged hawala purchases.

5. Validity of Comparative Analysis of GP Rates:
The CIT(A) compared the GP rates of the appellant with those of similar trades and found that the appellant's GP rates were lower. For instance, the GP rate for M/s Vinayak Trading Corporation was 9.20% and 9.22% in the same years, compared to the appellant's 5.20% and 3.07%.

6. Relief Granted by CIT(A):
The CIT(A) estimated the GP rate at 5.73% for the hawala years, leading to the disallowance of Rs. 11,36,293 for AY 2010-11 and Rs. 55,01,723 for AY 2011-12. The balance amounts were deleted, and the appeals were partly allowed.

7. Grounds of Appeal by Assessee and Revenue:
Both the assessee and revenue appealed against the CIT(A)'s order. The revenue argued that the CIT(A) erred in not following the ITAT Pune's decision to confirm 100% addition of bogus purchases. The assessee contended that the CIT(A) did not follow his own findings and that the GP ratio adopted for AY 2010-11 should not be the basis for AY 2011-12.

Final Judgment:
The Tribunal considered the rival submissions and the material on record. It noted that the AO did not dispute the sales but only the purchases. The Tribunal found that the CIT(A) had rightly evaluated the transactions from AY 2007-08 to 2013-14. However, it concluded that the results achieved by the assessee were not reasonable and directed the AO to disallow 12.5% of the purchase value under dispute. Consequently, the appeal filed by the assessee was dismissed, and the appeal filed by the revenue was partly allowed. The order was pronounced in the open court on 10th Feb 2020.

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