Tribunal restores matter for reevaluation on purchase genuineness, assessee's opportunity to prove, revenue appeal allowed.

The Tribunal set aside the CIT(A)'s order and restored the matter to the Assessing Officer for reevaluation. The assessee was given an opportunity to demonstrate the genuineness of the purchases by showing they were accounted for in sales or closing stock. If proven, the CIT(A)'s reduction of the disallowance to 4% would be upheld; otherwise, the full disallowance by the Assessing Officer would stand. The revenue's appeal was allowed for statistical purposes.

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Issues Involved:
1. Deletion of addition made in respect of bogus purchases.
2. Determination of profit percentage on bogus purchases.
3. Validity of CIT(A)'s order and its reliance on the previous year's order.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made in Respect of Bogus Purchases:
The assessee, engaged in the business of trading in iron and steel, filed its return for A.Y. 2009-10. The original assessment was completed with an income of Rs. 16,12,270/-. Subsequently, based on information from the DGIT(Inv.) regarding bogus purchases aggregating to Rs. 2,60,02,507/-, the case was reopened under Sec. 147 of the Income Tax Act, 1961. The A.O. observed that the assessee procured bogus purchase bills from 11 parties. For 5 of these parties, the purchases were already considered in the original assessment, and an addition @1% of the turnover was made. For the remaining 6 parties, the A.O. added the entire value of Rs. 1,21,34,099/- as the assessee failed to produce supporting documents, claiming they were seized by the Sales Tax department.

2. Determination of Profit Percentage on Bogus Purchases:
The CIT(A) restricted the addition to 4% of the value of the impugned purchases, considering the benefit the assessee would have gained by procuring goods at a discounted value from the open/grey market, saving on VAT and other incidental charges. The revenue contested this, arguing that the CIT(A) erred in dislodging the A.O.'s disallowance and substituting it with 4% of the aggregate value. The revenue emphasized that unlike A.Y. 2010-11, the assessee failed to show that the sales correlating to the impugned purchases were duly accounted for in its books.

3. Validity of CIT(A)'s Order and Its Reliance on the Previous Year's Order:
The CIT(A) relied on the order passed by his predecessor for A.Y. 2010-11, which was upheld by the Tribunal. However, the Tribunal noted that the facts of the current year were distinguishable. The assessee failed to substantiate the genuineness of the purchases and did not produce necessary documents due to their seizure by the Sales Tax department. The Tribunal found that the CIT(A) had wrongly applied the previous year's order, as the assessee failed to prove that the impugned purchases were accounted for in its sales or closing stock.

Conclusion:
The Tribunal concluded that the matter requires a revisit by the A.O. with an opportunity for the assessee to demonstrate that the impugned purchases were accounted for in its sales or closing stock. If the assessee can prove this, the scaling down of the disallowance to 4% by the CIT(A) would be justified. Otherwise, the A.O.'s disallowance of the entire value of the impugned purchases would stand. The order of the CIT(A) was set aside, and the matter was restored to the A.O. for fresh adjudication. The appeal filed by the revenue was allowed for statistical purposes.

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