ITAT upholds CIT(A) decision on purchase disallowance, citing business nature and lack of proof (A)

The ITAT upheld the CIT(A)'s decision to restrict the addition/disallowance to 25% of purchases for the relevant assessment years, dismissing the Department's grounds for both years. The CIT(A) considered evidence and judicial pronouncements, concluding that a 25% disallowance was justified due to the nature of the appellant's business and benefits from accommodation entries. The AO's decision to treat 100% of alleged bogus purchases as non-genuine was based on lack of proof of transactions' genuineness and party cooperation, leading to the restriction of the disallowance by the CIT(A).

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Issues:
Appeal against the order of CIT(A) restricting addition of purchases to 25% instead of 100% as non-genuine by AO for A.Ys. 2009-10 & 2010-11.

Analysis:
The appeals were filed by the revenue challenging the common order of the CIT(A) restricting the addition of purchases to 25% instead of 100% as non-genuine by the Assessing Officer. The assessee, engaged in manufacturing, filed returns for the relevant assessment years. The Assessing Officer reopened assessments based on information about accommodation entries. The assessee provided various documents to prove the genuineness of purchases, but parties were not produced before the AO. The AO treated 100% of alleged bogus purchases as non-genuine. On appeal, the CIT(A) considered the evidence and submissions, restricting the disallowance to 25% of non-genuine purchases. The AO's decision was based on the failure to prove the genuineness of transactions and lack of party cooperation. The CIT(A) referred to judicial pronouncements and concluded that a 25% disallowance was justified based on the nature of the appellant's business and benefits derived from using accommodation entries.

The CIT(A) observed that the AO rightly disallowed part of the purchases from hawala dealers, as evidenced by a search operation by the Sales Tax Department. The CIT(A) referred to the judgment of the Gujarat High Court and upheld a 25% disallowance on purchases from hawala dealers. The CIT(A) restricted the disallowance made by the AO to 25% of the purchases claimed. The appeals were heard, and the Department's grounds were dismissed for both assessment years. The order pronounced by the ITAT upheld the CIT(A)'s decision to restrict the addition/disallowance to 25% of purchases for the relevant assessment years.

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