Tribunal allows partial appeal, taxes only profit element of bogus purchases, differing from CIT(A).

The Tribunal partially allowed the appeal, estimating the disallowance for bogus purchases at 12% of the total amount. The Tribunal considered that the assessee's income from contract work was not in dispute, indicating materials were sourced elsewhere. Relying on precedent, only the profit element within the bogus purchases was deemed taxable, differing from the CIT(A)'s decision.

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Issues:
Assessment of bogus purchases and disallowance for assessment year 2011-12.

Analysis:
The appeal pertains to the assessment year 2011-12 where the assessee, a civil contractor, declared a total income of Rs. 19,38,660. The case was selected for scrutiny due to information received regarding accommodation entries from a specific dealer. Despite notices and requests for relevant documents to prove the genuineness of purchases, the assessee failed to provide satisfactory evidence. The Assessing Officer made an addition for entire bogus purchases based on the lack of substantiating documents (para 2).

The CIT(A) considered the nature of the assessee's work in government contracts and concluded that the materials must have been utilized, suggesting that the assessee procured materials from elsewhere and obtained bills from a hawala dealer. The CIT(A) restricted the disallowance in respect of bogus purchases to 30%, which the assessee contested in the appeal before the Tribunal (para 2).

During the appeal, the assessee's representative argued that the addition made by the CIT(A) was on the higher side, considering the net profit declared by the assessee in the previous financial year. The Departmental Representative, on the other hand, highlighted the lack of evidence provided by the assessee to prove the genuineness of purchases (para 3-4).

The Tribunal observed that the income declared by the assessee from contract work was not disputed, indicating that the assessee must have procured materials from sources other than the suspicious dealer. Referring to a relevant High Court case, the Tribunal held that only the profit element embedded in the bogus purchases should be taxed. Considering the facts, the Tribunal estimated the disallowance at 12% of the bogus purchases, differing from the CIT(A)'s decision, and partially allowed the appeal (para 5-6).

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