Tribunal Upholds 10% Disallowance on Bogus Purchases, Emphasizes Taxing Only Profit Element, Cites Precedents.

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s decision to limit the disallowance to 10% of the alleged bogus purchases, totaling Rs. 41,71,370/-. The Tribunal agreed with the CIT(A)'s reliance on judicial precedents that only the profit element in such transactions should be taxed. It noted the lack of cross-verification by the A.O. with the VAT Department and the absence of doubts regarding the sale of flats. The decision was pronounced on 23-06-2023.

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Issues Involved:
1. Disallowance of bogus purchases.
2. Restriction of disallowance to 10% of the alleged bogus purchases.
3. Validity of the entire disallowance of Rs. 4,17,13,702/-.

Summary:

1. Disallowance of Bogus Purchases:
The Assessing Officer (A.O.) determined that the assessee, a partnership firm engaged in civil construction, made bogus purchases amounting to Rs. 4,17,13,702/- from six suppliers. The A.O. based this conclusion on the fact that the suppliers were not found at their given addresses and did not respond to summons.

2. Restriction of Disallowance to 10%:
The Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance to 10% of the alleged bogus purchases, amounting to Rs. 41,71,370/-. The CIT(A) justified this by referencing judicial pronouncements, including those from the Gujarat High Court and the Supreme Court, which suggested that only the profit element embedded in such purchases should be taxed. The CIT(A) noted that the assessee had provided adequate documentation, such as invoices and bank statements, to support the purchases and payments made.

3. Validity of Entire Disallowance:
The Revenue appealed against the CIT(A)'s decision, arguing that the entire amount of bogus purchases should be disallowed. The Revenue cited the Supreme Court's decision in N.K. Protiens Ltd., which held that the entire transaction should be considered bogus if the purchases were found to be so. The Tribunal, however, upheld the CIT(A)'s decision, noting that the A.O. had not cross-verified the details with the VAT Department and had not doubted the sale of flats constructed by the assessee. The Tribunal referenced multiple judicial precedents that supported the restriction of disallowance to the profit element embedded in the purchases.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, thereby confirming the CIT(A)'s decision to restrict the disallowance to 10% of the alleged bogus purchases. The Tribunal found no merit in the arguments presented by the Revenue and the assessee, emphasizing that the CIT(A)'s approach was in line with judicial precedents. The order was pronounced in the open court on 23-06-2023.

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