ITAT's decision to reduce unexplained purchases disallowance from 12.5% to 6% upheld following Pankaj K. Choudhary precedent

Gujarat HC upheld ITAT's decision restricting disallowance of unexplained purchases to 6% instead of 12.5%. The court relied on precedent from Pankaj K. Choudhary case, finding that ITAT had properly analyzed the facts before reducing the disallowance rate. HC concluded no substantial questions of law arose and declined to interfere with the tribunal's findings, affirming the reduced disallowance percentage.

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Issues involved:
The judgment deals with the estimation of addition in respect of bogus purchases under the Income Tax Act, 1961.

Details of the Judgment:

Issue 1:
The respondent-assessee engaged in diamond trading filed a return of income for Assessment Year 2008-09, which was assessed by making an addition of Rs. 20,48,83,051 on account of unexplained purchases being accommodation entries from Gautam Jain Group entities.

Issue 2:
The CIT (Appeals) partly allowed the appeal of the assessee, restricting the addition to Rs. 10,47,931. The appellant-Revenue then appealed to the Tribunal, which restricted the disallowance to 6% of the unexplained purchases, relying on a previous judgment.

Judgment Details:
The Tribunal relied on a Co-ordinate Bench judgment in the case of Principal Commissioner of Income Tax Versus Pankaj K. Choudhary, where it was held that adding 6% of bogus purchases is fair and reasonable. The Tribunal directed the Assessing Officer to make the addition at this rate, partly allowing the appeal of the Revenue.

In a separate judgment, the Court dismissed Tax Appeal No. 617 of 2022 in the case of Pankaj K. Choudhary, where the disallowance of purchases was restricted to 12.5% due to low GP rate shown by the appellant. The Tribunal further reduced the disallowance to 6% after considering the facts and circumstances of the case.

The Court noted that another case involving accommodation entries by the same group favored the assessee. It concluded that no substantial questions of law arose in the present case and dismissed the appeal.

Therefore, the Tribunal's decision to restrict the disallowance to 6% of the unexplained purchases was upheld, and the appeal by the Revenue was dismissed.

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