Tribunal Reduces Disallowance on Suspicious Purchases to 8% for 2009-10 and 2010-11 in Construction Business Case.

The Tribunal partly allowed the appeals for assessment years 2009-10 and 2010-11, reducing the disallowance of suspicious purchases from 12.5% and 10% to 8% for both years. This decision was based on the assessee's failure to prove the genuineness of purchases while recognizing the necessity of materials for the construction business. The Tribunal's judgment was consistent with a relevant HC decision, balancing the prevention of revenue leakage with the legitimate operational needs of the assessee.

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Issues involved:
The judgment involves challenges to impugned orders under section 250 of the Income Tax Act, 1961 for assessment years 2009-10 and 2010-11, related to disallowance of suspicious purchases made by the assessee.

Assessment Year 2009-10:
The assessee, a partnership firm in the construction business, filed returns declaring income, which were processed under section 143(1) of the Act. Subsequently, based on information received about the assessee's involvement in accommodation entries, proceedings under section 147 were initiated. The Assessing Officer disallowed 12.5% of alleged bogus purchases, which the CIT(A) upheld. The Tribunal found the assessee failed to prove the genuineness of purchases but restricted the disallowance to 8% of disputed purchases, considering the necessity of materials for construction work. The decision was in line with a relevant High Court judgment.

Assessment Year 2010-11:
Similar to the previous year, the assessee's returns were processed under section 143(1) and subsequent proceedings were initiated under section 147 due to suspicions of bogus purchases. The AO disallowed 10% of alleged bogus purchases, a decision upheld by the CIT(A). The Tribunal, noting the necessity of materials for construction work, restricted the disallowance to 8% of disputed purchases, aligning with a relevant High Court judgment.

Conclusion:
The Tribunal partly allowed the appeals in both assessment years, reducing the disallowance percentage for suspicious purchases from the initially determined amounts. The decision was based on the failure of the assessee to substantiate the purchases' genuineness but also considering the essentiality of materials for the construction business. The Tribunal's decision aimed to prevent revenue leakage while acknowledging the legitimate need for materials in the assessee's line of work.

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