Tax Tribunal Upholds 12.5% Disallowance on Purchases, Rejecting Revenue's Appeal for Full Addition of Rs. 14,90,401.

The ITAT dismissed the Revenue's appeal against the NFAC order, which was challenged for restricting the disallowance to 12.5% of purchases instead of the entire Rs. 14,90,401/-. The ITAT upheld the CIT(A)'s decision, agreeing that the entire addition was unjustified and that a 12.5% GP rate was reasonable.

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Issues involved: Appeal against order dated 28/06/2023 passed by NFAC, Delhi for the quantum of assessment u/s. 143(3) for A.Y. 2010-11.

Summary:

Challenge by Revenue:
The Revenue challenged the action of the ld. CIT(A) in restricting the disallowance to 12.5% of the purchases instead of the entire amount of Rs. 14,90,401/-.

Facts and Background:
The assessee filed the return of income declaring total income of Rs. 6,96,151/- for A.Y. 2010-11. The case was reopened u/s. 147 based on information regarding a racket involving auditors issuing bogus purchases. The ld. AO added the entire amount of Rs. 14,90,401/- u/s. 69C due to non-confirmation of transactions by parties.

Decision and Reasoning:
The ld. CIT (A) restricted the addition by estimating a GP rate of 12.5% on the total bogus purchases. The ITAT found the AO's addition of the entire purchases unjustified, stating that if purchases were recorded in the books, they cannot be considered outside the books. It was suggested that the purchases may have been made from hawala dealers to inflate costs and suppress GP rate. Referring to the principle from a Bombay High Court case, a GP rate of 12.5% was deemed reasonable in such scenarios. Consequently, the appeal by Revenue was dismissed.

Result:
The appeal of the Revenue against the order was dismissed, with the decision pronounced on 21st March, 2024.

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