Tax Tribunal Upholds Partial Disallowance of Purchase Costs; Dismisses Revenue's Appeal on Assessment for A.Y. 2009-10.

The ITAT dismissed the Revenue's appeal against the NFAC's order concerning the quantum of assessment for A.Y. 2009-10. The Revenue's challenge to the CIT(A)'s decision to restrict disallowance to 12.5% of purchases was rejected. The Tribunal upheld the CIT(A)'s estimation, finding the AO's complete disallowance unjustified, and concluded that the purchases were not outside the books, suggesting possible involvement with hawala dealers to inflate costs. The Tribunal deemed the CIT(A)'s decision reasonable, leading to the appeal's dismissal.

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Issues:
The appeal by the Revenue against the order passed by NFAC, Delhi for the quantum of assessment u/s. 143(3) r.w.s. 147 for the A.Y. 2009-10.

Issue 1: Challenge to Disallowance

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. 15,77,629/-.

Details for Issue 1:

The assessee initially declared a total income of Rs. 4,72,510/- and the case was reopened u/s. 147 based on information regarding a racket involving auditors issuing purchases. The ld. AO added the entire amount of Rs. 15,77,629/- u/s. 69C due to issues with one party not being served a notice u/s. 133(6) and the other party not conducting the reported business. However, the ld. CIT (A) restricted the addition by estimating a GP rate of 12.5% on the total bogus purchases from both parties.

After considering the arguments from both sides and reviewing the impugned order, it was found that the AO's addition of the entire purchases was unjustified. The Tribunal noted that once the source of purchases was debited in the books of accounts and corresponding sales were recorded, it cannot be concluded that the purchases were outside the books. The Tribunal suggested that the case may involve purchases from hawala dealers to inflate costs and suppress GP rates. Referring to a principle established by the Hon'ble Bombay High Court in a specific case, a GP rate of 12.5% was deemed reasonable in such scenarios. Therefore, the decision of the CIT (A) to restrict the addition was deemed justified, leading to the dismissal of the Revenue's appeal.

In conclusion, the appeal by the Revenue was dismissed, and the order was pronounced on 20th March, 2024.

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