ITAT allows 12.5% disallowance on bogus purchases instead of full rejection when sales accepted

The ITAT Delhi ruled on bogus purchase allegations where the assessee purchased materials from Apex Associates, identified as controlled by accommodation entry providers. The AO disallowed purchases based on investigation wing information and statements from entry providers. The ITAT held that since the AO accepted sales but disallowed only purchases in isolation, following HC precedents, a 12.5% disallowance would serve justice. For AY 2014-15, the addition was deleted as the assessee only made payments for previous year purchases without recording new purchases, making the AO's addition unjustified. The assessee's appeal was partly allowed.

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Issues involved:
The issues involved in this case are related to the reopening of assessment u/s 147, disallowance of purchases made by the assessee, violation of natural justice principles, and the validity of the assessment order.

Reopening of Assessment u/s 147:
The case involved the reopening of the assessee's assessment u/s 147 of the Income Tax Act, 1961. The Assessing Officer reopened the assessment based on the belief that the assessee had failed to disclose full and true material facts regarding purchases from M/s Apex Associates through fake purchase bills issued by certain individuals providing accommodation entries. The assessee's return of income was filed in response to the notice u/s 148, and subsequent statutory notices u/s 143(2) and 142(1) were issued and served. The Assessing Officer treated the purchases made by the assessee from Apex Associates as bogus and disallowed them, making an addition of Rs. 8,79,843.

Violation of Natural Justice Principles:
The assessee raised several grounds of appeal before the Appellate Tribunal, alleging violations of natural justice principles by the Learned Commissioner of Income Tax (Appeals) [CIT(A)]. The grounds of appeal included contentions that the CIT(A) erred in confirming the order of the Assessing Officer without providing the assessee a reasonable opportunity to be heard, that the reopening of assessment u/s 147 was illegal and invalid, and that the assessment order was passed without issuing a valid notice u/s 143(2) of the Income Tax Act.

Disallowance of Purchases:
The Assessing Officer disallowed the purchases made by the assessee from Apex Associates, based on the belief that they were not genuine. The assessee contended that the disallowance was made without proper enquiry and solely based on statements from alleged accommodation entry providers. The Appellate Tribunal, after considering the facts on record, held that a partial disallowance of 12.5% of the purchases would serve the interests of justice to both parties. Consequently, the appeal filed by the assessee for Assessment Year 2013-14 was partly allowed.

Decision for Assessment Year 2014-15:
For the appeal filed by the assessee for Assessment Year 2014-15, it was observed that the assessee had only made payments towards purchases from previous years and had not made any purchases from Apex Associates during the relevant assessment year. The addition made by the Assessing Officer was deemed unjustified and was accordingly deleted. Thus, the appeal for Assessment Year 2014-15 was allowed.

Conclusion:
In conclusion, the Appellate Tribunal partially allowed the appeal for Assessment Year 2013-14 by directing a 12.5% disallowance of purchases made by the assessee from Apex Associates. The appeal for Assessment Year 2014-15 was allowed as the addition made by the Assessing Officer was found to be unjustified.

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