Bogus purchases treated as s.37 disallowance limited to 8% where corresponding sales accepted; decision not a precedent

ITAT held the impugned purchases to be bogus, finding the assessee unable to verify or reconcile them; however, instead of sustaining the lower authorities' complete disallowance, the tribunal restricted the disallowance to 8% for both assessment years since corresponding sales were not rejected. The bogus purchases are to be treated as business expenditure disallowance under s.37, with consequential computation under normal provisions. The limitation to 8% is subject to a rider that the decision shall not be treated as a precedent.

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Assessee's appeals under Section 147 r.w.s. 144 challenge treatment of varying purchases from M/s GS Industries as "unexplained cash credits u/s 68". Records show assessee failed to verify or reconcile impugned purchases during assessment and appellate proceedings; tribunal accepts Revenue's contention that the purchases are "bogus purchases". Lower authorities disallowed entire purchases; tribunal restricts disallowance to 8% for both assessment years (subject that this "shall not be treated as a precedent") with "necessary computation" to follow. Tribunal finds the items are expenditure claims, not credit entries, and directs treatment as "business expenditure disallowance u/s 37" with consequential computation under normal provisions. Appeals are partly allowed.

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