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2018 (2) TMI 1632 - AT - Income TaxBogus purchases - AO disallowed the 25% of total cost of purchases in absence of proof of delivery - disallowance of cost of purchases of steel - Held that - Respectfully following the decision of Hon ble Gujarat High Court in CIT Vs Simit P Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT and Hariram Bhambani (2015 (2) TMI 907 - BOMBAY HIGH COURT), the disallowance of cost of purchases of steel is restricted to 5% of the purchases. The assessing officer is directed accordingly. In the result the ground No.1 of the appeal is partly allowed. Disallowance/addition on account of commission - Held that - The disallowance of commission is based on assumption and presumptions of assessing officer. The assessing officer has not brought any material on record to substantiate his action. Thus, the addition on account of 1% of total purchases added by AO is deleted. - Appeal of the assessee is partly allowed.
Issues Involved:
Appeals against order of ld. CIT(A)-28 for AY 2009-10, 2010-11, and 2011-12 under IT Act, concerning disallowance of 25% of purchases and 1% commission on bogus purchases. Analysis: Issue 1: Reopening of Assessment and Disallowance of Purchases The assessee's business involved trading in Iron and steel. The case was reopened under section 147 based on information from the Sales Tax Department regarding bogus purchase bills. The assessing officer disallowed 25% of total purchases and 1% commission on the assumption that purchases were made through brokers and not directly from parties. The assessee provided detailed evidence, but the AO rejected it, leading to the disallowances. The ld. CIT(A) upheld the AO's decision, emphasizing the onus on the assessee to prove genuineness. However, the tribunal found the disallowance excessive, considering the VAT rate, and restricted it to 5% of purchases, citing the need for real income taxation. Issue 2: Disallowance of Commission The disallowance of 1% commission on total purchases was based on assumptions without substantive evidence. The tribunal found the AO's action unsubstantiated and deleted the addition, as the AO failed to provide material to support the disallowance. Issue 3: Rejection of Books of Account The AO rejected the books of account due to alleged accommodation bills and lack of delivery proof. The tribunal partially sustained the addition but restricted the disallowance to 5% of purchases. Consequently, discussions on this ground became academic. Conclusion The tribunal partly allowed the appeals, considering the excessive disallowances and lack of concrete evidence supporting the AO's actions. The principle of consistency guided the decisions for AY 2010-11 and 2011-12. The disallowance of purchases was restricted to 5%, and the addition of commission was deleted due to lack of substantiation by the AO. The interest levy ground was deemed consequential. The rejection of books of account was partially sustained, with discussions becoming academic.
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