2019 (7) TMI 23 - AT - Income Tax

Disallowance @ 10% of the bogus purchases - HELD THAT - Addition should be restricted to the extent of difference between the gross profit rate on genuine purchases and gross profit rate of hawala purchases . For these purposes, the matter stands remanded to the file of the Assessing Officer. Considering the commonality of the facts, we are of the opinion the issue under consideration should also be remanded to the file of the AO with similar direction as given in para 4 of the order of M/S. CHHABI ELECTRICALS PVT. LTD. 2017 (6) TMI 514 - ITAT PUNE AO is also directed to examine the arguments relating to the change of opinion while passing a speaking order on technical ground after granting reasonable opportunity of being heard to the assessee. Accordingly, all the issues raised by the assessee in this appeal both on legal as well as on merits are allowed for statistical purposes.

Summary

Issues:
1. Assessment year 2010-11: Disallowance of bogus purchases and reopening of assessment under section 148.
2. Assessment year 2011-12: Similar issues as in 2010-11.

Analysis:

Assessment year 2010-11:
The judgment involves cross appeals by the assessee and the Revenue regarding the disallowance of bogus purchases for the assessment years 2010-11 and 2011-12. The assessee contested the additions of confirmed amounts by CIT(A)-1, Nashik, arguing that the purchases were not bogus and were paid through bank transactions. The Assessing Officer and CIT(A) applied an ad-hoc rate of 25% for the disallowance. The assessee referred to a Tribunal decision for a lower disallowance rate of 10%. The Revenue, however, supported the Assessing Officer and CIT(A) decisions. The Tribunal observed that the issue of bogus purchases was reassessed through reopening of the completed assessment, with the assessee raising concerns about the violation of natural justice and "change of opinion." The Tribunal referred to a High Court judgment emphasizing that the disallowance should be based on the difference between gross profit rates on genuine and hawala purchases, not an ad-hoc basis. Consequently, the matter was remanded to the Assessing Officer for reconsideration, directing a speaking order after granting a reasonable opportunity for the assessee to be heard.

Assessment year 2011-12:
The judgment for the assessment year 2011-12 mirrored the decisions made for 2010-11. Since the issues raised in the cross appeals for 2010-11 were adjudicated and remanded, the same decisions were applied mutatis-mutandis to the cross appeals for 2011-12. Both the appeals by the assessee for the years 2010-11 and 2011-12 were allowed for statistical purposes, while the cross appeals by the Revenue for the same years were dismissed. The judgment was pronounced on June 27, 2019.