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2020 (4) TMI 561 - AT - Income TaxEstimation of income - bogus purchases - disallowance of 12.5% of the purchases by AO - CIT(A) had reduced the disallowance to the extent of 3.75% - HELD THAT - In the given case, assessee is a dealer in various types of iron steel products, therefore we cannot standardize the profits among various types of steel industries. Thus, we are inclined to reject the contentions of Ld. AR. Accordingly, we direct the AO to disallow 9.53% (i.e. 12.5% - 2.97%). Therefore, grounds raised by the revenue are partly allowed.
Issues:
1. Disallowance of bogus purchases by the Assessing Officer. 2. Justification of the disallowance percentage by the Commissioner of Income Tax (Appeals). 3. Comparison of GP ratio declared by the assessee and the disallowance percentage. Issue 1: Disallowance of Bogus Purchases by the Assessing Officer: The case involved an appeal and cross objection against the order of the Ld. Commissioner of Income Tax (Appeals) for Assessment Year 2009-10. The assessee, engaged in trading iron and steel, had its return processed under section 143(1) of the Income Tax Act, 1961. Subsequently, upon information regarding hawala transactions, the case was reopened under section 147. The Assessing Officer (AO) made an addition of 12.5% of bogus purchases in the assessment order under section 143(3) read with section 147. The Ld. CIT(A) reduced this disallowance to 3.75% based on various judgments, including one from the Coordinate Bench of ITAT. The AO's disallowance was based on the premise that the transactions were accommodation entries. Issue 2: Justification of the Disallowance Percentage by the Commissioner of Income Tax (Appeals): The Ld. CIT(A) justified the 3.75% disallowance by considering the GP ratio declared by the assessee and relying on the decision of the Coordinate Bench of ITAT in a similar case. The Ld. CIT(A) confirmed the disallowance percentage after assessing the submissions of the assessee. The revenue, however, contended that the disallowance should have been higher, as the AO had established the transactions as accommodation entries. The Ld. DR supported the AO's order, emphasizing the lack of supplier records or supporting documents from the assessee. Issue 3: Comparison of GP Ratio Declared by the Assessee and the Disallowance Percentage: In the decision, the Tribunal noted that the assessee had declared a GP ratio of 2.97%, while the Ld. CIT(A) reduced the disallowance to 3.75% from the AO's 12.5% disallowance. The Tribunal found that the Ld. CIT(A) heavily relied on a previous case where the disallowance was directed to 5.39% from the declared GP ratio of 7.11%. The Tribunal, considering the facts and submissions, directed the AO to disallow 9.53% (12.5% - 2.97%) of the bogus purchases, partly allowing the revenue's appeal. In conclusion, the Tribunal partly allowed the revenue's appeal, directing the AO to disallow 9.53% of the bogus purchases. The cross objection filed by the assessee was deemed infructuous and dismissed. The decision was pronounced on 10th February 2020 by the Tribunal.
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