- (1.) IN this appeal of the Revenue, an order of the Income Tax Appellate Tribunal (ITAT) dated 29th January, 2010, in Appeal No.641/DL/2009 has been challenged. The Revenue urges the following questions of law, i.e. a) Whether ITAT was justified in restricting the number of parties from whom bogus purchases were said to have been resorted to by the assessee? ; b) Did the Tribunal fall into error in directing disallowance to the extent of only 10% of purchases made from such vendors by the assessee?
(2.) THE assessee has also filed a cross appeal and urges the following questions of law : Did the ITAT err in law in not applying Section 40(a)(ia) to the circumstances of the case as that provision has been retrospectively amended by Finance Act, 2008 w.e.f. 01.04.2005? The facts are that the assessee was engaged in designing, manufacturing, marketing and trading telecommunication equipments, public address system and flood matters. In its return for AY 2005 -06, the assessee declared an income of Rs.1,08,85,191/ -; it was initially processed under Section 143(1) of the Act. During the year under consideration, a search operation was conducted by the Central Excise Department in the manufacturing unit of the assessee. It was alleged that the assessee had claimed CENVAT credit for inputs, and that it was using bogus purchases bills from non -existent parties. The Central Excise Department identified 19 such fictitious vendors. On the strength of these allegations, the Income Tax Department also took up the assessee's case for scrutiny and issued notice under Section 133(6) of the Act to 16 parties.
(3.) AFTER considering the materials on record, the AO rejected the books of accounts and determined the net profit at 10% to the total sale of business at Rs.16,40,91,000/ - in addition to other income declaration by the assessee. A further addition was made to the tune of Rs.18,34,490/ - under Section 40(a) (ia) of the Act for non -deduction of tax at source.;