Tribunal Validates Reassessment; Limits Addition to 3% Profit on Bogus Purchases from M/s Daksh Diamonds, Dismissing Appeals.

The Tribunal upheld the reassessment proceeding's validity, finding the AO's reopening justified based on income escapement belief. Regarding bogus purchases, the Tribunal concurred with the Ld CIT(A) that only the profit element should be added, limiting it to 3% of the purchase value from M/s Daksh Diamonds. The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection, affirming the Ld CIT(A)'s decisions.

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Issues:
1. Validity of reassessment proceeding
2. Addition relating to bogus purchases

Analysis:

Issue 1: Validity of reassessment proceeding
The assessee challenged the validity of the reassessment proceeding, arguing that the AO had reopened the assessment based on information leading to a belief of income escapement. The Tribunal upheld the validity of the reassessment, stating that the reopening was lawful. The AO's decision to reopen the assessment was deemed justified under the circumstances. The Tribunal linked this issue to the addition sustained by the Ld CIT(A), which was confirmed earlier in the judgment.

Issue 2: Addition relating to bogus purchases
The AO disallowed the entire purchase amount of &8377; 34,75,143/- made by the assessee from M/s Daksh Diamonds, suspecting it to be accommodation entries without actual supply. However, the assessee demonstrated that the purchased diamonds were exported, indicating a genuine transaction. The Ld CIT(A) acknowledged this and decided that only the profit element embedded in the transaction should be added. Referring to industry guidelines and transfer pricing margins, the Ld CIT(A) directed the AO to limit the addition to 3% of the purchase value from M/s Daksh Diamonds. The Tribunal supported this decision, emphasizing that the goods reached the assessee, making it improper to disallow the entire purchase amount. The Tribunal cited relevant legal precedents to justify assessing only the profit element of the purchases. It noted that the AO's impression that the assessee received the entire amount from M/s Daksh Diamonds was misguided, as the assessee had purchased and exported the diamonds. Therefore, the Tribunal upheld the Ld CIT(A)'s order on this issue.

In conclusion, the Tribunal dismissed the appeal of the revenue and the cross objection of the assessee, affirming the decisions made by the Ld CIT(A) regarding the issues raised. The judgment was pronounced on 7.12.2017.

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