Tribunal limits disallowance to 12.5% of purchases, dismisses assessee's challenge. Decision on October 3, 2017.

The Tribunal partly allowed the Revenue's appeal, limiting the disallowance to 12.5% of the bogus purchases. The assessee's cross objection challenging the validity of the assessment order was dismissed. The decision was rendered on October 3, 2017.

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Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Validity of the assessment order under section 143(3) r.w.s. 147 of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:
The primary issue raised in the Revenue’s appeal was the deletion of the entire addition of Rs. 1,67,26,325 made by the Assessing Officer (AO) on account of bogus purchases. The AO reopened the assessment based on information from the DGIT (Inv) and the Maharashtra Sales Tax Department, indicating that the assessee had taken accommodation entries from various parties by way of bogus purchase bills. The AO issued notices to these parties, but all notices were returned unserved, and the assessee failed to produce any of the suppliers or provide sufficient evidence to substantiate the purchases. The AO concluded that the purchases were non-genuine and added the amount as unexplained investment under section 69 of the Act.

The CIT(A) deleted the addition, stating that the AO had not brought on record relevant material to prove the purchases as bogus. The CIT(A) noted that the assessee had submitted all necessary documents, including ledger accounts, purchase bills, delivery challans, transportation details, and bank statements. The CIT(A) relied on various judicial decisions to support the deletion.

Upon appeal, the Tribunal found that credible information indicated that the assessee had obtained bogus purchase bills. The AO’s enquiries revealed that the suppliers were non-existent, and the assessee failed to provide any confirmation from these parties. The Tribunal held that the AO’s conclusion that the purchases were bogus was justified. The Tribunal referred to the Hon’ble Gujarat High Court decision in the case of N K Industries vs Dy CIT, where 100% of the bogus purchases were added to the assessee’s income. However, considering the facts and circumstances, the Tribunal followed the precedent from the Hon’ble Gujarat High Court decision in the case of Simit P. Sheth and restricted the disallowance to 12.5% of the bogus purchases.

2. Validity of the Assessment Order under Section 143(3) r.w.s. 147:
The issue raised in the assessee’s cross objection was the validity of the assessment order passed under section 143(3) r.w.s. 147 of the Income-tax Act, 1961, contending that it was bad in law and void ab initio in view of the decision of the Hon’ble Supreme Court in the case of GKN Drive shafts (India) Limited. However, the learned Counsel for the assessee did not press this ground during the proceedings, and it was dismissed as not pressed.

Conclusion:
The Tribunal partly allowed the Revenue’s appeal by modifying the CIT(A)’s order and holding that the disallowance should be restricted to 12.5% of the bogus purchases. The assessee’s cross objection was dismissed. The order was pronounced on October 3, 2017.

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