Tribunal allows partial appeals, directs 12.5% disallowance on alleged bogus purchases. Decision based on preponderance of probabilities.

The Tribunal partially allowed the appeals by directing a 12.5% disallowance on alleged bogus purchases for all three assessment years, modifying the decisions of the AO and CIT(A). This decision was based on the principle of preponderance of probabilities, considering the scale of the assessee's operations and the turnover. The Tribunal found that while the material was likely used, the inability to produce the parties and adverse field reports justified the partial disallowance.

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Issues Involved:
1. Addition of Rs. 39,000 as revenue expenditure for alleged bogus bills.
2. Disallowance of Rs. 29,139 as depreciation on capital expenditure for alleged bogus bills.

Issue-wise Detailed Analysis:

1. Addition of Rs. 39,000 as Revenue Expenditure for Alleged Bogus Bills
The assessee, engaged in the business of manufacturing and trading gold ornaments, conducted an exhibition and later faced scrutiny when the General Manager was detained with cash and documents, leading to an assessment by the AO. During the assessment, the AO received information from the Sales Tax Department about bogus purchases from three parties. Notices issued to these parties returned unserved, and field inquiries confirmed their non-existence at the given addresses. The AO disallowed Rs. 39,000 claimed as revenue expenditure for lighting premises, considering it as bogus. The CIT(A) upheld this disallowance, emphasizing that the assessee failed to prove the genuineness of the purchases despite opportunities provided.

2. Disallowance of Rs. 29,139 as Depreciation on Capital Expenditure for Alleged Bogus Bills
The AO also disallowed Rs. 29,139 as depreciation on capital expenditure of Rs. 2,91,392, used for furnishing a new showroom in Aurangabad, citing the same bogus bills. The CIT(A) confirmed this disallowance, noting that despite the assessee's submission of purchase invoices, bank statements, and a certificate from the interior designer, the assessee could not produce the parties for verification. The CIT(A) rejected the assessee's reliance on various case laws, distinguishing them based on the nature of the purchases (capital asset acquisition vs. trading goods).

Tribunal's Decision:
The Tribunal considered the scale of the assessee's operations, the turnover of Rs. 276.64 crores, and the smallness of the amount involved in the alleged bogus purchases. It acknowledged that while the material was likely used by the assessee, the inability to produce the parties and adverse field reports warranted a partial disallowance. The Tribunal applied the principle of preponderance of probabilities and directed the AO to disallow 12.5% of the alleged bogus purchases, adjusting the depreciation and revenue expenditure claims accordingly.

Conclusion:
The Tribunal partly allowed the appeals, directing a 12.5% disallowance on the alleged bogus purchases for all three assessment years, thus modifying the AO's and CIT(A)'s decisions. The order was pronounced on 23.04.2018.

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