Tribunal rejects 20% disallowance, upholds 10% addition for construction expenses. Invalid revisionary jurisdiction under section 263.

The Tribunal upheld a 10% addition on bogus purchases for construction purposes, contrary to the 20% disallowance by the Assessing Officer. Relying on High Court judgments, the Tribunal found the Principal Commissioner's revisionary jurisdiction invalid under section 263 of the Income Tax Act. The assessee's appeal was allowed, with the order issued on October 8, 2021.

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Issues:
Revisionary jurisdiction under section 263 of the Income Tax Act regarding disallowance of bogus purchases.

Analysis:
The appeal arose from the Principal Commissioner of Income Tax-2's order under section 263 of the Income Tax Act for the assessment year 2010-11. The crux of the matter was the revisionary jurisdiction exercised by the Principal Commissioner concerning the disallowance of bogus purchases made by the assessee. Despite multiple grounds of appeal raised by the assessee, the main grievance centered on the revisionary jurisdiction assumed by the Principal Commissioner.

During the proceedings, the assessee did not appear, and no adjournment petition was filed. The Assessing Officer found that the assessee had engaged in bogus purchases based on information from the Sales Tax Department. The Assessing Officer disallowed 20% of the bogus purchases during the assessment. The Principal Commissioner, relying on a Gujarat High Court decision, set aside the matter for the Assessing Officer to re-examine and determine the income after proper evaluation of facts and law.

The Revenue argued that 100% of the bogus purchases should be disallowed since they were proven to be fake. They contended that the 20% disallowance made by the Assessing Officer was against the Gujarat High Court decision. However, the Tribunal found that the assessee had consumed the bogus purchases for construction purposes and cited a High Court judgment to support a 10% addition on such purchases.

Referring to recent decisions, the Tribunal upheld the 10% addition on the bogus purchases, as supported by the Bombay High Court judgment. The Tribunal concluded that the 20% disallowance made by the Assessing Officer was higher than the approved percentage by the High Court, thus ruling in favor of the assessee and against the revisionary jurisdiction exercised by the Principal Commissioner under section 263 of the Act.

In light of the circumstances where the bogus purchases were consumed, the Tribunal deemed the 10% addition reasonable, and the revisionary jurisdiction assumed by the Principal Commissioner was deemed invalid. Consequently, the appeal of the assessee was allowed, and the order was pronounced on October 8, 2021.

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