Tribunal modifies disputed purchase disallowance to 6%, directs AO to re-compute. Revenue appeal partly allowed.

The Tribunal upheld the re-opening of the assessment and modified the disallowance of disputed purchases to 6%, directing the AO to re-compute the disallowances accordingly. The Revenue's appeal was partly allowed, while the assessee's appeal for AY 2013-14 was dismissed.

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Issues Involved:
1. Validity of re-opening of assessment.
2. Addition on account of bogus purchases.
3. Percentage of disallowance of disputed purchases.

Issue-Wise Detailed Analysis:

1. Validity of Re-opening of Assessment:
The assessee's return for AY 2008-09 was initially processed without any variation. Later, based on information from the Director of Income Tax (Investment) Mumbai, indicating that the assessee was involved in transactions with entities managed by P.K. Jain, who provided bogus bills for diamond purchases, the case was re-opened. The Assessing Officer (AO) issued a notice under section 148, which the assessee responded to by stating that the original return should be treated as filed in response to the notice. The Ld. CIT(A) upheld the re-opening, stating that quashing the re-opening would unfairly benefit the assessee due to an officer's mistake.

2. Addition on Account of Bogus Purchases:
The AO added 100% of the purchases shown from entities managed by P.K. Jain, totaling Rs. 3.40 crores, to the assessee's income, citing the investigation wing's report and the statement recorded during the search and seizure operation. The AO rejected the assessee's books of account, stating they could not be regarded as full and complete. The Ld. CIT(A) reduced the addition to 5%, referencing various decisions from the jurisdictional High Court and Tribunal, which suggested that only the profit element embedded in such transactions should be added.

3. Percentage of Disallowance of Disputed Purchases:
The Revenue argued that the entire purchases were bogus and should be disallowed at 100%, or at least 25%. The assessee contended that all purchases were genuine and supported by documentary evidence, including stock registers and payment through account payee cheques. The Ld. CIT(A) restricted the disallowance to 5%, considering the profit element in such transactions. The Tribunal, after examining the facts and considering the overall circumstances, modified the order of the Ld. CIT(A) and restricted the addition to 6% of the disputed purchases for both AY 2008-09 and AY 2013-14, noting that the assessee had shown extremely low net profit.

Conclusion:
The Tribunal upheld the re-opening of the assessment, modified the disallowance of disputed purchases to 6%, and directed the AO to re-compute the disallowances accordingly. The appeal of the Revenue was partly allowed, and the appeal of the assessee for AY 2013-14 was dismissed.

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