Tribunal Validates Assessment Reopening, Reduces Disallowance

The Tribunal upheld the validity of the assessment reopening under Section 147/148 based on credible information from the investigation wing, dismissing the assessee's challenge. Regarding alleged bogus purchases, the Tribunal reduced the disallowance to 6% of the disputed purchases, partially allowing the assessee's appeal. The revenue's appeal was dismissed as the grounds became moot.

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Issues Involved:
1. Validity of the reopening of assessment under Section 147/148.
2. Addition on account of alleged bogus purchases.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147/148:

The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) relied on third-party information without conducting any preliminary investigation. The information received from the DGIT (Investigation) Mumbai indicated that Bhanwarlal Jain Group was providing bogus accommodation entries, and the assessee was one of the beneficiaries. The assessee argued that the information was vague and lacked a live link between the reasons recorded and the assessee. The AO had issued a notice under Section 148 based on this information, and the assessee's objections to the reopening were rejected by the AO in a detailed order.

The Tribunal found that the AO had validly assumed jurisdiction for reopening the assessment based on credible information from the investigation wing. The Hon'ble Jurisdictional High Court in cases such as *Peass Industrial Engineers (P) Ltd Vs DCIT* and *Pushpak Bullion (P) Ltd Vs DCIT* supported the AO's action, stating that receiving information from the investigation wing about bogus entries justified reopening the assessment. Consequently, the Tribunal dismissed the assessee's ground challenging the validity of the reopening.

2. Addition on Account of Alleged Bogus Purchases:

The AO made additions based on the information from the investigation wing, which indicated that the assessee had shown bogus purchases from entities managed by Bhanwarlal Jain Group. The AO relied solely on this information without providing the assessee with the investigation report or the statement of Bhanwarlal Jain. The assessee provided detailed evidence, including purchase invoices, stock registers, and sales registers, to prove the genuineness of the purchases. The AO did not reject the books of accounts or the documentary evidence provided by the assessee.

The CIT(A) observed that the AO did not examine the evidence furnished by the assessee and solely relied on the investigation report. The CIT(A) noted that the sales were accepted as genuine, and if the purchases were treated as bogus, it would result in negative stock. Referring to judicial precedents, the CIT(A) restricted the addition to 12.5% of the disputed purchases, considering the low gross profit (GP) rate shown by the assessee.

The Tribunal, after considering the submissions and evidence, found that the disallowance of 12.5% was on the higher side. The profit margin in the industry was typically between 5% to 7%. The Tribunal noted that in similar cases involving purchases from Bhanwarlal Jain Group, the disallowance was restricted to a lower percentage. Therefore, the Tribunal restricted the disallowance to 6% of the disputed purchases, partly allowing the assessee's appeal.

Conclusion:

The appeal of the assessee was partly allowed, restricting the disallowance to 6% of the disputed purchases. The appeal of the revenue was dismissed as the grounds raised became infructuous due to the Tribunal's decision on the assessee's appeal. The order was pronounced on 28/03/2022.

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