ITO - 22(3)(6), MUMBAI vs. SHI ROHIT CHANDULAL VORA, MUMBAI

By way of this appeal, the Assessing Officer has challenged the correctness of the order 13th August 2020, passed by the learned CIT(A) in the matter of assessment u/s. 143(3) r.w.s.147 of the Income Tax Act, 1961 for the assessment year 2011-12.

Grievances raised by the Assessing Officer are as follows: a) Whether on the facts and circumstances of the case and in law, the Ld CIT(A) is right in restricting addition made by the A.0 amounting to Rs.2,21,168/- is 25% of total bogus purchase of Rs. 8, 84,672/-, ignoring the fact that the action of the Assessing Officer was based on credible information received from the Director General of Income Tax (Investigation), Mumbai received from the Maharashtra Sales tax and that the assessee, during the course of assessment proceedings, failed to prove the genuineness of the purchase transactions? (b Whether on the facts and circumstances of the case and in law, the CIT(A) is right in estimating addition on account of bogus purchase to 25% of such purchases as against the estimation by the AO of 100% of bogus purchases without appreciating that the assessee had failed to establish the genuineness of the alleged parties from whom purchases is claimed to have been made during the year?

To adjudicate on this appeal it is sufficient to take note of the fact that in this case the addition was made on the basis of inputs from the investigation wing to the effect that the assessee has taken certain bogus purchase bills aggregating to Rs. 8,84,672/-. When the matter travelled in appeal before the learned CIT(A) upheld the addition only to the extent of 25% by observing inter alia as follows:- 6.1 However, considering the totality of facts and circumstances of the issue involved, in my considered opinion, the AO is not justified in making disallowance of 100% of purchase as the enquiries did not prove that the appellant has not purchased any material from any grey market. By purchasing material from some other party and taking bill from the party under consideration, the assessee definitely has taken some benefits and only that profit element needs to be added. I am of the view that 25% of disallowance out of purchase of Rs. 8,84,672/- will meet the ends of the justice. Therefore, disallowance @25% of purchase of Rs. 8,84,672/- = Rs. 2,21,168/- is hereby sustained and balance disallowance being 75% of Rs. 8,84,672/- = Rs. 6,63,504/- is hereby deleted. The ground of appeal

In support of his case Ld. counsel of the assessee has placed reliance upon the decision of Hon’ble Gujarat High Court in the case of Pr. CIT Vs. T.R. Kapadia in Tax Appeal No.691 of 2017.

In this case the Hon’ble High Court has confirmed the deletion of disallowance on account of alleged bogus purchase as necessary documentary evidence for the purchase were on record. 6. The special leave petition against this order has been dismissed by the Hon’ble Supreme Court in its decision dated. 04.05.2018 S.L.P. Civil Diary No.12670/2018. 7. Up on careful consideration, I find that assessee has provided the documentary evidence for the purchase. Adverse inference have been drawn due to the inability of the assessee to produce the suppliers. I find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rational being no sales is possible without actual purchases. This proposition is supported from Hon’ble Jurisdictional High Court decision in the case of Nikunj eximp enterprises (in writ petition no. 2860, order dt. 18.06.2014. In this case the Hon’ble High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However, in that case all the suppliers were government agency. In the present case the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. In such situation in my considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases meets the end of justice. However, in this regard Ld. counsel of the assesse has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed on account of bogus purchase. 7. I, therefore, see no merit is Assessing Officer’s grievance that the CIT(A) erred in upholding the addition to the extent of 25%. The findings of the CIT(A) do not call for any interference at the instance of the Assessing Officer. The plea is rejected.