SHRI. GIRISH CHUNILAL SHAH,MUMBAI vs. ITO 19(1)93), MUMBAI

In this case the nature of assessee’s business has not been dealt with by revenue authority. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers. The AO made 25% addition of the bogus purchase as under : A.Y. 2011-12 Rs. 24,93,734/- A.Y. 2010-11 Rs. 28,91,980/-

Up on assessee's appeal learned CIT(A) has enhanced the same to 100%.

Against above order assessee is in appeal before the ITAT. I have heard Id Learned Departmental Representative and perused the record. I find that in this case the sales have not been doubted it is settled law that when sales are 2 Shri Girish Chunilal Shah not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Honourable Jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in Writ Petition no 2860, order dated 18.6.2014). In this case the Honourable High Court has held that hundred percent allowance for the purchases said to be bogus cannot be done, when sales are not doubted. Hence the decision of learned CIT(A) is in contravention of Hon'ble Jurisdictional High Court decision. However the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of nonpayment of tax and others at the expense of the exchequer. In such situation in my considered opinion this ratio of Hon'ble Bombay High Court in the case of M. Hazi Adam & Co. (ITA No. 1004 of 2006 dated 11.2.2019) needs to be followed and addition should be quantified in terms of the ratio laid down by Hon'ble High Court in the said decision. Accordingly, the issue is remitted to the file of the Assessing Officer to follow the directions as above.

In the result, appeals filed by the assessee stand allowed for statistical purposes.