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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This is an appeal by the revenue wherein the revenue is aggrieved that the learned CIT-A has reduced the addition for bogus purchase of Rs. 8,30,682/- done @ 100% by AO by sustaining only 12.5 % for the AY 2012-13 vide order dated 6.12.2019.
The assessee in this case is engaged into steel trading. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers, the AO made 100% addition of the bogus purchase of Rs. 8,30,682/-.
Up on assessee's appeal learned CIT-A has noted that the sale has not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 12.5 % disallowance out of the bogus purchases. Learned CIT(A) has concluded as under :-
2 M/s. U.B. Steels
6.10 I, therefore, find that in the case of the appellant as well, the ratio of the above said decision would largely apply, in as much as the fact that here also it would be a question of a reasoned estimate of the profit element embedded in the transaction. This is also based on sound logic and judicial propriety that the embedded profit element of the transaction would be a correct approach to take, since, the rival contentions are resolved in the fine balance of convenience. This is more so because the stand of the AO in taxing the entire amount of transaction would be a classic case of executive overreach.
6.11 I have also duly considered the arguments of the AR and whereas, I find that the Ld.AR may be justified in opposing the 100% addition yet there is no plausible case that even the embedded profit element should not be taken for taxation. Therefore, at least, the reasonable embedded profit element in the transaction on the bogus purchase must be retained.
6.12 Further, it would be very much germane to note that in various decisions, the Hon'ble ITAT, Mumbai has held that in such cases which are essentially of trading, estimation of 12.5% profit as having been embedded in the bogus purchase transaction was held to be a fair and just outcome. Some of these decisions are quoted below:- a) Meru Impex Ex in ITA No.2660/Mum./2017. b) MP Recycling Co. in ITA No.6358/Mum./2016. c) Y.A. Mamaji Furnishing & Co. in ITA's 4756, 4757 & 4758/Mum./2014 d) Manish M Shah in ITA 2975/ Mum/2015.
6.13 Therefore, in the ultimate analysis, the addition made @ 100% of the bogus purchases is restricted to 12.5% and therefore, the stipulation of the grounds of appeal on this issue of addition on merits is PARTLY ALLOWED.
Against above order revenue is in appeal before the ITAT.
I have heard 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 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. However the facts of the present case indicate that assessee has made purchase from the grey market. Making
3 M/s. U.B. Steels 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 our considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly I uphold the order of learned CIT(A).
The decision N.K. Proteins Ltd. (250 ITR 22) relied by the revenue was a dismissal of SLP by the Hon'ble supreme court and has already been explained and distinguished by Hon'ble Bombay high court in the case of M. Hazi Adam & Co. (ITA No. 1004 of 2006 dated 11.2.2019)
In the result this appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 06.04.2022.