ITO WARD-3(1), MUMBAI vs. M SADASHIV & CO, MUMBAI

Brief facts of the case are that assessment was reopened pursuant to information from Sales tax Department that the assessee has engaged into bogus purchases. The assessee is engaged into manufacturing industry- Engineering goods. The assessee has submitted purchases vouchers and the payments were made through bank. However, drawing adverse inference for absence of transport and octori bills and non production of the parties to make 100% addition.

Upon assessee’s appeal Ld.CIT(A) has concluded as under:-

Against the above order, revenue is in appeal before the ITAT. We have heard both the parties and perused the record.

I find that in this case, the sales and other aspects of working have not been doubted it is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale 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 dated 18.06.2014). In this case, the Hon’ble High Court has upheld 100% disallowance for the purchases said to be bogus, when sales are not doubted. 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 non-payment 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 Ld.CIT(A) meets the end of justice. Accordingly, we uphold the order of Ld.CIT(A).

The decision of N.K.Protiens 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 Mohammad Hazi Adam & Co in of 2006, dated 11.02.2019.

In the result, this appeal filed by the revenue stands dismissed.