DCIT, CIRCLE - 6 (1)(2), MUMBAI vs. AXIS AD PRINT MEDIA (I) LTD., MUMBAI

Grounds of appeal

Upon assessee’s appeal learned CIT(A) restricted the disallowance to 6% holding as under : “I have considered the assessment order and the submissions of the appellant including the case laws cited. The AO held in the assessment order that the appellant produced the details with regard to purchases made. Assessee filed copies of ledger account of parties, purchase bills, copies of bank statement showing the each and every payment for purchases. It is noticed that on account of non-production of suppliers and brokers, transportation bills etc. the AO added 100% of the amount as non genuine purchases. It is seen that many Benches of ITAT and Hon'ble High Courts have held that when purchases are supported by sufficient documentary evidences, then merely because of non-appearance before the AO, one cannot conclude that the purchases were not made by the assessee. Further, this is also not case in which the signed blank cheque books are found with the buyer to hold that the purchases of material were not at all made but was entered in the stock to inflate the raw material. Therefore the decision of the 3 M/s. Axis Ad Print Media (I) Ltd.

Thereafter learned CIT(A) placed reliance upon several case laws including ITAT decision in assessee’s own case as under :- “Keeping in view the totality of facts and circumstances of the case and respectfully following the decision of Hon'ble ITAT, Mumbai in appellant's case for AY 2010-11, the addition is restricted to 6% of bogus purchases. Accordingly, 6% of bogus purchases of Rs.63,88,026 coining to Rs.3,83,282 is sustained. The AO is directed to modify the addition accordingly. The appellant gets part relief.”

Against the above order Revenue is in appeal before us.

We have heard learned Departmental Representative and perused the records. Upon careful consideration we find that assessee has provided the documentary evidence for the purchase. Adverse inference has been drawn due to the inability of the assessee to produce the suppliers. We 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 upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However in that case all the supplies were to 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 expense of the exchequer. As noted by learned CIT(A) ITAT in assessee’s own case for earlier year has restricted the disallowance to 6%, hence following the precedent we uphold the order of learned CIT(A).

In the result this appeal filed by the Revenue stands dismissed.