ACIT 22 (1), MUMBAI vs. CYPRIAN ANTHONY MASCARENHAS, MUMBAI

Brief facts are that in this case, return of income was filed on 26.09.2009 declaring total income at Rs. 19,81,553/-. The case was re-opened u/s.147 of the Act on the basis of information received from Sales Tax Department Maharashtra that assessee has taken bogus purchases bills without any physical delivery of goods from M/s. Pragati Enterprises, J.C. Trading Co. and Kaushal Corporation. During the course of assessment proceedings, the AO found that the assessee has purchase goods of Rs. 3,90,222/- from the above mentioned parties. The Assessee filed copy of ledgers and Bank statement showing payments to the alleged bogus parties. According to the AO, the submission of the assessee is considered. However, only the fact that invoices were raised and payment was made by banking channels does not prove beyond doubt that the purchases are genuine in 2 Cyprian Anthony Mascarenhas nature. The Assess has not been able to prove that direct correlation between the purchases made and corresponding sales. The onus of proving the genuineness of the purchase lies on the assessee as per the ruling of the Hon'ble High Court in the case of CIT vs. Korlay Trading Co. Ltd. reported in 232 ITR 820 where it was held that the initial burden is on the assessee to prove the genuineness of the purchases.

The AO had also relied on the decision in the case of M/s Kachwala Gems vs. JCIT wherein it has been held by the Hon'ble Supreme Court that the even payment made by account payee cheque is not sufficient to establish the genuineness of purchases. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Calcutta Agency Ltd., (19 ITR 191) wherein it was held that the onus of proving necessary facts in order to avail the deduction u/s 37(1) is on the assessee and if the assessee fails to establish the facts necessary to support his claim for deduction u/s. 37(1), the claim for deduction of expenditure is not admissible. Thus, the onus lies on the assessee to prove the genuineness of the purchases claimed by him. Merely stating that the bills have been issued and payments have been made by A/c. payee cheque does not automatically entail into the transaction being recognized as a genuine one. Reliance is also placed on the decision of the Hon'ble Andhra Paradesh High Court in the case of CIT vs. Transport Corporation of India Ltd., 256 ITR 701 and on the decision in the case of CIT vs. Imperial Chemical Industries (I) Pvt. Ltd., 74 ITR 17. The assessee has not produced copy of invoices, stock register, transport proof etc. the notice under section 133(6) of the Act sent to the above parties have returned with no reply. Further the assessee has not been able to produce the parties. In view of the above facts, an amount of Rs. 3,90,222/- corresponding to the non-genuine purchases was added to the income of the assessee.

Upon assessee’s appeal learned CIT(A) restricted the disallowance to 25%.

Against the above order Revenue is in appeal before the ITAT.

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. In such situation in my considered opinion on the facts and circumstances of the case the 25% disallowance out of the bogus purchases meets the end of justice. Hence we uphold the order of learned CIT(A). The decision of N.K. Proteins Ltd.(250 ITR 22) referred by the Revenue in the grounds of appeal has already been distinguished and explained 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.