ITO 17 (2)(1), MUMBAI vs. SHRI. JAVED JABIRALI MODI, MUMBAI

By way of this appeal, the Assessing Officer has challenged the correctness of the order dated 28th October 2019, passed by the learned CIT(A) in the matter of assessment u/s. 143(3) r.w.s 147 of the Income Tax Act, 1961 for the assessment year 2011-12.

Grievances raised by the Assessing Officer are as follows: "On the facts and circumstances of the case and in law, the Learned CIT(A) has erred in directing the Assessing Officer to restrict the addition of Rs. 12,72,340/- being 100% of bogus purchases of Rs. 12,72,340/- to the assessee without considering the fact that the aforesaid addition to the total income of the assessee was made by AO on the basis of information received from an authoritative external source i.e. Maharashtra Sales Tax Department through DGIT(lnv.), Mumbai and therefore, this case falls under exception (e)to para 10 of CBDT circular NO. 3/2018 dated 11.07.2018 read with amendment dated 20.08.2018 to para 10 of the said Circular."

In this case the Hon’ble High Court has confirmed the deletion of disallowance on account of alleged bogus purchase as necessary documentary evidence for the purchase were on record.

The special leave petition against this order has been dismissed by the Hon’ble Supreme Court in its decision dated. 04.05.2018 S.L.P. Civil Diary No.12670/2018.

Up on careful consideration, I find that assessee has provided the documentary evidence for the purchase. Adverse inference have been drawn due to the inability of the assessee to produce the suppliers. 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 rational 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 dt. 18.06.2014. In this case the Hon’ble 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 suppliers were 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 expenses of the exchequer. In such situation in my considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases meets the end of justice. However, in this regard Ld. counsel of the assesse has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed on account of bogus purchase.

I see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the coordinate bench order, I confirm action of the CIT(A) and decline to interfere in the matter.