ACIT 21 (1), MUMBAI vs. DINESH PANDURANG KUDAV, MUMBAI

The assessee in this case is engaged into the business of manufacturing of bulk drug intermediates and chemicals. 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 as under:-

Upon assessee's appeal learned CIT-A has noted that the sales has not been doubted. Accordingly placing reliance upon several case laws and up on 2 Dinesh Pandurang Kudav the facts of the case he sustained 25% disallowance out of the bogus purchases.

Against above order revenue is in appeal before the ITAT. We have heard both the parties and perused the records. We find that in this case the sales have not been doubted nor any defect has been pointed out consumption ratio. 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 dt 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 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 25% disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly, we uphold the order of learned CIT-A.

In the result, these appeals filed by the Revenue stand dismissed.