AVIDITYA CHEMICALS & PHARMACEUTICALS,AMBERNATH vs. ITO WD 2 (1), KALYAN

Brief facts of the case are that assessee is engaged in the business of pharmaceutical and chemicals business. Information was received from the sales tax Department that assessee has that in bogus purchases. The assessment was accordingly reopened. The assessing officer in this case has made 100% addition on account of bogus purchase amounting to Rs. 3,55,680/-.

Upon assessee’s appeal Id CIT(A) confirmed the same.

Against above order assessee 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 inferences have been drawn due to the inability of the assessee to produce the suppliers. We note the Assessing Officer has not even issued notice to the suppliers. Thus there is no independent inquiry by the Assessing Officer. 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 our 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 we note that the assessee in grounds of appeal 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.

In the result this appeal filed by the assessee stands partly allowed.