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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
These are appeals by the assessee wherein the assessee is aggrieved that the learned Commissioner of Income Tax (Appeals )[ in short CIT(A)] has erred in sustaining the gross profit addition on account of bogus purchases, vide his common order dated 20.2.2019 pertaining to the concerned assessment year.
Brief facts of the case are that pursuant to information from the investigation wing that assessee has engaged into bogus purchases as under :- Assessment year Amount Rs.
2010-11 45,24,212/- 2011-12 1,22,66,192/- 3012-13 1,43,68,744/- 2013-14 1,39,93,722/- The assessing officer made disallowance to the extent of gross profit as he noted that sales are not doubted. The addition made by the AO are as under :-
Assessment year Amount Rs.
2010-11 1,48,863/- @ 3.29% 2011-12 4,22,317/- @ 3.50% 3012-13 3,14,675/- @ 2.19% 2013-14 4,82,783/- @ 3.45%
Upon assessee’s appeal learned CIT(A) confirmed the same.
Against above order assessee is in appeal before the ITAT. I have heard learned Departmental Representative and perused the records.
Upon careful consideration I 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. 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 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.
Moreover, in the present case AO has not made any independent enquiry from the said bogus suppliers. He has not even issued any notice to them for making any enquiry whatsoever. Despite the quantum of bogus purchases being so huge, he has not bothered to make any enquiry for purchases nor he has done any examination of sales. It is not the case that any order under section 263 has been passed by learned CIT.
As held by Hon'ble Bombay High Court in the case Commissioner of income tax versus M. Haji Adam & Co. (ITA No. 1004 of 2006 dated 11.2.2019 in paragraph 8 thereof), the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. Hence, the addition gross profit itself, which is done by learned CIT(A) is not justified and that also without any independent inquiry. Accordingly, I set aside the order of authorities below and delete the addition.
In the result, assessee’s appeals are allowed.
Order pronounced under Rule 34(4) of the ITAT Rules on 08.10.2020.