What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to sustain only 6% disallowance on bogus purchases, considering that the sales were not doubted and purchases were made from the grey market.

The Assessing Officer made an addition for bogus purchases. The CIT(A) reduced the addition to 6% of the bogus purchase amount, relying on previous ITAT orders and the fact that the assessee's sales were not doubted.

What were the issues?

Whether a 100% disallowance of bogus purchases is justified when sales are not doubted, and if a partial disallowance is appropriate in cases of grey market purchases.

ITO vs Shri.Vipulkumar Ratanlal Bafna | ITAT Mumbai 2020

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SHAMIM YAHYA, AM Shri Vipulkumar Ratanlal Bafna

For Appellant: Shri Somnath Wajale

Hearing: 08.10.2020

PAN/GIR No. AIHPB 5085 D (Appellant) : (Respondent) Appellant by : Shri Somnath Wajale Respondent by : None Date of Hearing : 08.10.2020 : 08.10.2020 Date of Pronouncement O R D E R Per Shamim Yahya, A. M.:

This is an appeal by the Revenue wherein the Revenue is aggrieved that the learned Commissioner of Income Tax (Appeal)-51, Mumbai (‘CIT(A)’ for short) dated 28.01.2019 has reduced the addition for bogus purchase of Rs.20,75,174/- done @ 12.5% by the Assessing Officer (A.O. for short) by sustaining only 6%.

The assessee in this case is engaged into the business of trading in ferrous and non-ferrous metals under the name of M/s. Inox Steel (India) as proprietor. The assessment was reopened upon information from the Sales Tax Department that the assessee has made purchases from bogus dealers. The A.O. made 12.5% addition of the bogus purchase of Rs.1,66,01,395/-.

ITO vs. Shri Vipulkumar Ratanlal Bafna 3. Upon the assessee’s appeal, the ld. CIT(A) has noted that the sales has not been doubted. Accordingly, placing reliance upon ITAT order in assessee’s own case for A.Ys.2009-10 and 2010-11, he sustained 6% disallowance out of the bogus purchases.

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

None appeared for and on behalf of the assessee despite notice sent. Hence, I proceed to adjudicate the issue by hearing the ld. Departmental Representative and perusing the records. 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 Hon'ble 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 Hon’ble 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 my considered opinion, on the facts and circumstances of the case the 6% disallowance out of the bogus purchases done by the learned CIT-A following the ITAT order for earlier years in assessee’s own case is not be interfered with. Accordingly, I uphold the order of ld. CIT(A).

In the result, this appeal filed by the Revenue stands dismissed.

ITO vs. Shri Vipulkumar Ratanlal Bafna 7. Before parting, I may add that if the assessee has filed a cross appeal or cross objection and the same has remained unheard, either party may apply for recall of this order so that the appeals can be heard together.

Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board on 08.10.2020.

ITO 18(3)(5), MUMBAI vs. SHRI.VIPULKUMAR RATANLAL BAFNA, MUMBAI

What did the Tribunal hold?

What were the facts?

What were the issues?

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