ASSISTANT COMMISSIONER OF INCOME TAX-6(3)(2), MUMBAI vs. KARGWAL CONSTRUCTION PVT LTD., MUMBAI

The assessee in this case is engaged in the business of job work and civil contractor. The assessment was reopened upon information from Sales Tax Department that assessee has made purchases from bogus dealers. The Assessing Officer in this case has made hundred percent addition on account of bogus purchase amounting to `21,41,657/-. Except for reproducing assessee’s reply in the assessment order the AO did not do anything. He simply wrote that the assessee’s replies are not acceptable.

Up on assessee’s appeal learned CIT(A) has noted that the sales has not been doubted. He also noted that the assessee has furnished all the important documents in support of purchase. Accordingly, placing reliance

We have heard both the counsels and perused the records. 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 18.06.2014). 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 12.5% 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).

The decision of the Hon'ble Supreme Court in the case N.K. Proteins Ltd. dated 16.01.2017 referred by Revenue in grounds of appeal has already been distinguished by Hon'ble Bombay High Court in the case of M. Haji Adam & Co. in of 20016 dated 11.02.2019.

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