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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: SHRI SHAMIM YAHYA, AM
O R D E R PER SHAMIM YAHYA, AM: These are appeals by the assessee wherein the assessee is aggrieved that the Ld. CIT(A) erred in sustaining only 12.5% disallowance on account of bogus purchases pertaining to A.Ys.2009- 10 & 2010-11. The assessee in this case is engaged into business of ferrous and 2. non-ferrous metals. 3. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers.
ITA. NOs.5512 & 5513/M/2018 A.Y.2010-11 & 2009-10 4. The AO in this case has made 12.5% addition on account of bogus purchase amounting to Rs.17,56,536/- for the A.Y.2010-11 and Rs.4,25,208/- for the A.Y.2009-10. The AO made the addition on the basis of sales tax information. He did not make any enquiry from the alleged bogus supplies.
Up on assessee’s appeal Ld. CIT(A) has noted that the sales has not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 12.5% disallowance out of the bogus purchases by giving credit to the assessee for profit already declared.
Against above order assessee is in appeal before the ITAT. I have heard Ld. DR and perused 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 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 & 5513/M/2018 A.Y.2010-11 & 2009-10 exchequer. However, I note that no enquiry whatsoever with the alleged bogus supplies has been done by the AO. He has not even given notice u/s 133(6) of the Act to the alleged bogus suppliers. In such situation in my considered opinion on the facts and circumstances of the case the 2% disallowance out of the bogus purchases meets the end of justice. Accordingly, I uphold the order of Ld. CIT(A). Accordingly, I direct that disallowance be restricted to 2% of the bogus purchases.
In the result, this appeal filed by the assessee stand partly allowed.