ITO 26 (1)(4), MUMBAI vs. JAVED KHAN, MUMBAI

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ITA 7033/MUM/2018Status: DisposedITAT Mumbai20 April 2020AY 2010-112 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to sustain a 9% disallowance on bogus purchases. It reasoned that when sales are not doubted, 100% disallowance is not justified, but purchases from the grey market warrant some disallowance to meet the ends of justice.

What were the facts?

The Revenue appealed against the CIT(A)'s decision to reduce the disallowance for bogus purchases from 12.5% to 9%. The assessee was engaged in trading M.S. and SS materials, and the assessment was reopened based on information about purchases from bogus dealers.

What were the issues?

The primary issue was the extent of disallowance for bogus purchases when the assessee's sales were not doubted. The secondary issue concerned the justification for disallowing a portion of purchases made through the grey market.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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  • 250 ITR 22
    250 ITR 22
    36 citing

Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

Before: Shri Shamim Yahya (AM)

For Respondent: Shri Chaitanya Anjaria
Hearing: 17.2.2020Pronounced: 20.4.2020

O R D E R This is an appeal by the revenue wherein the revenue is aggrieved that the learned CIT-A has deleted part of the addition for bogus purchase by sustaining only 9% disallowance on account of bogus purchases, vide order dated 29.6.2018 pertaining to A.Y. 2010-11.

2.

The assessee in this case is engaged into trading M.S. and SS materials. 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 12.5% addition on account of bogus purchase amounting to Rs. 10,72,031/-.

3.

Upon assessee's appeal learned CIT-A has noted that the sales have not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 9% disallowance out of the bogus purchases.

4.

Against above order revenue is in appeal before the ITAT. I have heard learned Departmental Representative and perused the records. I find that in 2 Shri Javed Khan 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 Hon 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 9% disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly I uphold the order of learned CIT-A.

5.

The decision of N. K. Proteins Ltd. (250 ITR 22) 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. (ITA no 1004 of 20016 dt. 11/2/2019).

6.

In the result this appeal filed by the revenue stands dismissed. Order has been pronounced in the Court on 20.4.2020.

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