ITO 26 (2)(3), MUMBAI vs. MOTILAL BALDEV LODHI, MUMBAI

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ITA 7042/MUM/2018Status: DisposedITAT Mumbai20 April 2020AY 2010-113 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 only 12.5% disallowance on bogus purchases. It reasoned that when sales are not doubted, 100% disallowance is not justified, and 12.5% meets the ends of justice given grey market purchases.

What were the facts?

The Revenue appealed against the CIT(A)'s order which reduced the addition for bogus purchases from 25% to 12.5%. The assessee, dealing in metals, was found to have made purchases from bogus dealers.

What were the issues?

Whether 100% disallowance of purchases is justified when sales are not doubted, and what is the appropriate disallowance percentage for purchases from grey market dealers.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

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 Appellant: Shri Ravi Sawada
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 12.5% 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 business of ferrous and non- ferrous metal. 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 25% addition on account of bogus purchase amounting to Rs. 13,74,001/-.

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 12.5% disallowance out of the bogus purchases.

2 Shri Motilal Baldev Lodhi

4.

Against above order revenue is in appeal before the ITAT. I have heard both the counsel 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 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 12.5% 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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