ITO 21(1)(4), MUMBAI vs. M/S HIDE IN, MUMBAI

This is an appeal by the revenue wherein the revenue is aggrieved that Learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] has reduced the addition for bogus purchase by Rs. 7,39,938/- done at the rate of 25% by the Assessing Officer by sustaining only 12.5%.

The assessee in this case is engaged into trading in leather goods and gift articles. The assessment was reopened upon information from sales tax department that assessee has made Rs. 17,37,660/- purchases from bogus dealers. The AO made 25% addition of the bogus purchase resulting in disallowance of Rs. 957,146/-.

Upon assessee's appeal learned CIT-A has noted that the sale 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, then sustaining only Rs. 739,938/- as disallowance.

Against above order revenue is in appeal before the ITAT. We have heard both the counsel 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 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 exchequer. In such situation in our 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 we uphold the order of learned CIT-A.

In the result, appeal filed by the revenue stands dismissed. Order pronounced under Rule 34(4) of the ITAT Rules on 21.10.2020.