ITI-22(1)(2), MUMBAI vs. DEVANG PRAVIN TALSANIA, MUMBAI
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 permissible, and 12.5% strikes a balance given the grey market purchases.
What were the facts?
The revenue appealed against the CIT(A)'s reduction of addition for bogus purchases from 14.06% to 12.5%. The Assessing Officer had made the addition based on information from the sales tax department regarding purchases from bogus dealers.
What were the issues?
The primary issue was the extent of disallowance for bogus purchases when the corresponding sales were not doubted. The secondary issue involved the justification for sustaining a partial disallowance.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This is an appeal by the revenue wherein the revenue is aggrieved that the learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] has reduced the addition for bogus purchase of Rs. 22,892/- done @ 14.06% by Assessing Officer by sustaining only 12.5% for the A.Y.2011-12 vide order dated 11.3.2019.
The assessee in this case is engaged into business of trading of fabric and job work. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers, the Assessing Officer made 14.06% addition of the bogus purchase resulting in disallowance of Rs. 22,892/-.
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 Devang Pravin Talsania
Against above order revenue is in appeal before the ITAT. I have heard learned Departmental Representative and perused the record. 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 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 I uphold the order of learned CIT(A).
In the result this appeal filed by the revenue stands dismissed.
Before parting I may add that if the assessee has filed a cross appeal or cross objection and the same has remained unheard, either party may apply for recall of this order so that the appeals can be heard together.
Order pronounced under Rule 34(4) of the ITAT Rules by placing the result on notice board on 09.12.2020.
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