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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This is an appeal by the assessee wherein the assessee is aggrieved that the learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] has erred in sustaining 100% disallowance on account of bogus purchase vide order dated 13.3.2019 pertaining to assessment years 2011-12.
Brief facts of the case are that assessee in this case is engaged in the business of trading and manufacturing of readymade garments. The Assessment in this case was reopened upon receipt of information from the sales tax Department that assessee has made bogus purchases of Rs. 25,07,571/-. The assessee submitted the purchase vouchers and the payments were made through banking channel. However the suppliers were not produced before the Assessing Officer. Sales in this case were not doubted. Neither any observation of any anomaly is there in the production or consumption ratios.
The Income Tax Officer in this case has made 100% addition on account of bogus purchase resulting in disallowance of Rs. 25,07,571/-. The Assessing Officer did not even issued notice to the said suppliers.
2 Mrs. Kinnari S. Shah
Upon assessees appeals learned CIT(A) confirmed the same.
Against the above order assessee is in appeals before the ITAT. I have heard learned Departmental Representative and perused the records.
Upon careful consideration I find that assessee has provided the documentary evidence for the purchase. Adverse inferences have been drawn due to the inability of the assessee to produce the suppliers. I find that in this case the sales have not been doubted nor any adverse observation is there in other aspects of working. 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 in that case all the supplies were to government agency.
In the present case the facts of the 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. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, I find that 12.5% disallowance serve the interest of justice. I direct accordingly.
In the result assessee's appeals are partly allowed.
Order pronounced under Rule 34(4) of the ITAT Rules by placing the result on notice board on 03.12.2020.