ITO 19 (1)(3), MUMBAI vs. GANPATRAJ NEMAL JAIN, MUMBAI

This is an appeal by the Revenue wherein the Revenue is aggrieved that the learned Commissioner of Income Tax [Appeals (in short ‘the CIT(A)’] has reduced the addition for bogus purchases of

Nature of business of assessee in this case is not dealt with in the Assessing Officer’s order. The assessment was reopened upon information from Sales Tax Department that assessee has made purchases from bogus dealers. The Assessing Officer made 25% addition of the bogus purchases. Upon assessee’s appeal learned CIT(A) has noted that the sale has not doubted. Accordingly, placing reliance upon several case laws and upon the facts of the case, he sustained 12.5% disallowance out of the bogus purchases.

I have heard the 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 Hon’ble Jurisdictional High court decision in the case of Nickunj Eximp Enterprises (P.) Ltd. vs. ACIT [2014] 48 taxmann.com 20 (Bombay) in writ petition no. 2860 of 2012 vide order dated 18.06.2014. In this case the Hon'ble 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 purchases from the grey market. Making