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Income Tax Appellate Tribunal, “SMC” Bench, 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 of Rs. 2,49,783/- done @ 100% by Assessing Officer by sustaining only 12.5% and thus restricting the disallowance to Rs. 31,223/-.
The assessee in this case is engaged into manufacturing of chemical. The assessment was reopened upon information from sales tax department that assessee has made Rs. 2,49,783/- purchases from bogus dealers. The Assessing Officer made 100% addition of the bogus purchases.
Upon the assessee’s appeal learned CIT(A) has noted that the sales have not been 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, by concluding as under :-
2 M/s. Fourint Chemical Industries
“From the facts available on records, it is observed that in the present case also the Ld. AO has neither disbelieved the purchases to the extent of impugned sum of Rs. 2,49,783/-, nor the corresponding sales made. The Ld. AO has held that the impugned purchases were not made from above referred dealers/parties but from somewhere else/open market. The facts and circumstances of the present case are similar to that of facts adjudicated by the Hon'ble Gujarat High Court and Hon'ble ITAT in above referred cases. Hence, respectfully following the same it is held that 12.5% of impugned bogus purchases will be sufficient to cover the profit element on such bogus purchases. In view of above discussion the addition on account of bogus purchases is restricted to 12.5%. Hence the addition of Rs. 31,223/-[being 12.5% of Rs. 2,49,783/- is UPHELD and the balance addition of Rs.2,18,560/- (Rs. 2,49,783 - Rs. 31,223) is DELETED. Accordingly, the Ground No. l raised in appeal is PARTLY ALLOWED.”
Against above order revenue is in appeal before the ITAT. I have heard learned Departmental Representative and perused the records. I find that in this case the sales and other working 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 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.
The decision of N.K. Proteins Ltd. (250 ITR 22) relied by the revenue was a dismissal of SLP by the Hon'ble supreme court and has already been explained and distinguished by Hon'ble Bombay high court in the case of M. Hazi Adam & Co. (ITA No. 1004 of 2006 dated 11.2.2019).
3 M/s. Fourint Chemical Industries
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 27.10.2020.