ITO 28 (1)(5), MUMBAI vs. M/S HEAT-GEN-SERVICES, MUMBAI

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ITA 2157/MUM/2019Status: DisposedITAT Mumbai08 October 2020AY 2009-103 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

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, a 100% disallowance is not justified, and 12.5% is reasonable given the purchases were made through the grey market.

What were the facts?

The Revenue appealed against the CIT(A)'s decision to reduce a 100% addition for bogus purchases 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?

Whether 100% disallowance of purchases is justified when sales are not doubted, and what is a reasonable disallowance percentage for grey market purchases.

Which sections of the Income-tax Act were involved?

Not explicitly mentioned, but relates to disallowance of expenses and additions for undisclosed income.

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SHAMIM YAHYA, AM

For Appellant: Shri Somnath Wajale
Hearing: 08.10.2020Pronounced: 08.10.2020

PAN/GIR No. AACFH 4015 J (Appellant) : (Respondent) Appellant by : Shri Somnath Wajale : None Respondent by Date of Hearing : 08.10.2020 Date of Pronouncement : 08.10.2020 O R D E R Per Shamim Yahya, A. M.:

This is an appeal by the Revenue wherein the Revenue is aggrieved that the learned CIT-A has reduced the addition for bogus purchase of Rs.18,50,963/- done @ 100% by the Assessing Officer (A.O. for short) by sustaining only 12.5%.

2.

The assessee in this case is engaged into the business/manufacturing of all types of Industrial Furnaces and Laboratory equipments. The assessment was reopened upon information from the Sales Tax Department that the assessee has made purchases of Rs.18,50,963/- from bogus dealers. The A.O. made 100% addition of the bogus purchase.

3.

Upon the assessee’s appeal, the ld. CIT(A) has noted that the sales has not been doubted. Accordingly, placing reliance upon the several case laws and upon the facts of the case, he sustained 12.5% disallowance out of the bogus purchases.

ITO vs. M/s. Heat Gen Services 4. Against above order, the Revenue is in appeal before the ITAT.

5.

None appeared for and on behalf of the assessee despite notice sent. Hence, I proceed to adjudicate the issue by hearing the ld. Departmental Representative and perusing the records. 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 Nikunj Eximp Enterprises (in writ petition no 2860, order dt 18.6.2014). 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 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 ld. CIT(A).

6.

The decision of N. K. Proteins relied by the Revenue was a dismissal of SLP by the Hon'ble Supreme Court and has already been explained and distinguished by the Hon'ble Bombay High Court in the case of M Haji Adam& co of 20016 dt 11/2/2019.

7.

In the result, this appeal filed by the Revenue stands dismissed.

ITO vs. M/s. Heat Gen Services 8. 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 Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board on 08.10.2020.

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