ITO 22 (1)(4), MUMBAI vs. JIGNESH H. RUPARELIA, MUMBAI

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ITA 2278/MUM/2019Status: DisposedITAT Mumbai14 October 2020AY 2010-113 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, 100% disallowance is not permissible, and 12.5% disallowance meets the ends of justice in cases of grey market purchases.

What were the facts?

The revenue appealed against the CIT(A)'s reduction of additions for bogus purchases. The Assessing Officer had made additions at 35% and 25% for two assessment years, while the CIT(A) sustained only 12.5%.

What were the issues?

The primary issue was the extent of disallowance for purchases from bogus dealers when the assessee's sales were not doubted. The secondary issue involved the appropriateness of a 12.5% disallowance on such purchases.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

For Respondent: Shri Kailash Gaikwad
Hearing: 13.10.2020Pronounced: 14.10.2020

Heard together (2 matters)

I.T.A. No. 2278/Mum/2019
I.T.A. No. 2277/Mum/2019

Read from the judgment's own cause title. This page is filed under one of them.

These are appeals 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 done @ 35% for A.Y. 2010-11 & 25% for A.Y. 2011-12 by Assessing Officer by sustaining only 12.5%.

2.

The assessee is a proprietor of M/s. Varsha Lables, which is engaged in the business of sticker manufacturing. The assessment was reopened upon information from sales tax department that assessee has made purchases of Rs. 2,57,056/- for A.Y. 2010-11 & Rs. 21,28,774 for A.Y. 2011-12 from bogus dealers. The Assessing Officer made 35% addition of the bogus purchase amounting to Rs. 89,970/- for A.Y. 2011-12 and @ 25% for Rs. 4,25,754/- for A.Y. 2010-11.

3.

Against above order revenue is in appeals before the ITAT. None appeared on behalf of the assessee during the course of virtual hearing. I find

2 Shri Jignesh H. Ruparelia 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.

4.

In the result these appeals filed by the revenue stand dismissed.

5.

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 on 14.10.2020.

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