ITO, 13(3)(1), MUMBAI vs. R.A. EXCELLENT CONFECTION PVT LTD, MUMBAI

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ITA 514/MUM/2019Status: DisposedITAT Mumbai07 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 justified, but purchases from the grey market warrant some disallowance.

What were the facts?

The Revenue appealed against the CIT(A)'s decision to reduce the addition for bogus purchases from 100% to 12.5%. The Assessing Officer had made a 100% addition based on information about purchases from bogus dealers.

What were the issues?

Whether 100% disallowance of bogus purchases is justified when sales are not doubted. The extent of disallowance for purchases made from the grey market.

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

Before: SHRI SHAMIM YAHYA, AM

For Appellant: Shri Somnath Wajale
Pronounced: 07.10.2020

O R D E R Per Shamim Yahya, A. M.:

These are appeals by the Revenue wherein the Revenue is aggrieved that the learned CIT-A has reduced the addition for bogus purchase done @ 100% by the Assessing Officer (A.O. for short) as under, by sustaining only 12.5%:

A.Y. 2010-11 1,30,594

A.Y. 2011-12 3,62,322

2.

The assessee in this case is engaged into the business of bakery products. The assessment was reopened upon information from the Sales Tax Department that the assessee has made purchases from bogus dealers. The A.O. made 100% addition of the bogus purchase. 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.

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 learned CIT- A.

6.

In the result, this appeal filed by the Revenue stands dismissed 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 07.10.2020

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