ITO, 19(3)(2), MUMBAI vs. SAMARTHMAL D SANGHVI HUF, MUMBAI

The assessee in this case is engaged into trading of auto parts. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers, the AO made 100% addition of the bogus purchase.

Upon assessee's appeal learned CIT-A has noted that the sales has not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 12.5 % disallowance out of the bogus purchases.

Against above order revenue is in appeal before the ITAT. I have heard Id Dr 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 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.

The decision of N.K. Proteins Ltd. (250 ITR 22)relied by the revenue was a dismissal of SLP by Hon'ble Supreme Court and has already been explained and distinguished by honbl Bombay high court in the case of M. Haji Adam & Co. (ITA No. 1004 of 2006 dated 11.2.2019).

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 17.9.2020.