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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This is an appeal by the assessee wherein the assessee is aggrieved that the learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] has erred in sustaining 12.5% disallowance on account of bogus purchases of Rs. 7,35,508/- and 100% disallowance of Rs. 7,70,752/- vide order dated 15.2.2019 pertaining to assessment year 2011-12.
Brief facts of the case are that assessee in this case is engaged in the business of dealer in industrial hardware and consumable items. The Assessment in this case was reopened upon receipt of information from the sales tax Department that assessee has made bogus purchase of Rs. 15,06,260/-. The assessee submitted the purchase vouchers and the payments were made through banking channel. However the suppliers were not produced before the assessing officer. Sales in this case were not doubted.
2 Shri Ram Darshankumar Puri
The income tax officer in this case has made 12.5% addition on account of bogus purchase of Rs. 7,70,752/- and also 100% of the balance due to the supplier of Rs. 7,70,752/- resulting in total disallowance of Rs. 8,62,191/-.
Upon assessees appeal learned CIT(A) confirmed the same.
Against above order assessee is in appeal before the ITAT. I have heard learned Departmental Representative and perused the records.
Upon careful consideration I find that assessee has provided the documentary evidence for the purchase. Adverse inferences have been drawn due to the inability of the assessee to produce the suppliers. 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 in that case all the supplies were to government agency.
As regards 100% disallowance for unpaid balance of suppliers the same is totally uncalled for as purchases for the year cannot be added back as remission of liability in this year itself without cogent material brought on record.
In the present case the facts of the 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. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, I find that it is the submission of the assessee before lower
3 Shri Ram Darshankumar Puri authorities that it will be double prejudice if the gross profit already declared is not reduced from the disallowed on account of bogus purchases.
Upon careful consideration I find considerable cogency in the above submissions. Accordingly I direct that disallowance in this case be restricted to 12.5% of the bogus purchase as reduced by the gross profit already declared by the assessee.
In the result the appeal stands partly allowed.
Order pronounced under Rule 34(4) of the ITAT Rules by placing the result on notice board on 26.11.2020.