ITO 27(1)(4), MUMBAI vs. DILIP C.MEHTA, MUMBAI

The assessee in this case is and individual. The assessment was reopened upon information from sales tax department that assessee has made Rs. 7,020/- purchases from bogus dealers. The Assessing Officer made 100% addition of the bogus purchases.

Upon the assessee’s appeal learned CIT(A) has noted that the sales have not been doubted. Accordingly, placing reliance upon several case laws and upon 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 learned Departmental Representative and perused the records. I find that in 2 Shri Dilip C. Mehta this case the sales and other working are not 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 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.

The decision of N.K. Proteins Ltd. (250 ITR 22) relied by the revenue was a dismissal of SLP by the Hon'ble supreme court and has already been explained and distinguished by Hon'ble Bombay high court in the case of M. Hazi 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.