DCIT CIRLCE-3, THANE vs. SHRI. SHREEKUMAR JANARDAN UNNITHAN, THANE

The assessee in this case is engaged into the business of operating printing press and other related work. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers. The Assessing Officer made addition of the bogus purchases as under @ 100% :- A.Y. Rs. 2011-12 Rs. 14,86,652/- 2009-10 Rs. 3,71,540/

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 addition equal to gross profit on these purchases @ 16.78% and 18.47% respectively. Learned CIT(A) sustained only 5% disallowance for other expenses. Learned CIT(A) gave relief both on bogus purchases and expenses. However, Revenue has not filed appeal against relief on account of expenses. We may gainfully refer to learned CIT(A) order on bogus purchase for A.Y. 2009-10 as under :- “I have considered the facts of the case and the submissions of the appellant. As the relevant purchases have been debited to the P&L Account and claimed as deduction in computing the profits of the business chargeable to tax, the onus was on the appellant to prove the genuineness of the purchases with satisfactory evidences. It is observed that the assessee, during the course of remand proceedings as well as appellate proceedings has produced the copies of bills, balance sheet, P&L A/c, Audit report, etc. It is also seen that the documents provided as evidence are also incomplete in so far as the receiver's signature, date, etc., are not mentioned. The appellant has also shown that the GP to turnover ratio in the previous financial year are similar to the year under consideration. However, the fact remains that information called for from the bogus party - J.B. Interlink, u/s 133(6) of the Act by the AO, remained unserved and was returned by the Postal Authorities. The AO requested the appellant to produce the party but the appellant failed to do so. It is noted that the AO was in possession of information received from the DGIT(lnv), indicating strongly that the supplier concerned was only providing accommodation entries and was not carrying out any real business. Thus, the onus" that was caste on the appellant was of a greater degree to prove the genuineness of this party as well as these purchases. Under these circumstances the claim of the appellant that the said purchases are genuine cannot be accepted in totality.

Against above order revenue is in appeals before the ITAT only on issue of bogus purchases. I have heard both the counsel and perused 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 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 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.