ITO - 33(1), MUMBAI vs. ASMA NIYAZ MANIHAR, MUMBAI

The assessee in this case is engaged into steel trading. The assessment was reopened upon information from sales tax department that assessee has made purchases Rs. 96,34,149 from bogus dealers, the AO made 25% addition of the bogus purchase after reducing 3.18% gross profit declared by the assessee resulting in disallowance of Rs. 21,02,171/-.

Upon assessee's appeal learned CIT-A has noted that the sale has 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, as reduced by gross profit already declared by the assessee of 3.18%. Thus learned CIT(A) sustained the disallowance of Rs. 8,98,152/-.

Against above order revenue is in appeal before the ITAT. We have heard learned Departmental Representative and perused the record. At the outset we note that in the grounds of appeal by the Revenue, it has not submitted that the Assessing Officer as well as learned CIT(A) have also granted reduction of gross profit already declared by assessee. To this extent this ground by the revenue itself is misplaced. Be as it may, we find 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 as reduced by gross profit already declared by the learned CIT-A meets the end of justice. Accordingly we uphold the order of learned CIT-A.

In the result this appeal filed by the revenue stands dismissed.

Before parting we 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.