ITO 28(3)(4), MUMBAI vs. M/S VALSON FABRICATORS, MUMBAI

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ITA 207/MUM/2019Status: DisposedITAT Mumbai02 March 2020AY 2009-103 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that 100% disallowance for bogus purchases is not justified when sales are not doubted. Considering purchases were from the grey market, a disallowance of 12.5% of bogus purchases was deemed sufficient to meet the ends of justice.

What were the facts?

The assessee, engaged in fabrication, was found to have indulged in bogus purchases based on information from the Sales Tax Department. The Assessing Officer made a 100% addition, which the CIT(A) reduced to 25%. Both the Revenue and the assessee appealed this decision.

What were the issues?

The primary issue was the extent of disallowance for bogus purchases when sales are otherwise accepted. The Tribunal also considered the implication of grey market purchases.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI

Before: Shri Shamim Yahya

Hearing: 15.01.2020Pronounced: 02.03.2020

Heard together (2 matters)

ITA No.207 /Mum/2019
CO No. 06/Mum/2020

Read from the judgment's own cause title. This page is filed under one of them.

O R D E R This appeal by the Revenue and cross-objection by the assessee arise out of the order of the learned CIT-A sustaining 25% disallowance on account of bogus purchases.

2.

Brief facts of the case are that assessee is engaged in the business of fabrication. Information was received from the Sales tax Department that assessee has indulged in bogus purchases. The assessment was accordingly reopened. The CO No.06/Mum/2020 Valson Fabricators Assessing Officer in this case has made 100% addition on account of bogus purchases amounting to Rs 5,06,766/-. Upon assessee’s appeal learned CIT(A) restricted the addition to 25% of the entire bogus purchases. Against the said order of the CIT(A) both the revenue and the assessee is in appeal before the Tribunal.

3.

I have heard both the parties and perused the records. Upon careful consideration I find that assessee has provided the documentary evidence for the purchases. Adverse inference has 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, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases.

This proposition is supported by the decision of Hon’ble Jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in Writ Petition No. 2860, order dated 18.6.2014). In this case Hon’ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However, in that case all the supplies were to government agency. In the present case, the facts 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 a situation, in my considered opinion, disallowance @12.5% of bogus purchases would be sufficient. Similar view was taken by the Tribunal in assessee’s own case for A.Y. 2010-11 vide order dated 30.09.2019. The decision referred by the Revenue has already been distinguished by the Hon’ble Bombay High Court in the case of Principal Commissioner of Income

CO No.06/Mum/2020 Valson Fabricators Tax vs. M Haji Adam & Co (ITA No. 1004 of 2016 dated 11/2/2019. In such situation, in my considered opinion, on the facts and circumstances of the case, 12.5 % disallowance out of the bogus purchases meets the end of justice.

5.

In the result, the Revenue’s appeal and the assessee’s cross-objections are partly allowed. Order pronounced in the open court on this day of 2nd March, 2020.

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