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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI SHAMIM YAHYA
The brief facts of the case are that assessee is engaged in the business of wholesale in chemicals and drugs. Information was received from the Sales Tax Department that assessee has indulged in bogus purchases. The assessment was accordingly reopened. The Assessing Officer in this case has made 25% addition on account of bogus purchase of Rs.6,99,285/- in Rs.3,18,240/- in ITA No. 6827/Mum/2018. Upon assessee’s appeal, learned CIT(A) reduced the same to 12.5%. Against the above order, assessee and Revenue are in appeal before the ITAT. I have heard both the counsel and perused the records.
Upon careful consideration, I find that assessee has provided the documentary evidence for the purchase. 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, 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 Nickunj Eximp Enterprises (P.) Ltd. vs ACIT (in Writ Petition no. 2860 of 2012, order dated 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. In the present case, the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through
3 Shri Rakesh Kumar Mithalal Jain & 6827/Mum/2018 & CO Nos. 250 & 253/Mum/2019 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, on the facts and circumstances of the case, 12.5 % disallowance out of the bogus purchases meets the end of justice. However, in this regard learned counsel of the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed, the gross profit already shown by the assessee and offered to tax @ 6.22% should be reduced from the standard 12.5% being directed to be disallowed on account of bogus purchase.
Upon careful consideration, I find considerable cogency in the submission of the learned counsel of the assessee, as otherwise it will be double jeopardy to the assessee. Accordingly, I modify the order of learned CIT(A) and direct that the disallowance in this case be restricted to 12.5 % of the bogus purchases as reduced by the gross profit rate already declared by the assessee on these transactions. Ld counsel of the assessee fairly accepted this proposition.
Another issue raised in is the ad-hoc disallowance of Rs.1,83,725/- on account of lack of full voucher for expenses claimed, i.e. commission and brokerage of Rs.4,97,435/-, conveyance of Rs.1,60,268/- and transport & carriage of Rs.11,79,543/-. Upon careful consideration, I find that the interest of justice will be served if the ad hoc disallowance is restricted to 5% of the expenditure in this regard. I direct accordingly.
4 Shri Rakesh Kumar Mithalal Jain & 6827/Mum/2018 & CO Nos. 250 & 253/Mum/2019 6. In the result, whereas the appeals filed by the Revenue stand dismissed, the cross objections filed by the assessee stand partly allowed.
Order pronounced in the open court on 6th February, 2020.