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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA
These are appeals by the assessee wherein the assessee is aggrieved that the learned CIT(A) erred in sustaining 12.5% disallowance on account of bogus purchase vide common order dated 13th April 2016, pertaining to the assessment year 2009–10, 2010–11 and 2011–12.
2. Brief facts of the case are that the assessee is engaged in the business of trading in welding electrodes. Information was received from the Sales Tax Department that the assessee has taken accommodation entries in respect of bogus purchase. The assessment was accordingly re–opened. The Assessing Officer in this case has made 12.5% addition on account of bogus purchase amounting to ` 2,49,227 for A.Y. 2009–10, ` 12,79,381 for A.Y. 2010–11 and ` 5,07,116 for A.Y. 2011–12. Upon assessee’s appeal, the learned CIT(A) confirmed the same.
Against the above order, the assessee is in appeal before the Tribunal. I have heard the learned Counsel for both the parties and perused the records.
Upon careful consideration, I find that the assessee has provided the documentary evidence for the purchases. Adverse inferences have 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 from the decision of the Hon'ble Jurisdictional High Court in Nikunj Eximp Enterprises Pvt. Ltd. v/s ACIT, Writ Petition no.2860, order dated 18th June 2014. In this case, the 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 of the case indicate that the assessee has made purchases from 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, 12.5% disallowance out of the bogus purchases done by the learned CIT(A) meets the end of justice. However, in this regard, the leaned Counsel for the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transactions is to be taxed the gross profit already shown by the assessee and offered to tax 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 submissions of the leaned Counsel for the assessee, as otherwise it will be double jeopardy to the assessee. Accordingly, I modify the order of the 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. It goes without saying that if gross profit already declared is more than 12.5%, no disallowance on account of bogus purchase is required. The leaned Counsel for the assessee fairly accepted this proposition.
In the result, appeal stands partly allowed. Order pronounced in the open Court on 05.02.2020