What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to sustain only 12.5% disallowance on account of bogus purchases. It was noted that since the assessee's sales were not doubted, a 100% disallowance was not justified.

The Revenue appealed against the CIT(A)'s decision to reduce a 100% addition for bogus purchases to a 12.5% disallowance. The assessee was informed by the Sales Tax Department that they had made purchases from bogus dealers.

What were the issues?

Whether a 100% disallowance for bogus purchases is justified when the assessee's sales are not doubted. The appropriateness of a partial disallowance in such circumstances.

ITO vs M/S.Rajendra Auto Parts | ITAT Mumbai 2020

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SHAMIM YAHYA

For Appellant: Shri Subodh Ratnaparkhi

For Respondent: Shri R. Bhoopathi, Shri Subodh Ratnaparkhi

These are appeals by the Revenue wherein the Revenue is aggrieved that the learned CIT(A) reduced the addition by sustaining only 12.5% disallowance on account of bogus purchase, vide respective order dated 19th September 2018, pertaining to the assessment year 2009–10 and 2010–11.

The assessee is engaged in the business of reseller in auto parts. The assessment was re–opened upon information received from Sales

2 M/s. Rajendra Auto Parts Tax Department that the assessee has made purchases from bogus dealers.

3. The Assessing Officer in this case has made 100% addition on account of bogus purchase in A.Y. 2010–11 for an amount of ` 3,08,934, and in A.Y. 2009–10 for an amount of ` 13,10,793.

2. Upon assessee’s appeal, the learned CIT(A) has noted that the sales 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 purchase.

Against the above order, the Revenue is in appeal before the Tribunal. I have heard the learned Counsel for both the parties 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, 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 3 M/s. Rajendra Auto Parts doubted. However, facts of the present 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. Accordingly, I uphold the order of the learned CIT(A). The decision of N.K. Proteins Pvt. Ltd. referred by Revenue in grounds of appeal has already been distinguished by the Hon'ble Jurisdictional High Court in the case of PCIT v/s Mohammad Haji Adam & Co., of 2016, dated 11th February 2019.

In the result, both the appeal stands dismissed. Order pronounced in the open Court on 05.02.2020

INCOME TAX OFFICER 27(3)(1), MUMBAI vs. M/S.RAJENDRA AUTO PARTS, MUMBAI

What did the Tribunal hold?

What were the facts?

What were the issues?

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