INCOME TAX OFFICER WARD 27(2)(4), MUMBAI vs. SHREE NAVINCHANDRA U. SANGHVI, MUMBAI

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ITA 6817/MUM/2018Status: DisposedITAT Mumbai04 February 2020AY 2010-113 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to sustain a 12.5% disallowance on bogus purchases. It reasoned that since the assessee's sales were not doubted, a 100% disallowance was not justified, but purchases from the grey market warranted some disallowance.

What were the facts?

The Revenue appealed against the CIT(A)'s decision to reduce the disallowance of bogus purchases from 25% to 12.5%. The assessee, a garment manufacturer, had made purchases from dealers identified as bogus by the Sales Tax Department.

What were the issues?

The primary issue was whether a 100% disallowance of purchases from bogus dealers was appropriate when the assessee's sales were not doubted. The secondary issue was the quantum of disallowance to be made in such circumstances.

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 BENCH “SMC”, MUMBAI

Before: SHRI SHAMIM YAHYAShri Navinchandra U. Sanghvi

For Appellant: Shri R. Bhoopathi
For Respondent: Ms. Radha Halbe
Hearing: 12/12/2019Pronounced: 04/02/2020

This is an appeal by the Revenue wherein the Revenue is aggrieved that the learned CIT(A) has reduced the addition of bogus purchase by sustaining only 12.5% disallowance on account of bogus purchases, vide order dated 19.09.2018 pertaining to assessment year 2010-11.

2.

The assessee in this case is engaged into manufacturing of garment. The assessment was reopened upon information from Sales Tax Department that assessee has made purchases from bogus dealers. The Assessing Officer in this case has made 25% addition on account of bogus purchase amounting to Rs.3,86,469/-.

3.

Upon assessee’s appeal, learned CIT(A) has noted that the sales has not been doubted. Accordingly, placing reliance upon several case laws and up on Shri Navinchandra U. Sanghvi the facts of the case, he sustained 12.5% disallowance out of the bogus purchases. Against above order, Revenue is in appeal before the ITAT.

4.

I have heard both the counsel 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, hundred percent disallowance for bogus purchase cannot be done, the rationale being no sales is possible without actual purchases. This proposition is supported by 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, 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 a 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 learned CIT(A).

5.

In the result, this appeal filed by the Revenue stands dismissed.

Order pronounced in the open court on 4th February, 2020.

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