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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) has erred in sustaining 12.5% disallowance on account of bogus purchase, pertaining to the assessment year 2009–10, 2010–11 and 2011–12.
Brief facts of the case are that the assessee is engaged in the business of trading in chemicals. The assessment in this case was re– opened upon receipt of information from the Sales Tax Department
2 Piyush M. Mehta that the assessee has made bogus purchase. The assessee submitted that the purchase vouchers and the payments were made through banking channel. However, the suppliers were not produced before the Assessing Officer. Sales in this case were not doubted. The Income Tax Officer in this case has made 12.5% addition on account of bogus purchase resulting in disallowance of ` 10,18,901 for A.Y. 2009–10, ` 11,03,338 for A.Y. 2010–11 and ` 6,64,055 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.
At the outset, it is noted that there is a delay of 27 days in filing these appeals. The reasonable cause for the delay is attributed to financial distress of the assessee. Upon hearing both the learned Counsel for the parties and on perusal of the records, the delay is hereby condoned.
Upon hearing the learned Counsel for the parties, 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
3 Piyush M. Mehta 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 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. As regards the quantification of the profit element embedded in making of such bogus / unsubstantiated purchases by the assessee, I find that as held by Hon’ble Bombay High Court in its recent judgment in the case of PCIT v/s M. Haji Adam & Co. (ITA no.1004 of 2016, dated 11th February 2019, in Para–8, thereof), the addition in respect bogus purchase is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. I respectfully following the aforesaid judgment of the Hon’ble Bombay High Court set aside the matter to the file of the Assessing Officer with the direction to restrict the 4 Piyush M. Mehta addition as regard the bogus purchase by bringing the gross profit rate on such bogus purchase at the same rate as that of the other genuine purchases. Needless to add, the assessee should be granted adequate opportunity of being heard. The learned Counsel for the assessee fairly agreed to the above.
In the result, appeal stands partly allowed. Order pronounced in the open Court on 03.02.2020