ITO ,WD- 3(3), KALYAN vs. KUMARY C. WARRIER, DOMBIVALI

The brief facts of the case are that the assessee engaged in the business of manufacturing of engineering goods. Pursuant to information from the Sales Tax Department that the assessee is one of I.T.A. Nos. 4981 & 4982/Mum/2018 AND & 5635/Mum/2018 Assessment Year: 2010-11 & 2011-12 Kumary C. Warrier the beneficiaries of accommodation entries for obtaining bogus purchase bills, assessment was reopened. AO made disallowance on account of bogus purchases amounting to Rs. 19,11,624/- and Rs. 19,57,455/- respectively. Ld. CIT(A) proceed to hold for A.Y. 2009-10 is a non-hawala year and GP of the same is to be adopted which was 21.61%. Since assessee was disclosed 11.34% for AY 2010-11 and 11.33% for AY 2011-12, the Ld. CIT(A) granted proportionate relief, he concluded as under: Accordingly the disallowance to the extent of quantum of suppressed GPs i.e. Rs. 5,13,461/- and Rs. 10,19,001/- out of total disallowances of Rs. 19,11,624/- and Rs. 19,57,455/-, in AY 2010-11 & 2011-12, are hereby sustained and balance amounts of Rs. 13,98,163/- (19,11,624 – 5,13,461) and Rs. 9,38,454/- (19,57,455 – 10,19,001), respectively, are deleted.

Against the order, the appeals are before us. We have heard the parties and perused the records.

We find that the assessee has provided the documentary evidence for the purchase. Adverse inference have been drawn due to the inability of the assessee to produce the suppliers. We 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 Nikunj eximp enterprises (in writ petition no 2860 order dtd. 18.06.2014). In this case the honourable High Court has upheld hundred percent allowance for the purchase said to be bogus when sales are not I.T.A. Nos. 4981 & 4982/Mum/2018 AND & 5635/Mum/2018 Assessment Year: 2010-11 & 2011-12 Kumary C. Warrier 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 the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer.

In this case, we find that assessee has already disclosed more than 10% at gross profit. In our considered opinion, disallowance @ 5% of bogus purchase, will serve the interest of justice. Accordingly, we modify the order of Ld. CIT(A) and direct that disallowance should be done @ 5% of bogus purchases. The decision relied upon by the Learned Departmental Representative are not applicable on the facts of the case as we have already placed reliance upon the decision of Hon'ble Jurisdictional High Court as referred above.