ITO - WD- 2(2), THANE vs. SHRIRAM C. YADAV, BHAYANDER

This appeal is preferred by the revenue against the order of Ld. CIT(Appeals) – 1, dated 20.07.2018 and the same is being disposed of C.O. No. 200/Mum/2019 Assessment Year: 2011-12 Shriram C. Yadav along with the cross-objection filed by the assessee being C.O. No. 200/Mum/2019.

Brief facts of the case are that the assessee engaged in the business of manufacturing of food chemical equipments and developing paints machinery. Information was received from the Sales Tax Department. The assessee was beneficiary of accommodation bills for bogus purchases and assessment was reopened. AO made 100% disallowance for the bogus purchases by noting that notices issued u/s 133(6) with the concerned parties were received back unserved and further on account of failure of the assessee to produce the parties and also noting that there was absence of other evidences like octroi bills, delivery challen, inward register, AO made 100% disallowance. Upon assessee’s appeal, Ld. CIT(A) analysed the gross profit for different years. He held that assessee had declared GP @ 20.04% for A.Y. 2012-13 which according to the Ld. CIT(A) was non-hawala year. In this year, he noted that assessee had declared GP of 13.49%. Hence, he computed the differential amount of Rs. 5,04,303/- for the disallowance on account of bogus purchase.

Against the order, the Revenue is in appeal before us and assessee has filed cross-objection. 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 C.O. No. 200/Mum/2019 Assessment Year: 2011-12 Shriram C. Yadav 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 doubted. However, in that case all the supplies were to government agency.

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.