NITIN NANDKISHORE BANGAD,MUMBAI vs. ITO WARD 17(2)(4), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. The Ld. CIT(A) erred in dismissing your appellants appeal & upholding assessing officer’s order. The Ld. CIT(A)-28 erred by not giving credit from presumptive 12.5% GROSS PROFIT the 8.85% G.P. which is already offered as income in return filed by you appellant. The total GROSS PROFIT added to incomes comes to 21.35% (i.e. 12.5% + 8.85%). This is very high and unreasonable. Your appellant prays to take reasonable G.P. of alleged bogus purchases and make additions accordingly. A.Y.2010-11

2. Your appellant keeps the right to add, amend or alter any of the above grounds on or before hearing.”

3. The brief facts of the case are that the assessee filed his return of income on 21.09.2010 declaring total income to the tune of Rs.8,23,216/- for the A.Y. 2010-11. The return was processed u/s 143(1) of the I. T. Act 1961. The assessee was engaged in the business of trading in tools, kits & equipment’s. Thereafter, an information was received from the DGIT(Inv.), Mumbai in which it was conveyed that the assessee has made the bogus purchase entries of Rs.1,66,34,537/- from the following fifteen parties.

Sr. Name of the Party Amount No 1 Palak Enterprises 3065390 2 M.N. Comtrade Pvt. Ltd. 103967 3 Abhilasha Sales Pvt. Ltd. 166835 4 C.N. Corporation 1826261 5 UB Traders 1870734 6 Keval Enterprises 1795803 7 Rup International 2090251 8 Inspire Traders 33796 9 Kantilal Brothers 40716 10 Samarth Sales Syndicate 145365 11 Oriental Trading Corporation 230662 12 Bright Enterprises 293002 13 Sahajanand Enterprises 303161 14 Zenith Trading Corporation 303599 15 Viresh Sales Corporation 604852 16 Harshil Enterprises 10,70,160 17 Bhavik Enterprises 26,89,983 Total 1,66,34,537 4. The case of the assessee was reopened u/s 148 of the Act. The notice u/s 148 of the Act dated 11.03.2016 was issued and served upon the assessee. The AO restricted the addition to the extent of 12.5% of the bogus purchase in sum of Rs.1,66,34,537/- i.e. to the tune of Rs.20,79,317/-. The total income of the assessee was assessed to the tune of Rs.29,02,533/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the addition raised by the AO, therefore, the assessee has filed the present appeal before us.

ITA No. 01/M/2019 A.Y.2010-11 5. We have heard the argument advanced by the Ld. Representative of the Department and has gone through the case carefully. Upon careful consideration we find that assessee has provided the documentary evidence for the purchase. Adverse inference has 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 then hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon’ble jurisdictional High Court decision in the case of Nikunj eximp enterprises (in writ petition no 2860, order dt 18.6.2014. 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 such situation we are of the considered opinion on the facts and circumstances of the case that the 12.5% disallowance out of the bogus purchases meets the end of justice. However, in this regard learned counsel of the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed on account of bogus purchase.