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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 27.08.2018 passed by the Commissioner of Income Tax (Appeals) -14, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2009- 10.
The assessee has raised the following grounds: - “
1. In the facts and circumstances of the case the Ld. CIT(A) erred in confirming addition of Rs.386082/- @ 12.5% of the purchases of Rs.3088658/- without appreciating the fact that:-
1. The purchases are duly supporte4d by purchase bills and delivery challan. A.Y.2009-10
2. The payment are made by cross account payee cheque and made to the party from whom purchases are effected.
3. The supplier has confirmed the transaction.
4. The sales out of purchases have been accepted.
5. There is no evidence to show that the purchase consideration has come back to assessee.
6. The supplier has accounted for the purchases and paid taxes thereon 7. the stock Register is maintained by the appellant. The appellant crave leave to add, amend or alter the above Grounds of appeal.”
3. The brief facts of the case are that the assessee filed its return of income on 11.09.2009 declaring total income to the tune of Rs.8,51,600/- for the A.Y. 2009-10. The return was processed u/s 143(1) of the I. T. Act 1961. The assessee was engaged in the business of Manufacture of Aluminium Products and trading of the same. Thereafter, an information was received from the Investigation Wing Department, Mumbai in which it was conveyed that the assessee has made the bogus purchase entries of Rs.30,88,658/- from the following two parties.
Name of the Party Hawala TIN PAN Amount Woodland Mercantile Company 27660623683V AAACW7141F 6,46,097 Private Limited Starwood Mercantile Company AAKCS9393K 24,42,561 27920625577V Private Limited Total 30,88,658 4. The case of the assessee was reopened u/s 147/148 of the Act. The notice u/s 147/148 of the Act dated 09.03.2016 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.3,86,082/-. The total income of the assessee was assessed to the tune of Rs.12,37,680/-. Feeling aggrieved, the assessee A.Y.2009-10 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.
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 then 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.
Up on careful consideration, we find considerable cogency in the submission of the learned counsel of the assessee, as otherwise it will be double jeopardy to the assessee. Accordingly, we modify the order of ITA No. 04/M/2019 A.Y.2009-10 learned CIT-A and direct that the disallowance in this case be restricted to 12.5% of the bogus purchases as reduced by the gross profit rate already declared by the assessee on these transactions i.e. G.P. @ 10.67%. Accordingly, we allowed the claim of the assessee.