PARSONS OVERSEAS,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX 18(1), MUMBAI

Brief facts of the case are that assessee in this case is engaged in the business of garment exporter. Information was received from the sales tax Department that assessee has made bogus purchases. The assessment was accordingly reopened.

The income tax officer in this case has made 100% addition on account of bogus purchase amounting to Rs. 1,29,350/-. Upon assessee’s appeal Id CIT(A) sustained the same @ 25%.

Against above order assessee is in appeal before the ITAT. We have heard learned Departmental Representative and perused the records.

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, 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 dt. 18.6.2014). In this case the honourable High Court has upheld hundred percent 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 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 in our considered opinion on the facts and circumstances of the case 12.5% disallowance out of the bogus purchases meets the end of justice. We direct accordingly.

In the result, the assessee’s appeal is partly allowed. Order has been pronounced in the Court on 06.01.2020.