ITO 17(1)(3), MUMBAI vs. SHRI CHETAN BACHUBHAI DOSHI, MUMBAI

The assessee in this case is engaged into business of traders in ball bearing and hardware. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers. The assessing officer in this case has made 12.5% addition on account of bogus purchase amounting to Rs. 10,77,771/-.

Upon assessee's appeal learned CIT-A has noted that the sale has not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 8% disallowance out of the bogus purchases.

Against above order revenue is in appeal before the ITAT. We have heard learned Departmental Representative and perused the records. We find that in 2 Shri Chetan Bachubhai Doshi 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 the facts of the present 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 the 8% disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly, we uphold the order of learned CIT-A.

In the result this appeal filed by the Revenue stands dismissed. Order has been pronounced in the Court on 3.12.2019.