INCOME TAX OFFICER WARD 3(4), MUMBAI vs. SHRI HITESH RAMESHCHANDRA THAKKAR, MUMBAI

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ITA 5314/MUM/2018Status: DisposedITAT Mumbai20 December 2019AY 2011-123 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to sustain only a 12.5% disallowance on bogus purchases. It reasoned that a 100% disallowance is not justified when sales are not doubted, but acknowledged that grey market purchases benefit the assessee at the exchequer's expense.

What were the facts?

The Revenue is aggrieved by the CIT(A)'s decision to reduce a 100% addition on account of bogus purchases to 12.5%. The assessee, a pharmaceutical chemical manufacturer, had purchases flagged as bogus by the Sales Tax Department.

What were the issues?

Whether a 100% disallowance of purchases is justified when sales are not doubted, and if not, what is a reasonable disallowance for purchases made through the grey market.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SMC Bench, Mumbai

Before: Shri Shamim Yahya & Shri Pawan Singh

For Appellant: Shri Akhtar H. Ansari
Hearing: 03.10.2019Pronounced: 20.12.2019

These are appeals by the Revenue wherein the Revenue is aggrieved that the learned CIT(A) has deleted part of the 100% addition by sustaining only 12.5 % disallowance on account of bogus purchases, vide common order dated 08.06.2018 pertaining to assessment years 2009-10 & 2011-12.

2.

The assessee in this case is engaged in the business of manufacturing of pharmaceutical chemicals. The assessment was reopened upon information from Sales Tax Department that the assessee has made purchase from bogus dealers. The AO in this case has made 100% addition on account of bogus purchase amounting to `44,554 for A.Y. 2009-10 and `2,70,907/- for A.Y. 2011-12.

3.

Up on assessee's appeal learned CIT(A) has noted that the sales has not been doubted. Accordingly, placing reliance upon several case laws and up on the facts of the case he sustained 12.5% disallowance out of the

4.

We have heard both the counsel and perused the records. 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 by the decision of the Hon’ble Jurisdictional High Court in the case of Nikunj Eximp Enterprises (in Writ Petition No 2860, order dated 18.06.2014). In this case the Hon’ble 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 12.5% 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).

5.

The decision in the case of N.K. Proteins Ltd, Tax Appeal No. 242 of 2003 dated 20.06.2016 referred by Revenue in grounds of appeal has already been distinguished by Hon’ble Bombay High Court in the case of M. Haji Adam & Co. in of 20016 dated 11.02.2019.

6.

In the result these appeals filed by the Revenue stand dismissed.

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