M/S.SANJAY METAL CORPORATION,MUMBAI vs. INCOME TAX OFFICER, 19(3)(2), MUMBAI

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ITA 5297/MUM/2018Status: DisposedITAT Mumbai04 December 2019AY 2009-103 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that 100% disallowance for bogus purchases is not permissible when sales are not doubted. The addition should be limited to the extent of bringing the gross profit rate on such purchases to the same level as genuine purchases.

What were the facts?

The assessee, engaged in metal trading, faced reopening of assessment due to information about bogus purchases. While payments were made through banking channels and sales were not doubted, the assessee could not produce the suppliers before the AO.

What were the issues?

Whether 100% disallowance of purchases is justified when sales are not doubted and suppliers cannot be produced. What is the correct method for quantifying the profit element in such purchases.

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 (AM) & Shri Pawan Singh (JM)

For Appellant: Shri Vimal Punmiya
For Respondent: Shri Akhtar H. Ansari
Hearing: 1.10.2019Pronounced: 4.12.2019

Heard together (2 matters)

I.T.A. No. 5297/Mum/2018
I.T.A. No. 5298/Mum/2018

Read from the judgment's own cause title. This page is filed under one of them.

Per Shamim Yahya (AM) :- These are appeals by the assessee against respective orders of learned CIT(A) wherein the assessee is aggrieved that the learned CIT(A) has erred in sustaining 12.5% disallowance on account of bogus purchases, pertaining to assessment years 2009-10 & 2010-11.

2.

Brief facts of the case are that assessee in this case is engaged in the business of trading in ferrous and non-ferrous metal. The Assessment in this case was reopened upon receipt of information from the sales tax Department that assessee has made bogus purchases. The assessee submitted the purchase vouchers and the payments were made through banking channel. However the suppliers were not produced before the assessing officer. Sales in this case were not doubted. The income tax officer in this case has made 12.5% addition on account of bogus purchase resulting in disallowance of Rs. 8,88,481/- for A.Y. 2009-10 & Rs. 5,50,332/- for A.Y. 2010-11.

2 M/s. Sanjay Metal Corporation

3.

Upon assessees appeal Id CIT(A) confirmed the same.

4.

Against above order assessee is in appeal before the ITAT. We have heard both the counsel and perused the records.

5.

Upon careful consideration we find that assessee has provided the documentary evidence for the purchase. Adverse inferences have been drawn due to the inability of the assessee to produce the suppliers. I 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. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that as held by honourable High Court of Bombay in its recent judgement in the case of principle Commissioner of income tax versus M Haji Adam & Co. (ITA number 1004 of 2016 dated 11/2/2019 in paragraph 8 there off), the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases.

6.

We respectfully following the aforesaid judgement of the honourable High Court set aside the matter to the file of the assessing officer with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the 3 M/s. Sanjay Metal Corporation other genuine purchases. Needless to add the assessee should be granted adequate opportunity of being heard.

7.

In the result, assessee's appeals are partly allowed. Order has been pronounced in the Court on 4.12.2019.

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