SHRI ROHINTON CYRUS MALESRA,MUMBAI vs. INCOME TAX OFFICER 19(3)(1), MUMBAI
What did the Tribunal hold?
The Tribunal held that a 100% disallowance for bogus purchases cannot be made when sales are not doubted, as sales are impossible without actual purchases. However, given the purchases were from the grey market, a disallowance of 12.5% of the bogus purchase would meet the ends of justice.
What were the facts?
The assessee, engaged in job work, faced a 100% disallowance on account of alleged bogus purchases. The reopening was based on information from the sales tax department, and while the assessee provided purchase vouchers and made payments through banking channels, the suppliers were not produced. The assessee's sales were not doubted.
What were the issues?
Whether 100% disallowance of purchases is justified when sales are not doubted and suppliers are not produced? What is the appropriate disallowance percentage in such cases?
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM Shri Rohinton Cyrus Malesra
O R D E R Per Shamim Yahya, A. M.:
This is an appeal by the assessee wherein the assessee is aggrieved that the learned C1T-A has erred in sustaining 100% disallowance on account of bogus purchases, vide order dated 12.07.2018 pertaining to assessment year 2010-11.
Brief facts of the case are that the assessee in this case is engaged in the business of job work.
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. bogus purchase resulting in disallowance of Rs.2,44,784/-.
Upon the assessee’s appeal, the ld. CIT(A) confirmed the same.
Against the above order, the assessee is in appeal before the ITAT.
We have heard both the counsel and perused the records. Upon careful consideration we find that the 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 or other workings 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 Hon'ble 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 Hon’ble 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. meet the end of justice. We direct accordingly.
In the result, the appeal stands partly allowed.
Order pronounced in the open court on 02.12.2019
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