ITO 27(1)(1), MUMBAI vs. AJAY CHANDULAL SHAH, MUMBAI

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ITA 4963/MUM/2018Status: DisposedITAT Mumbai02 December 2019AY 2009-103 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 13.47% disallowance on bogus purchases. They reasoned that 100% disallowance is not permissible when sales are not doubted, as sales are impossible without purchases. However, they acknowledged that purchases from the grey market involve tax savings at the expense of the exchequer, making the 13.47% disallowance meet the ends of justice.

What were the facts?

The revenue appealed against the CIT-A's deletion of 100% addition on account of bogus purchases, where the CIT-A sustained only a 13.47% disallowance. The assessee deals in wholesale of carbouys and drums, and the assessment was reopened based on information about purchases from bogus dealers.

What were the issues?

Whether 100% disallowance of purchases is justified when sales are not doubted, and if purchases from the grey market warrant a partial disallowance.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)

For Respondent: Shri Chaitanya Anjaria
Hearing: 05.09.2019Pronounced: 02.12.2019

Per Shamim Yahya (AM) :- This is an appeal by the revenue wherein the revenue is aggrieved that the learned CIT-A has deleted the addition of Rs. 4,04,315/- by sustaining only 13.47% disallowance on account of bogus purchases, vide order dated pertaining to AY 2009-10.

2.

The assessee in this case is engaged into wholesale dealing in carbouys and drums. 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 100% addition on account of bogus purchase amounting to Rs. 4,67,253/-.

3.

Up on 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 13.47% disallowance out of the bogus purchases amounting to Rs. 62,938/-.

2 Ajay Chandulal Shah M/s. J.K. Enterprises

4.

Against above order revenue is in appeal before the ITAT. 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 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 13.47% 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. The decision of N K proteins Ltd. (250 Taxman 22) 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. (ITA no 1004 of 20016 dt 11/2/2019).

5.

In the result this appeal filed by the revenue stands dismissed. Order has been pronounced in the Court on 2.12.2019.

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