ITO - 27(1)(3), MUMBAI vs. CHERUVELLIL KURIAN NINAN, MUMBAI

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ITA 4967/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 12.5% disallowance on bogus purchases. It reasoned that 100% disallowance is not justified when sales are not doubted, as sales are impossible without purchases. However, purchases from the grey market warrant some disallowance.

What were the facts?

The revenue appealed against the CIT(A)'s decision to delete 100% addition on account of bogus purchases, allowing only a 12.5% disallowance. The assessee was engaged in engineering works 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 what is the appropriate disallowance percentage for purchases made from the grey market.

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. 8,41,303/- by sustaining only 12.5 % disallowance on account of bogus purchases, vide order dated 3.5.2018 pertaining to A.Y. 2009-10.

2.

The assessee in this case is engaged into engineering works. 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 hundred percent addition on account of bogus purchase amounting to Rs. 10,00,425/-.

3.

Upon 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 bogus purchases.

1.

2 Shri Cheruvellil Kurian Ninan Prop. Saimex Industries 4. Against above order revenue is in appeal before the ITAT. We have heard learned Departmental Representative and perused the records. None appeared on behalf of the assessee despite notice. 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 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. 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 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 02.12.2019.

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