SHRI CHANDAN DHINGADMAL JAIN,MUMBAI vs. INCOME TAX OFFICER WARD-19(1)(3), MUMBAI

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ITA 1308/MUM/2018Status: DisposedITAT Mumbai11 September 2019AY 2010-113 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that a 100% disallowance for bogus purchases is not justified when sales are not doubted, as sales are impossible without purchases. Following its own precedent in the assessee's own case for a prior year, the disallowance was restricted to 5% of the bogus purchases.

What were the facts?

The assessee, dealing in metals, faced reopening of assessment due to alleged bogus purchases. While payments were made through banking channels and sales were not doubted, the suppliers were not produced. The AO made a 12.5% addition on account of bogus purchases, which was confirmed by the CIT(A).

What were the issues?

Whether disallowance for bogus purchases should be restricted when sales are not doubted, and what is the appropriate rate of disallowance in such cases.

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)

For Appellant: Shri Prakash D. Shah
For Respondent: Shri Chaitanya Anjaria
Hearing: 10.7.2019Pronounced: 11.9.2019

Heard together (2 matters)

I.T.A. No. 1308/Mum/2018
I.T.A. No. 1307/Mum/2018

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

These are appeals by the assessee 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 year 2010-11 & 2011-12. Earlier the appeals were disposed of by the ITAT ex-parte. Subsequently, they were recalled.

2.

Brief facts of the case are that assessee in this case is engaged in the business of dealing 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.

3.

The income tax officer in this case has made 12.5% addition on account of bogus purchase resulting in disallowance of Rs. 6,94,843 in A.Y.

2 Shri Chandan Dhingadmal Jain 2010-11 and Rs. 6,66,755 in A.Y. 2011-12. Upon assessees appeal Id CIT A confirmed the same.

4.

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

5.

Upon careful consideration I find that 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. 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.

6.

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 exchequer. That the ITAT in assessee’s own case vide order dated 12.2.2019 for A.Y. 2009-10 has held that disallowance should be restricted to 5% of the bogus purchases. Relevant paragraph of the ITAT reads as under :-

“5. I have considered the issue and gone through the facts and circumstances of the case. I find from the facts of the case and argument of both the sides that the CIT(A) has confirmed the profit rate at the rate of 12.5%, which according to me is on higher side going by the nature of business of the assessee i.e. ferrous and Non-ferrous. I am in full agreement with the contentions raised by the assessee before CIT(A) and according to me a profit rate of 12.5% is on higher side as assessee has also paid the VAT element on these bogus purchases, a further deduction 4 ITAs no.3818/Mum/2018 in estimation of profit to the extent of 7.5% can be allowed. Hence, I direct the AO to recompute the 3 Shri Chandan Dhingadmal Jain income after applying profit rate at the rate of 5% and compute the income accordingly. The appeal of the assessee is partly allowed”.

7.

I respectfully follow the above precedent and direct that the disallowance in this case should also be restricted to 5% of bogus purchases. Learned Counsel of the assessee fairly agreed to the above.

8.

In the result, appeals by the assessee are party allowed.

Order has been pronounced in the Court on 11.9.2019.

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