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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R Per Shamim Yahya, A. M.:
These are appeals by the assessee wherein the assessee is aggrieved that the order of the learned Commissioner of Income Tax (Appeals) (‘ld. CIT-A’ for short) has erred in sustaining 12.5% disallowance on account of bogus purchase by common order dated 21.05.2018 for the concerned Assessment Year.
Brief facts of the case are that the assessee is engaged in the business of Inkjet & Solvent Printing. The information was received from the Sales Tax Department that the assessee is making bogus purchases. The assessment was accordingly reopened.
The Assessing Officer (‘A.O.’ for short) in this case has made average gross profit on account of bogus purchase as under:
Upon the assessee’s appeal, the ld. CIT(A) restricted the same to 12.5% of the purchases.
Against the above order, the assessee is in appeal before us.
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 have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from the 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 100% allowance for the purchases said to be bogus when sales are not doubted. However, in that case all the supplies were to the 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. In such situation, in my considered opinion, on the facts and circumstances of the case, 12.5 % disallowance out of the bogus purchases meets the end of justice. However, in this regard the learned counsel of the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be from the standard 12.5% being directed to be disallowed on account of bogus purchase.
Upon careful consideration, we find considerable cogency in the submission of the learned counsel of the assessee, as otherwise it will be double jeopardy to the assessee.
Accordingly, we modify the order of learned CIT-A and direct that the disallowance in this case be restricted to 12.5 % of the bogus purchases as reduced by the gross profit rate already declared by the assessee on these transactions. The ld. Counsel of the assessee fairly accepted to this proposition.
In the result, the appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 11.09.2019