SHRI RAKESH MTILAL JAIN,MUMBAI vs. INCOME TAX OFFICER 19(3)(1), MUMBAI

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ITA 4291/MUM/2018Status: DisposedITAT Mumbai06 September 2019AY 2011-123 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 actual purchases. The addition for bogus purchases should be limited to the extent of bringing the gross profit rate on such purchases to the same level as other genuine purchases.

What were the facts?

The assessee, engaged in metal trading, faced a disallowance of 12.5% on account of bogus purchases. The assessment was reopened 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 sales made by the assessee were not doubted.

What were the issues?

Whether disallowance for bogus purchases can be 100% when sales are not doubted, and how to quantify the profit element in such purchases.

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 Sanjay Kapadia
For Respondent: Shri Chaitanya Anjaria
Hearing: 9.7.2019Pronounced: 6.9.2019

Heard together (2 matters)

I.T.A. No. 4291/Mum/2018
I.T.A. No. 4292/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 vide respective orders, pertaining to A.Y. 2010-11 & 2013-14.

2.

Brief facts of the case are that the assessee in this case is engaged in the business of metal trading. 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. The Assessing Officer in this case has made 12.5% addition on account of bogus purchases resulting in disallowance as under :-

A.Y. 2010-11 Rs. 7,09,912/- A.Y. 2013-14 Rs. 12,65,097/-

3.

Upon assessee’s appeals Id CIT(A) confirmed the same.

2 Shri Ramesh Motial Jain

4.

Against above order assessee is in appeals 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 the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, I find that as held by honourable High Court of Bombay in its recent judgement in the case of principle Commissioner of income tax versus M Haji Adam & Co(ITA number 1004 of 2016 dated 11/2/2019 in paragraph 8 thereof), the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases.

7.

I respectfully following the aforesaid judgement of the honourable High Court set aside the matter to the file of the assessing officer with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases. Needless to add the assessee should be granted adequate

3 Shri Ramesh Motial Jain opportunity of being heard. Both counsel fairly agreed to the above proposition.

8.

In the result, assessee’s appeals are partly allowed. Order has been pronounced in the Court on 6.9.2019.

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