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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Pawan Singh (JM)
Per Shamim Yahya (AM) :- These are appeals by the assessee wherein the assessee is aggrieved that the learned CIT-A has erred in sustaining 100% disallowance on account of bogus purchases for A.Y. 20091-10 & 2010-11.
Brief facts of the case are that assessee is engaged in the business of manufacture and export of stainless steel hardware.
Information was received from the sales tax Department that assessee has indulged in bogus purchases. The assessment was accordingly reopened. The assessing officer in this case has made 100% addition on account of bogus purchase amounting to Rs. 5,67,341/- for A.Y. 2009-10 and Rs. 11,67,074/- for A.Y. 2010-11.
Upon assessee’s appeal Id CIT A confirmed the same.
Against above order assessee is in appeal before the ITAT. We have heard both the counsel and perused the records.
2 Mr. Sohil P. Shah
Upon careful consideration we find that assessee has provided the documentary evidence for the purchases. Adverse inference has been drawn due to the inability of the assessee to produce the suppliers. We find that in this case the, production or 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 this was a case of trader and in that case all the supplies were to 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 our considered opinion on the facts and circumstances of the case the 12.5 % disallowance out of the bogus purchases meets the end of justice. 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. Learned Counsel of the assessee fairly accepted this proposition.
In the result, these appeals filed by the assessee stand partly allowed. Order has been pronounced in the Court on 19.8.2019.