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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
O R D E R Per Shamim Yahya (AM) :
This is an appeal by the assessee wherein the assessee is aggrieved that learned CIT(A) has erred in sustaining 30% disallowance on account of bogus purchases amounting to Rs. 42,56,507/-.
The Assessing Officer in this case has made 100% addition on account of bogus purchase amounting to Rs. Rs. 1,41,88,357/-. Upon assessee’s appeal learned CIT(A) sustained the same.
Against the above order assessee 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.
4. Upon careful consideration, we find that the assessee has provided the documentary evidence for the purchase. Adverse inferences have been drawn due to 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 Hon'ble Jurisdictional High Court decision in the case of Nikunj Eximp Enterprises Enterprises (WP No. 2860 order dated 18.6.2014). In this case Hon'ble High Court has upheld 100% allowance for the purchase said to be bogus when sales are not doubted. However, in that case all the supplies were to Government Agency.
In the present case 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 expenses of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that as held by Hon'ble Bombay High Court in its recent judgement in the case of PCIT Vs. Mohommad Haji Adam (Income Tax Appeal No. 1004 of 2016 vide Judgement dated 23.4.2019), 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. The observation of the honourable High Court is reproduced as under:-
In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-
“So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.”
9 In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs.
We 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 opportunity of being heard.
In the result, appeal is allowed for statistical purposes. Order has been pronounced in the Court on 9.5.2019.