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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM (Assessment Year: 2009-10) M/s. Super Tech Industries, ITO-19(3)(4) Room No.12, 1st Floor, Room No. 210, 2nd Floor, 3rd Kumbharwada Lane, Matru Mandir, Grant Road, Vs. 164, Ld. Departmental Representative. Mumbai-400 007 M. G. Mahimtura Marg, Mumbai-400 004 PAN/GIR No. ABIFS 8776 N (Appellant) : (Respondent) Appellant by : Shri N. G. Rao : Shri C. S. Anjaria Respondent by : 15.01.2019 Date of Hearing Date of Pronouncement : 04.02.2019 O R D E R Per Shamim Yahya, A. M.:
This is an appeal by the assessee wherein the assessee is aggrieved that the learned Commissioner of Income Tax (Appeals)-52, Mumbai (‘ld.CIT(A) for short) dated 04.01.2018 has erred in sustaining 12.5% disallowance on account of bogus purchases amounting to Rs.6,20,220/- for the assessment year (A.Y. 2009-10).
Brief facts of the case are that the assessee is engaged in the business of trading in ferrous and non-ferrous metal. The assessee filed its return of income on 26/09/2009 declaring total income of Rs.5,517/-. The Sales Tax authorities had carried out a detailed investigation and had recorded statements and/or obtained affidavits/depositions from the various hawala dealers who had admitted that they are only engaged in providing accommodation entries of purchases/sales without any actual delivery of goods. This information was received by the AO through the DGIT(Inv.), Mumbai. Since, our assessee was also one of the beneficiaries of the accommodation entries provided by the alleged hawaia dealers, M/s Romex Metal & Tubes P Ltd (Rs.2,00,200/-), M/s Prakash Steel India (Rs.2,05,627/-), M/s Lahree Impex (Rs.2,08,933/-), M/s Manglik Metal (India) (Rs.2,10,149/-), M/s Samco Steel & Alloys (Rs.6,05,090/-), M/s Malani Metal (India) (Rs.6,88,183/-), M/s Shree Yamuna Impex (Rs.4,20,498/-), M/s Padmavati Stoei & Alloys (Rs.1,85,120/-), M/s Hindustan Steel Impex (Rs.9,27,564/-) and Adhunik Steel Corporation (Rs .3,10,400/-) totally aggregating to Rs.49,61,764/-, the assessment of the assessee was reopened by issue of notice u/s. 148.
To ascertain the genuineness of the said purchases, the AO asked the assessee to produce the parties alongwith their books of accounts and also furnish evidences to establish the genuineness of the said purchase transactions. The assessee was unable to produce the said parties. Further, the vital documents related to transportation of the material such as delivery challan, transport receipts, octroi receipts, weigh-bridge slip, etc. could not be submitted by the assessee. However, the assessee could tally the bogus purchases with the corresponding sales. Therefore, the AO concluded that the assessee had made the said purchases from the grey market. Thereafter, the AO proceeded to make an addition of Rs.6,20,220/- being 12.5% of the alleged bogus purchases of Rs.49,61,764/-.
Upon the assessee’s appeal, the ld. CIT(A) confirmed the same.
Against the above order, the assessee is in appeal before the ITAT.
We have heard both the counsel and perused the records. In support of his case, learned counsel of the assessee has placed reliance upon the decision of Hon’ble Gujarat High Court in the case of Pr CIT vs. T R Kapadia (in Tax Appeal no 691 of 2017). In this case, the Hon’ble High Court has confirmed the deletion of disallowance on account of alleged bogus purchase as necessary documentary evidence for the purchase were on record. The Special Leave Petition against this order has been dismissed by the Hon’ble Supreme Court in its decision dated 04.05.2018 SLP CIVIL Diary no 12670/2018.
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 our 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 taxed, the gross profit already shown by the assessee and offered to tax should be reduced 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 this proposition.
In the result, this appeal filed by the assessee stands partly allowed.
Order pronounced in the open court on 04.02.2019