RAPAR TRADING PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER-8(1)(1), MUMBAI

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ITA 4354/MUM/2017Status: DisposedITAT Mumbai05 February 2018AY 2010-114 pages
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What did the Tribunal hold?

The Tribunal held that when sales are not doubted, a 100% disallowance for bogus purchases is not permissible. However, considering the purchases were made from the grey market, a disallowance of 12.5% of the bogus purchases was deemed to meet the ends of justice.

What were the facts?

The assessee made purchases of Rs.35,27,193/- from parties identified as hawala dealers by the Sales Tax department, who allegedly issued bills without delivery of goods. Notices to these parties were returned unserved. The Assessing Officer made a 100% disallowance of these purchases.

What were the issues?

Whether 100% disallowance of purchases is justified when sales are not doubted, and if not, what is the appropriate disallowance for grey market purchases.

Which sections of the Income-tax Act were involved?

Section 133(6)

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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SHAMIM YAHYA

For Appellant: Ms. N. Hemalatha
For Respondent: Ms. N. Hemalatha

O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order by the Commissioner of Income Tax (Appeals) dated 21.03.2017 and pertains to the assessment year 2010- 11.

2.

The grounds of appeal

read as under:

1.

1. On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax Officer, Appeals 14, Mumbai, hereinafter referred to as the Ld. CIT (A), has erred in law in confirming 100% addition in (A.Y. 2010-11) Rapar Trading Private Limited vs. ITO respect of Hawala Purchases of Rs.35,27,193/-. The said addition may please be deleted. 2. Without prejudice to the above, the addition if any in respect of such purchases may be restricted to Gross Profit Only.

3.

Brief facts of the case are that as per information received from office of DGIT(Inv), Mumbai, the assessee made purchases of Rs.35,27,193/- from two different parties as mentioned in the assessment order who are proclaimed as Hawala dealers by Sales Tax department. These parties were issuing bills without delivery of goods or services. During the course of assessment proceedings, the Assessing Officer issued various notices. Further, during the re-assessment proceedings, notices u/s. 133(6) dated 31.12.2015 were issued and sent by speed post to both the parties calling for details of transactions during the period relevant to the assessment year 2010-11.

However, the notices issued have been returned by the postal authorities. As per the report of the Ward Inspector, notices issued to the above said parties could not be served as they were not available on the given address.

4.

In these circumstances, the Assessing Officer held the purchases to be bogus and made 100% disallowance thereof. Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) noted that the assessee has not appeared before him. Hence, he upheld the addition made by the Assessing Officer.

5.

Against the above order, the assessee is in appeal before us.

6.

I have heard the ld. Departmental Representative. None appeared on behalf of the assessee despite notice.

(A.Y. 2010-11) Rapar Trading Private Limited vs. ITO 7. Upon careful consideration I 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. This proposition is supported from Hon’ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee selling 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 the 12.5% disallowance out of the bogus purchases meets the ends of justice. This is following the decision of the Hon’ble Gujarat High Court in the case of Simit P. Sheth (2013) 356 ITR 451, followed by the ITAT Mumbai Benches in a number of cases.

8.

Accordingly, I modify the order of the ld. Commissioner of Income Tax (Appeals) and direct that the disallowance be limited to 12.5% of the bogus purchase.

9.

In the result, this appeal by the assessee stands allowed for statistical purposes. Order pronounced in the open court on 05.02.2018

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