RHEIN CHEMICALS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER, WARD 1(3), KALYAN

The first common issue relates to the validity of reopening and the second common issue relates to the confirmation of disallowance of 100% of bogus purchase

Brief facts of the case are as under: In these years, the Assessing Officer had received information from the Sales Tax Department that the assessee had affected purchases from the parties listed below, which were declared as suspicious. These parties, in their statements / on the basis of spot verification/survey action, etc, duly admitted the fact that they have not actually delivered any goods, but have merely provided the bills and refunded back cash to the buyers, after deducting their nominal commission. The details of purchases made from such parties are as under:

Sr. Name of the party A.Y. 2009-10 A.Y. 2010-11 No. 1 M/s Sandesh Sales Pvt. Ltd 10,504/- 2 Umiya Sales Agency Pvt. Ltd. 2,80,280/- 3 Ramanand Sales Pvt. Ltd. 13,000/- 4 Blue Moon Trading Pvt. Ltd. 1,07,089/- Total 2,90,784/- 1,20,089/-

In view of the above facts, the relevant details such as copy of the affidavits filed by these hawala parties, their statement recorded by the Sales Tax Department, etc, were obtained by the Assessing Officer. The examination of these details clearly revealed that the said parties were indulging in issue of bogus bills, without physical suppressed its taxable income by debiting the purchases from these hawala parties.

During the assessment proceedings, the assessee was asked to produce the furnish details such as vehicle no, type of vehicle, transport receipts, octroi receipts, etc, for establishing movement of goods from these suppliers to the assessee. In compliance, the assessee failed to produce the satisfactory documentary evidences to substantiate these purchases. The Assessing Officer therefore required the assessee to produce the above mentioned panics for examination in person, to prove their identity.

Against this order, the assessee is in appeal before the ITAT.

I have heard both the ld. Counsel and perused the records. 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. 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 saving 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.

Accordingly, I modify the order of learned CIT(A) and direct that the disallowance be limited to 12.5% of the bogus purchase. The ld. Counsel of the assessee fairly agreed to the above proposition.