DCIT RG 9(1)(2), MUMBAI vs. ANA DESIGNS P.LTD, MUMBAI

This is an appeal by the Revenue, wherein the Revenue is aggrieved that the learned CIT(A) has sustained only 12.5% disallowance on account of bogus purchases.

The Assessing Officer in these cases has made 100% addition on account of bogus purchase amounting to Rs.49,78,341. Upon assessee’s appeal, learned CIT(A) noted that the sales has not been doubted. Accordingly placing reliance upon several case laws and upon the facts of the case, he sustained 12.5% disallowance out of the bogus purchase.

Against the above order, Revenue is in appeal before the ITAT.

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. 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 selling 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 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, we confirm the order of learned CIT(A) and direct that the disallowance be limited to 12.5% of the bogus purchase.

In the result, these appeals filed by the Revenue stands dismissed.