SANKET CHAMPAKLAL SALIYA,THANE vs. ITO WD 3(3), THANE

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ITA 730/MUM/2017Status: DisposedITAT Mumbai05 July 2017AY 2011-124 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that while the purchases were bogus, a 100% disallowance was not justified when sales were not doubted. Following precedent, the disallowance was restricted to 12.5% of the bogus purchases.

What were the facts?

The Assessing Officer disallowed 100% of the assessee's purchases as bogus. The CIT(A) sustained additions based on the gross profit rate on total business. The assessee appealed these additions.

What were the issues?

Whether 100% disallowance of bogus purchases is justified when sales are not doubted. What is the appropriate disallowance percentage for bogus purchases in such cases.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI

Before: Shri Shamim Yahya

For Appellant: Shri V.Janardhanan (DR)
For Respondent: Shri V.Janardhanan (DR)
Hearing: 04.07.2017Pronounced: 05.07.2017

O R D E R These are appeals by the assessee directed against common order of learned CIT(A) dated 30.11.2016 and pertain to assessment years 2010- 2011and 2011-2012.

2.

The issue raised is that the learned CIT(A) erred in making addition of Rs.5,38,694 for assessment year 2010-2011 and Rs.14,39,036 for assessment year 2011-2012.

3.

In these cases the Assessing Officer made a disallowance of 100% of bogus purchases amounting to Rs.5,38,694 and Rs.22,09,509 for the respective years.

1.

2 & 730/Mum/2017. Shri Sanket Champaklal Saliya. 4. Upon assessee’s appeal, the learned CIT(A) applied the gross profit rate on the total business and sustained addition of Rs.5,38,694 and 14,39,036.

5.

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

6.

I have heard both the counsel and perused the records. I find that overwhelming evidence have been referred by the authorities below that the impugned purchases are bogus. There is no evidence of the actual movement of the goods under dispute. In these circumstances learned departmental representative has referred to Hon’ble Gujarat High Court decision in the case of tax appeal no 240 of 2003 in the case of N K Industries vs Dy CIT , order dated 20.06.2016, wherein hundred percent of the bogus purchases will held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. The special leave petition against this order along with others has been dismissed by the Hon’ble Apex Courtvide order dated 16.1.2017 as under: "Delay Condoned. The special leave petitions are dismissed. Pending application(s) if any stands disposed of accordingly".

4.

I find that dismissal of special leave petition by the Hon’ble Apex Court by a simple non-speaking order does not merge order of the Hon’ble High Court with that of the Hon’ble Supreme Court. Furthermore, the addition/disallowance for bogus purchases depends upon the facts of each case.

3 & 730/Mum/2017. Shri Sanket Champaklal Saliya.

5. I find that in this case the sales have not been doubted. It is settled law that when sales are not doubted hundred percent disallowance for bogus purchase cannot be done. This proposition finds support from the Hon,ble Gujarat High Court in the same combined order as mentioned above in case of ITA no 241 therein. This proposition is further 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 purchase through the grey market gives the asseessee savings on account of non-payment of tax and others at the expense of the exchequer. In similar situation on the facts and circumstances of the case a disallowance of 12.5% of the bogus purchase has been considered to meet the end of justice in a number of cases at the Mumbai Tribunal following Hon’ble Gujarat High Court decision in the case of Simit P Seth. Accordingly I hold that the disallowance in this case should be restricted to 12.5% of the bogus purchase.

6. Learned counsel of the assessee fairly agreed to the disallowance of 12.5% of the bogus purchases. She did not press the matter any further.

7.

In the result, these appeals by the assessee stand partly allowed.

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