SUMANGALA MACHINERY,THANE vs. ITO WD 1(4), KALYAN

ITA 57/MUM/2017Status: DisposedITAT Mumbai01 June 2017AY 2009-103 pages

AI SummaryPartly Allowed

What did the Tribunal hold?

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

What were the facts?

The assessee's sales were not doubted, but the AO made a 100% disallowance on account of bogus purchases based solely on information from the Sales Tax Department without conducting any independent enquiry. The assessee argued that purchases were made from the grey market.

What were the issues?

Whether 100% disallowance of purchases is justified when sales are not doubted and if purchases from the grey market warrant a lesser disallowance.

Which sections of the Income-tax Act were involved?

Not explicitly mentioned, but relates to disallowance of expenses and addition for undisclosed income.

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SHAMIM YAHYA

For Appellant: Ms. Neha Paranjape

For Respondent: Mr. Sumit Kumar

Date of Hearing – 01.06.2017 Date of Order - 01.06.2017

O R D E R PER: SHAMIM YAHYA

These are the appeals by the assessee wherein the assessee is aggrieved by the order of the learned CIT-A wherein hundred percent disallowance on account of bogus purchase has been sustained as under:-

Assessment Amount (Rs.) Year 2009-10 2166184.00 2010-11 2303197.00

58/Mum/2017 M/s. Sumangala Machinery 2. I have heard both the counsel and perused the records. I find that in this case the sales have not been doubted. The A.O. has made the disallowance solely based upon information from Sales Tax Department. No enquiry whatsoever has been done by the A.O. thereof. It is settled law that when sales are not doubted hundred percent disallowance for bogus purchase cannot be done. This proposition is supported by honourable 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 assessee saving 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. Accordingly I hold that the disallowance in this case should be restricted to 12.5% of the bogus purchase. Learned Counsel of the assessee has fairly agreed to this proposition.

Learned departmental representative has placed reliance upon a Honourable Gujarat High Court decision wherein hundred percent disallowance of bogus purchase has been upheld. Special leave petition against this order has been dismissed by the honourable

58/Mum/2017 M/s. Sumangala Machinery apex court. I find that dismissal of SLP by a non speaking order by the honourable apex court doesn't merge the order of the honourable High Court with that of the apex court. Moreover such disallowances depend upon the facts and circumstances of the case as expounded by honourable jurisdictional High Court in the case of Nikunj Eximp Enterprises. Accordingly I direct that the disallowance be restricted in this case to 12.5% of the bogus purchase.

4.In the result this appeals filed by the assessee stands partly allowed.

Order pronounced in the Open Court on 01.06.2017

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