VAJRA TOOLS, MUMBAI V. ITO, 27(3)(5), MUMBAI

ITA 1636/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6248 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NOS.1636, 1637 & 1638/MUM/2019 ASSESSMENT YEARS : 2009-10, 2010-11 & 2011-12 M/S VAJRA TOOLS, GUPTE HOUSE, 1 ST FLOOR, PLOT NO.376, 6 TH ROAD, CHEMBUR, MUMBAI 400 071. PAN AAAFV2350E VS. ITO 27 ( 3 )( 5 ) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI PRAMOD NIKALJE DATE OF HEARING : 2 1 . 0 9 .20 20 DATE OF PRONOUNCEMENT : 22 .0 9 . 20 20 O R D E R THESE ARE APPEALS BY THE ASSESSEE WHEREIN THE ASSES SEE IS AGGRIEVED THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING 100% DIS ALLOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDERS FOR CONCERNED ASSESSMENT YEA RS AS UNDER: ASSESSMENT YEAR D ISALLOW ANCE ON ACCOUNT OF ALLEGED BOGUS PURCHASE (RS.) 2009 - 10 8,83,246 2010 - 11 1,51,268 2011 - 12 3,55,738 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THI S CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF INDUSTRIAL DIAMOND DRILL BITS. THE ASSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT THAT ASSESSEE HAS MADE BOGUS PURCHASES. THE ASSESSEE SUB MITTED, THE PURCHASE ITA NO.1636, 1637 & 1638/MUM/2019 VAJRA TOOLS 2 VOUCHERS AND THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL. HOWEVER, THE SUPPLIERS WERE NOT PRODUCED BEFORE THE ASSESSING OF FICER. SALES IN THIS CASE WERE NOT DOUBTED, NO ADVERSE INFERENCE ON ANY OTHER ASPE CT OF ASSESSEES WORKING WAS RECORDED. THE ASSESSING OFFICER IN THIS CASE HAS M ADE 100% ADDITION ON ACCOUNT OF BOGUS PURCHASE . UPON ASSESSEES APPEAL LEARNED CIT A CONFIRMED THE SAME. 3. AGAINST ABOVE ORDER OF THE CIT(A), ASSESSEE IS I N APPEAL BEFORE THE ITAT. 4. I HAVE HEARD THE LEARNED DR AND PERUSED THE RECO RDS. UPON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCES HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. 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. THE RATIONALE BEING NO SAL ES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONB LE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (I N WRIT PETITION NO 2860, ORDER DT 18.6.2014). IN THIS CASE THE HONBLE HIGH COURT HAS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBT ED. HOWEVER, IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENCY. 5. IN THE PRESENT CASE, FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THR OUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMENT OF T AX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PURCHASES BY T HE ASSESSEE, I FIND, AS HELD BY HONBLE HIGH COURT OF BOMBAY IN ITS RECENT JUDGMENT IN THE CASE OF PCIT VS. M HAJI ADAM &CO (ITA NO. 100 OF 2016 DATED 11/2/2019 IN PA RAGRAPH 8 THERE OFF) ,THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIM ITED TO THE EXTENT OF BRINGING THE GROSS PROFIT RATE ON SUCH PURCHASES AT THE SAME RAT E AS OF OTHER GENUINE PURCHASES. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO FOLL OW THE AFORESAID HONBLE JURISDICTIONAL HIGH COURT DECISION AND RESTRICT THE DISALLOWANCE TO THE DIFFERENCE ITA NO.1636, 1637 & 1638/MUM/2019 VAJRA TOOLS 3 BETWEEN THE GROSS PROFIT ON NORMAL PURCHASES AND TH E GROSS PROFIT OF THE BOGUS PURCHASES. I DIRECT ACCORDINGLY. 6. IN THE RESULT THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE I TAT RULES ON 22/09/2020. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED : 22 ND SEPTEMBER, 2020. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), 4. THE C I T 5. THE DR, SMC BENCH BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI