MASINGRAM CHOUDHARY, Mumbai V. ITO 19 (2)(3), Mumbai

ITA 1748/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1796 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 25-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMA
• Keywords: Bogus purchase; Opportunity of being heard; Set aside
• Section: 201

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC - II BENCH, MUMBAI SHRI SHAMIM YAHYA ( A M) I.T.A. NO. 1748 /MUM/ 201 9 (ASSESSMENT YEAR 2010 - 11 ) MASINGRAM CHOUDHARY 73/A, 1 ST FLOOR GANGA HOUSE, PRABHU SHREE RAM MANDIR MARG 4 TH KUMBHARWADA MUMBAI - 400 004. PAN : ADAPC1740L V S . ITO - 19(2)(3) MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY NONE DEPARTMENT BY MS. SMITA VERMA DATE OF HEARING 25 . 11 . 20 20 DATE OF PRONOUNCEMENT 25 . 11 . 20 20 O R D E R THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) [IN SHORT LEARNED CIT(A)] HAS ERRED IN SUSTAINING 12.5% DISALLOWANCE OF RS. 12,02,725/ - ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 16 . 4 .201 8 PERTAINING TO ASSESSMENT YEAR 2010 - 1 1 . 2. B RIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METAL. THE ASSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT THAT ASSESSEE HAS MAD E BOGUS PURCHASE OF RS. 96,21,799 / - . THE ASSESSEE SUBMITTED THE PURCHASE VOUCHERS AND THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL. HOWEVER THE SUPPLIERS WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER. SALES IN THIS CASE WERE NOT DOUBTED. 3. THE INCOME TAX OFFICER IN THIS CASE HAS MADE 12.5% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE OF RS. 12,02,725 / - . MASINGRAM CHOUDHARY 2 4. UPON ASSESSEES APPEAL LEARNED CIT( A ) CONFIRMED THE SAME . 5. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. I HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORDS. 6. U PON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE S HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUC E THE SUPPLIERS. 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. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP E NTERPRISES (IN WRIT PETITION NO 2860, ORDER DT . 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE P URCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENCY. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GRE Y MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON - PAYMENT OF TAX 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 THE ASSESSEE, I FIND THAT AS HELD BY HONOURABLE HIGH COURT OF BOMBAY IN ITS R ECENT JUDGEMENT IN THE CASE OF P RINCIPLE COMMISSIONER OF INCOME TAX VERSUS M . HAJI ADAM & CO . (ITA NUMBER 1004 OF 2016 DATED 11/2/2019 IN PARAGRAPH 8 THERE OFF) , THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROSS PROFIT RATE ON SUCH PURCHASES AT THE SAME RATE AS OF OTHER GENUINE PURCHASES. 7 . I RESPECTFULLY FOLLOWING THE AFORESAID JUDGEMENT OF THE HONOURABLE HIGH COURT SET ASIDE THE MATTER TO THE FILE OF THE ASSESS ING OFFICER WITH THE DIRECTION TO RESTRICT THE ADDITION AS REGARDS THE BOGUS PURCHASES BY BRINGING THE GROSS PROFIT RATE ON SUCH BOGUS PURCHASES AT THE SAME RATE AS THAT OF THE OTHER MASINGRAM CHOUDHARY 3 GENUINE PURCHASES. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUAT E OPPORTUNITY OF BEING HEARD . 8. IN THE RESULT , ASSESSEES APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT RULES BY PLACING THE RESULT ON NOTICE BOARD ON 25.11.2020. SD/ - (SH A MIM YAHYA ) ACCOUNTANT MEMBE R MUMBAI ; DATED : 25 / 1 1 / 20 20 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI