PROTO CHEMICALS INDUSTRIES, MUMBAI V. ITO 32(2)(5), MUMBAI

ITA 218/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3976 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHARM VEER SINGH
• Keywords: Bogus purchase; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.218 /MUM/2019 ASSESSMENT YEAR : 2009-10 PROTO CHEMICAL S INDUSTRIES, 403, V STAR PLAZA, CHANDAVARKAR LANE, BORIVALI (WEST) MUMBAI 400 092. PAN AAJFP3713C VS. ITO 32(2)(5) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHESH SABOO RESPONDENT BY : SHRI DHARM VEER SINGH DATE OF HEARING : 15 .0 1 .20 20 DATE OF PRONOUNCEMENT : 02 .0 3 . 20 20 O R D E R T HIS IS AN APPEAL BY THE ASSESSEE, WHEREIN THE ASSES SEE IS AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A)-44, MUMBAI, IN SUST AINING 12.5% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF CHEMICALS. INFORMATION WAS RECEIV ED FROM THE SALES TAX DEPARTMENT THAT ASSESSEE HAS CLAIMED BOGUS PURCHASE S. THE ASSESSMENT WAS ACCORDINGLY REOPENED. THE ASSESSING OFFICER IN THI S CASE HAS MADE 15% ADDITION ON ACCOUNT OF BOGUS PURCHASE AMOUNTING TO RS 74,982/- ON APPEAL, THE LEARNED CIT(A) RESTRICTED THE ADDITION TO 12.5%. AGGRIEVED, THE A SSESSEE IS IN APPEAL BEFORE THE ITAT. 3. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RE CORDS. UPON CAREFUL CONSIDERATION, I FIND THAT ASSESSEE HAS PROVIDED TH E DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO T HE INABILITY OF THE ASSESSEE TO ITA NO.218/MUM/2019 PROTO CHEMICALS INDUSTRIES 2 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, HUNDRE D PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FRO M DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EX IMP ENTERPRISES (WRIT PETITION NO 2860, ORDER DT 18.6.2014). IN THIS CASE THE HONBL E HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGU S WHEN SALES ARE NOT DOUBTED. HOWEVER, IN THAT CASE ALL THE SUPPLIES WERE TO GOVE RNMENT AGENCY. IN THE PRESENT CASE, THE FACTS OF INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION, IN MY CONSIDERED OPINION, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE 12.5% DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. HOWEVER, IN THIS REGARD LEARNED COUNSEL OF THE ASSESSEE HAS PRAYED THAT WHEN ONLY THE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCHASE TRAN SACTIONS IS TO BE TAXED, THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE OF AROUN D 7% AND OFFERED TO TAX SHOULD BE REDUCED FROM THE STANDARD 12.5% BEING DIR ECTED TO BE DISALLOWED ON ACCOUNT OF BOGUS PURCHASE. IN SUCH A SITUATION, HE FURTHER PLEADED THAT THE ITAT SHOULD RESTRICT THE DISALLOWANCE TO 5%. 4. UPON CAREFUL CONSIDERATION I FIND CONSIDERABLE C OGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, AS OTHERWISE I T WILL BE DOUBLE JEOPARDY TO THE ASSESSEE. ACCORDINGLY, THE ORDER OF LEARNED CIT-A I S SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE TO 5% OF THE BOGUS PURCHASES. LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ACCEPTED TH IS PROPOSITION. 5. IN THE RESULT THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 ND MARCH, 2020. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED : 2 ND MARCH, 2020. ITA NO.218/MUM/2019 PROTO CHEMICALS INDUSTRIES 3 SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI