SAGATARAM D. PATEL, MUMBAI V. ITO , 19(3)(2), MUMBAI

ITA 3381/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2470 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Keywords: Bogus purchase; Opportunity of being heard; Set aside

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA (AM) I.T.A. NO.3379 TO 3381/ MUM/2018 (ASSESSMENT YEAR: 2009 - 10, 2010 - 11 AND 2011 - 12) SHRI. SAGATARAM D. PATEL 184/15A, SOMJI BUILDING, 2 ND FLOOR, 3 RD KUMBHARWADA, MUMBAI 400004 / V. ITO 19(3)(2) ROOM NO. 224, 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI 400007 PAN : AAAPP6045J ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY: SHRI. NEEL KHANDELWAL REVENUE BY: SHRI. CHAITANYA ANJARIA / DATE OF HEARING : 26.08.2019 / DATE OF PRONOUNCEMENT : 03.09 .2019 / O R D E R PER SHAHMIM YAHYA, ACCOUNTANT MEMBER: THESE ARE AN APPEAL S BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED CIT - A HAS ERRED IN SUSTAINING 12.5% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 09.10.2017 PERTAINING TO ASSESSMENT YEAR 2009 - 10, 2010 - 11, 2011 - 12 RESPECTIVELY. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS CASE IS ENGAGED IN BUSINESS OF TRADING IN FERROUS AND NON FERROUS METALS. THE ASSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT THAT ASSESSEE HAS MADE BOGUS PURCHASES. 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. SHRI. SAGATARAM D. PATEL I.T.A. NO.3379 TO 3381/MUM/2018 2 3. THE INCOME TAX OFFICER IN THIS CASE HAS MADE 12. 5% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE AS UNDER AY 2009 - 10 OF RS. 9,31,852/ - , AY 2010 - 11 OF RS. 7,49,746/ - AND AY 2011 - 12 OF RS. 9,63,509/ - . UPON ASSESSEES APPEAL ID CIT A CONFIRMED THE SAME. 4. AGAINST ABOVE ORDER ASSESSEE IS I N APPEAL BEFORE THE ITAT. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. 5. UPON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSE E 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, 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 ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES 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 THRO UGH THE GREY 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 FI ND THAT AS HELD BY HONOURABLE HIGH COURT OF BOMBAY IN ITS RECENT JUDGEMENT IN THE CASE OF PRINCIPLE 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 PURC HASES 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. SHRI. SAGATARAM D. PATEL I.T.A. NO.3379 TO 3381/MUM/2018 3 6. I RESPECTFULLY FOLLOWING THE AFORESAID JUDGEMENT OF THE HONOURABLE HIGH COURT SET ASIDE THE MATTER TO THE FILE OF TH E ASSESSING 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 GENUINE PURCHASES. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. LEARNED COUNSEL OF THE ASSESSEE FAIRLY AGREED TO THE ABOVE PROPOSITION 7. IN THE RESULT ASSESSEE'S APPEAL IS PARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED IN THE COURT ON 0 3 . 0 9 .2019. S D / - (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED: 0 3 .0 9 .2019 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI