AVIDITYA CHEMICALS & PHARMACEUTICALS, AMBERNATH V. ITO WD 2 (1), KALYAN

ITA 4427/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3748 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 27-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMA
• Keywords: Bogus purchase

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI AMARJIT SINGH (JM) I.T.A. NO. 4427/MUM/2019 (ASSESSMENT YEAR 2009-10) M/S. AVIDITYA CHEMICALS & PHARMACEUTICALS PLOT NO. 40, MIDC, MORIVALI SECTION, AMBERNATH-421501. PAN : AACFA0563E VS. ITO-2(1) KALYAN ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY NONE DEPARTMENT BY MS. SMITA VERMA DATE OF HEARING 22.02.2021 DATE OF PRONOUNCEMENT 01.03.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSES SEE IS AGGRIEVED THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [IN SH ORT LEARNED CIT(A)] HAS ERRED IN SUSTAINING 100% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 5.4.2019 FOR A.Y. 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENG AGED IN THE BUSINESS OF PHARMACEUTICAL AND CHEMICALS BUSINESS. INFORMATION WAS RECEIVED FROM THE SALES TAX DEPARTMENT THAT ASSESSEE HAS THAT IN BOGU S PURCHASES. THE ASSESSMENT WAS ACCORDINGLY REOPENED. THE ASSESSING OFFICER IN THIS CASE HAS MADE 100% ADDITION ON ACCOUNT OF BOGUS PURCHASE AMO UNTING TO RS. 3,55,680/-. 3. UPON ASSESSEES APPEAL ID CIT(A) CONFIRMED THE S AME. 4. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORDS. M/S. AVIDITYA CHEMICALS & PHARMACEUTICALS 2 5. UPON CAREFUL CONSIDERATION WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFE RENCES HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. WE NOTE THE ASSESSING OFFICER HAS NOT EVEN ISSUED NOTICE TO THE SUPPLIERS. THUS THERE IS NO INDEPENDENT INQUIRY BY THE ASSESSING OFFICER. WE FI ND 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 CAN NOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH CO URT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DATED 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUND RED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE N OT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENC Y. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE P URCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GI VES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION IN OUR CONSIDERED OPINION ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE 12.5 % DISALLOWANCE OUT OF THE BOGUS P URCHASES MEETS THE END OF JUSTICE. HOWEVER IN THIS REGARD WE NOTE THAT THE AS SESSEE IN GROUNDS OF APPEAL PRAYED THAT WHEN ONLY THE PROFITS EARNED BY THE ASS ESSEE ON THESE BOGUS PURCHASE TRANSACTION IS TO BE TAXED THE GROSS PROFI T ALREADY SHOWN BY THE ASSESSEE AND OFFERED TO TAX SHOULD BE REDUCED FROM THE STANDARD 12.5% BEING DIRECTED TO BE DISALLOWED ON ACCOUNT OF BOGUS PURCH ASE. 6. UPON CAREFUL CONSIDERATION WE FIND CONSIDERABLE COGENCY IN THE CONTENTION OF THE ASSESSEE AS OTHERWISE IT WILL BE DOUBLE JEOPARDY TO THE ASSESSEE. ACCORDINGLY WE MODIFY THE ORDER OF TEAMED CIT(A) AND DIRECT THAT THE DISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5 % O F THE BOGUS PURCHASES AS REDUCED BY THE GROSS PROFIT RATE ALREADY DECLARED B Y THE ASSESSEE ON THESE TRANSACTIONS. M/S. AVIDITYA CHEMICALS & PHARMACEUTICALS 3 7. IN THE RESULT THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 1.3.2021. SD/- SD/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 01/03/2021 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