SHRI DHANPAT RAJMAL MEHTA, MUMBAI V. ITO 19(1)(4), MUMBAI

ITA 4504/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3288 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 16-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Keywords: Bogus purchase; Set aside
• Section: 201; 6

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) I.T.A. NO. 4504 /MUM/ 201 8 (ASSESSMENT YEAR 20 11 - 1 2 ) SHRI DHANPAT RAJMAL ME H TA 2 ND FLOOR, 17, AMODAR NIWAS 32/34, C.P.TANK ROAD MUMBAI - 400 004. PAN : AEYPC6575L V S . ITO 19(1)(4) ROOM NO. 222 2 ND FLOOR MATRU MANDIR TARDEO ROAD MUMBAI - 400007. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI NEELKANTH KHANDELWAL DEPARTMENT BY SHRI CHAITANYA ANJARIA DATE OF HEARING 4 .7 . 201 9 DATE OF PRONOUNCEMENT 20.8 . 201 9 O R D E R THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED CIT - A HAS ERRED IN SUSTAINING RS. 10,13,400/ - DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 25.4.2018 PERTAINING TO ASSESSMENT YEAR 2011 - 12. 2 . B RIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF 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. THE INCOME TAX OFFICER IN THIS CASE HAS MADE 12.5 PERCENT ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE OF RS. 21,54,337/ - . SHRI DHANPAT RAJMAL ME H TA 2 3. U PON ASSESSEE S APPEAL ID CIT( A ) DIRECTED THAT GROSS PROFIT ALREADY DISCLOSED @ 6 . 62% SH O ULD BE REDUCED FROM THE DISALLOWANCE. HENCE HE SUSTAINED DISALLOWANCE OF RS. 10,13,400/ - . 4 . AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. 5 . U PON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE I NFERENCE HA S 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, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DO NE. 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 TH E 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. 6. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THAT ASSE SSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON - 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 RECENT JUDGEMENT IN THE CASE OF PRINCIPLE COMMISSIONER OF INCOME TAX VERSUS M. HAJI ADAM & CO. (ITA NUMBER 1004 OF 2016 DATED 1 1/2/2019 IN PARAGRAPH 8 THEREOF ) 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. LEARNED COUNSEL OF THE ASSESSEE IN THIS REGARD GA VE A WORKING OF THE RESULTING DISALLOWANCE IN THIS CASE. HOWEVER, THIS NEEDS FACTUAL VERIFICATION BY THE ASSESSING OFFICER. SHRI DHANPAT RAJMAL ME H TA 3 7. I RESPECTFULLY FOLLOWING THE AFORESAID JUDGEMENT OF THE HONOURABLE HIGH COURT SET ASIDE THE MATTER TO THE FILE OF THE 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 O PPORTUNITY OF BEING HEARD. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 20.8 . 201 9 . SD/ - (SH A MIM YAHYA ) ACCOUNTANT MEMBER MUMBAI ; DATED : 20 / 8 / 20 1 9 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 RE GISTRAR ) PS ITAT, MUMBAI