MUKUNDCHAND M VAGHELA HUF, MUMBAI V. ITO 19(2)(3), MUMBAI

ITA 4535/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5940 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 19-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: ADITI SHAROFF
• Keywords: Bogus purchase; Opportunity of being heard; Set aside

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) I.T.A. NO. 4535 /MUM/ 201 8 (ASSESSMENT YEAR 20 09 - 10 ) MUKUNDCHAND M. VAGHELA HUF C/O. D.C. BOTHRA & CO. LLP (CA), (FORMERLY KNOWN AS D.C. BOTHRA & CO.), 297 TARDEO ROAD , WILLE MANSION 1 ST FLOOR, OPP. BANK OF INDIA NANA CHOWK, MUMBAI - 400007. PAN : AAFHM2329P V S . ITO 19(2)(3) MATRU MANDIR 2 ND FLOOR TARDEO ROAD MUMBAI - 400 007. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI RAJKUMAR SINGH & MS. ADITI SHAROFF DEPARTM ENT BY SHRI CHAITANYA ANJARIA DATE OF HEARING 4 .7 . 201 9 DATE OF PRONOUNCEMENT 29 . 7 . 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 12.5% DISALLOWANCE ON ACCOUN T OF BOGUS PURCHASES, VIDE ORDER DATED 30.5.2018 PERTAINING TO ASSESSMENT YEAR 2009 - 10. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS CASE IS ENGAGED IN TRADING BUSINESS. 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. 3. THE INCOME TAX OFFICER IN THIS CASE HAS MADE 12.5% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE OF RS. 11,72,316/ - . UPON ASSESSEE APPEAL ID CIT - A CONFIRMED THE SAME . MUKUNDCHAND M. VAGHELA HUF 2 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 INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE S UPPLIERS. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% 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 DECISI ON IN THE CASE OF NIKUNJ EXIMP E NTERP RISES (IN WRIT PETITION NO 2860 , ORDER DT . 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHE N 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 ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSES SEE 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 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) THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROSS PR OFIT 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 ASSESSING OFFICER WITH THE DIRECTION TO RESTRICT THE ADDIT ION 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 MUKUNDCHAND M. VAGHELA HUF 3 OPPORTUNITY OF BEING HEARD . LEARNED COUNSEL OF THE ASSESSEE FAIRLY AGREED TO THE ABOVE PROPOSITION. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 29 . 7 . 201 9 . SD/ - (SH A MIM YAHYA ) ACCOUNTANT MEMBER MUMBAI ; DATED : 29 / 7 / 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 REGISTRA R ) PS ITAT, MUMBAI