M/S.SANJAY METAL CORPORATION, MUMBAI V. INCOME TAX OFFICER, 19(3)(2), MUMBAI

ITA 5297/MUM/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9657 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 14-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Bogus purchase; Opportunity of being heard; Set aside
• Section: 201

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI PAWAN SINGH (JM) I.T.A. NO. 5297 /MUM/ 201 8 (ASSESSMENT YEAR 20 09 - 10 ) I.T.A. NO. 5298 /MUM/2018 (ASSESSMENT YEAR 20 1 0 - 1 1 ) M/S. SANJAY METAL CORPORATION 12/B, 2 N D FLOOR 52/54, C.P. TANK ROAD MUMBAI - 400 004. PAN : AAAFS4988B V S . ITO - 19(3)(2) MATRU MANDIR NANA CHOWK MUMBAI - 400 007. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI VIMAL PUNMIYA DEPARTMENT BY SHRI AKHTAR H. ANSARI DATE OF HEARING 1 . 10 . 201 9 DATE OF PRONOUNCEMENT 4.12 . 201 9 O R D E R PER SHAMIM YAHYA (AM) : - THE S E ARE APPEAL S BY THE ASSESSEE AGAINST RESPECTIVE ORDERS OF LEARNED CIT(A) WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING 12.5% DISALLOWANC E ON ACCOUNT OF BOGUS PURCHASES, PERTAINING TO ASSESSMENT YEARS 2009 - 10 & 2010 - 11. 2. B RIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METAL. THE ASSESSMENT IN THIS CASE WAS REOPENE D 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 ASSESSIN G OFFICER. SALES IN THIS CASE WERE NOT DOUBTED. THE INCOME TA X OFFICER IN THIS CASE HAS MADE 12.5% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE OF RS. 8,88,481/ - FOR A.Y. 2009 - 10 & RS. 5,50,332/ - FOR A.Y. 2010 - 11 . M/S. SANJAY METAL CORPORATION 2 3. UPON ASSESSEES APP EAL ID CIT ( A ) CONFIRMED THE SAME . 4. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. 5. UP ON CAREFUL CONSIDERATION WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURC HASE. ADVERSE INFERENCE S HAVE 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 PURC HASE 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 E XIMP E NTERP RISES (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 INDICAT E 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. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMB EDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIA TED PURCHASES BY THE ASSESSEE, WE 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 D ATED 11/2/2019 IN PARAGRAPH 8 THERE OFF), 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. 6. WE RESPECTFULLY FOLLOWING THE AFORES AID 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 TH AT OF THE M/S. SANJAY METAL CORPORATION 3 OTHER GENUINE PURCHASES. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD . 7. IN THE RESULT , ASSESSEE'S APPEAL S ARE PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 4.12 . 201 9 . SD/ - SD/ - ( PAWAN S INGH ) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 4 / 1 2 / 20 1 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CI T(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI