RADIUM STEEL, MUMBAI V. ITO 19 (3)(1), MUMBAI

ITA 5432/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7430 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 21-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMATHA MULLAMUDI
• Assessee Lawyers: P RIYANKA JAIN
• 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. 5432 /MUM/ 201 8 (ASSESSMENT YEAR 20 09 - 10 ) M/S. RADIUM STEEL 7, HEERA BUILDING 1 ST PARSIWADA LANE MUMBAI - 400 004. PAN : AAEFR6166J V S . ITO 19(3)(1) MATRU MANDIR NANA CHOWK MUMBAI - 400 007. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY MS. PRIYANKA JAIN DEPARTMENT BY MS. SAMATHA MULLAMUDI DATE OF HEARING 14 . 10 . 201 9 DATE OF PRONOUNCEMENT 06.01.2020 O R D E R PER SHAMIM YAHYA (AM) : - THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE AGGRIEVED THAT THE LEARNED CIT - A HAS ERRED IN SUSTAIN ING 12.5% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 10.8. 2018 FOR A.Y. 2009 - 10. 2. BRIEF FACTS OF THE CASE ARE TH AT THE ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF DEALING IN FERROUS AND NON - FERROUS METALS. THE ASSESSMENT WAS REOPENED UPON RECEIPT OF INFORMATION FROM SALES TAX DEPARTMENT THAT ASSESSEE HAS MADE BOGUS PURCHASES. THE ASSESSEE SUBMITTED THAT PURC HASE 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 25% ADDITION ON ACCOUNT OF BOGUS PURCH ASE RESULTING IN DISALLOWANCE OF RS. 24,33,014/ - . 3. UPON ASSESSEES APPEAL LEARNED CIT(A) REDUCED THE SAME TO 12.5%. M/S. RADIUM STEEL 2 4. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. UPON CAREFUL CONSI DERATION, WE FIND THAT THE ASSESSEE HAS PROVIDED DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE S HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. WE FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED . I T IS SETTL ED 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 T HE 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 THIS CASE ALL THE SUP PLIERS 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 THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT TH E EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PURCHASE BY THE ASSESSEE, WE FIND THAT AS HELD BY HONOURABLE HIGH COURT OF BOMBAY IN ITS R ECENT JUDGEMENT IN THE CASE OF P R INC IPLE COMMISSIONER OF INCOME T AX 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 PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROSS PROFIT RATE ON SUCH PURCHASES AT TH E SAME RATE AS OF OTHER GENUINE PURCHASES. 5 . WE 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 PURCHAS ES 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 A BOVE PROPOSITION. M/S. RADIUM STEEL 3 6 . IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 6 . 1 . 20 20 . SD/ - SD/ - ( PAWAN SINGH ) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI ; DATED : 6 / 1 / 20 20 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