TEJAS HARAKCHAND SHAH, MUMBAI V. INCOME TAX OFFICER 30(3)(4), MUMBAI

ITA 6271/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2790 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 16-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHTAR ALI ANSARI
• Assessee Lawyers: KHUSHAL SHAH
• Keywords: Bogus purchase; Reasonable cause; Set aside
• Section: 201

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI AMARJIT SINGH (JM) I.T.A. NO. 6271 /MUM/ 201 7 (ASSESSMENT YEAR 20 09 - 10 ) SHRI TEJAS HARAKCHAND SHAH 23, PARSURAMPURIYA ENCLAVES HAJI BAPU ROAD, MALAD EAST MUMBA I - 400 097. PAN : AACPS7350K V S . ITO - 30(3)(4) C - 10/709, PRATYAKSHAKAR BHAVAN, BKC BANDAR EAST MUMBAI - 400 051. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI KHUSHAL SHAH DEPARTMENT BY SHRI AKHTAR ALI ANSARI DATE OF HEARING 09.01 . 20 19 DATE OF P RONOUNCEMENT 02 . 0 3 . 20 20 O R D E R PER SHAMIM YAHYA (AM) : - THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED CIT - A HAS ERRED IN SUSTAINING 10 % DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 5.6.2017 PERTAINING TO ASSESSMENT YEAR 2009 - 10. 2. AT THE OUTSET IT IS NOTED THAT THERE IS A DELAY OF 40 DAYS IN FILING THE APPEAL. THE REASONABLE CAUSE FOR THE DELAY HAS BEEN ATTRIBUTED TO THE DELAY IN TAX CONSULTANTS OFFICE. UPON CAREFUL CONSIDERATION AND HEA RING THE PARTIES, WE CONDONE THE DELAY. 3. B RIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF DEALING IN FERROUS AND NON - FERROUS METAL. 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 SHRI TEJAS HARAKCHAND SHAH 2 THIS CASE WERE NOT DOUBT ED. THE INCOME TAX OFFICER IN THIS CASE HAS MADE 10% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE OF RS. 13,67,302/ - . 4. UPON ASSESSEE S APPEAL LEARNED CIT(A) CONFIRMED THE SAME . 5. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE TH E ITAT. WE H AVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. 6. UPON CAREFUL CONSIDERATION WE F IND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HA S BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE TH E SUPPLIERS. WE 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 DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. TH IS 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 THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCH ASES 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 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 THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PURCHASES BY THE ASSESSEE, WE FIND THAT AS H ELD 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 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. SHRI TEJAS HARAKCHAND SHAH 3 7. 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 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 OP PORTUNITY OF BEING HEARD . LEARNED COUNSEL OF THE ASSESSEE F AIR LY AGREED TO THE ABOVE. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 2 .3 . 20 20 . SD/ - SD/ - ( AMARJIT SINGH ) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 0 2 /03 / 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 FIL E. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI