SHRI. SARFARAZ ISMAIL SHAIKH, NAVI MUMBAI V. ITO WARD 28 (3)(1), NAVI MUMBAI

ITA 6625/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8020 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 23-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMAR
• Assessee Lawyers: HIRAL D SEPJAL
• Keywords: Bogus purchase; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI RAMLAL NEGI, JUDICIAL MEMBER ./ I.T.A. NO. 6625/MUM/2019 ( / ASSESSMENT YEARS : 2009-10) SHRI SARFARAZ ISMAIL SHAIK M/S. SARU TRADERS HOUSE NO. 6264/005, SLUM GANESH NAGAR GALLI, NEXT TO KRISHNA AUTOMOBILES, PHIZER ROAD, TURBHE, NAVI MUMBAI- 400705 / VS. ITO, WARD 28(3)(1) VASHI RLY STN COMPLEX, VASHI. ./ ./ PAN/GIR NO. : BATPS4623K ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : MISS. HIRAL D. SEPJAL, AR / RESPONDENT BY : SHRI V. VINOD KUMAR, DR / DATE OF HEARING 23/07/2020 !'# / DATE OF PRONOUNCEMENT 30/07 /2020 / O R D E R PER SHRI SHAMIM YAHYA- AM: THIS IS AN APPEAL BY THE ASSESSEE WHERE THE ASSESSE E IS AGGRIEVED THAT THE LD. CIT(A) HAS ERRED TO SUSTAIN PART DISAL LOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 21.08.2019, PERTA INING TO A.Y 2009- 10. BEING 12.5% OF RS. 82,63,142/- AND 100% OF RS. 4,64,990/-. ITA NO . 6625/MUM/2019. SHRI SARFARAJ ISMAIL SHAIK, MUMBAI. - 2 - ANOTHER ISSUE RAISED IS THAT LD. CIT(A) FURTHER SUS TAINING PART DISALLOWANCE ON ACCOUNT OF MISMATCH IN 26AS STATEME NT, ON ACCOUNT OF CONTRACT REPORT AT RS. 3,75,133/-. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THI S CASE IS ENGAGED IN THE BUSINESS OF BUILDING MATERIAL SUPPLIER. THE AS SESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM THE S ALES TAX DEPARTMENT THAT ASSESSEE HAS MADE BOGUS PURCHASES. THE ASSESS EE SUBMITTED THE PURCHASE VOUCHERS AND THE PAYMENTS WERE MADE THROUG H BANKING CHANNEL. HOWEVER, THE SUPPLIERS WERE NOT PRODUCED BEFORE THE AO. SALES IN THIS CASE WERE NOT DOUBTED. THE INCOME TA X OFFICER IN THIS HAS MADE 100% ADDITION ON ACCOUNT OF BOGUS PURCHASES RE SULTING IN DISALLOWANCE OF RS. 87,28,132/-. UPON ASSESSEES A PPEAL, LD. CIT(A) CONFIRMED THE SAME TO THE EXTENT OF 12.5% OF PURCHA SES AND 100% FOR PURCHASES FROM M/S. MANAV IMPEX OF RS. 4,64,990/-, WHEREIN, AO HAS NOTED THAT THE SAID PARTY HAS RESPONDED DENYING ANY TRANSACTION THE ASSESSEE. FURTHERMORE, AO HAS ALSO MADE ADDITION O F RS. 4,76,739/- ON ACCOUNT OF CONTRACT RECEIVED REPORTED IN 26AS STATE MENT WHICH WAS NOT REFLECTED IN THE ASSESSEES RECOUNTS. ASSESSEE IN THIS REGARD HAS SUBMITTED BEFORE THE LD. CIT(A) THAT A SUM OF RS. 1 ,01,606/- BEING RECEIPT FROM THE CONTRACT HAS ALREADY BEEN ACCOUNTE D FOR. THE LD. CIT(A) GRANTED RELIEF TO THIS EXTENT AND CONFIRMED THE REST. AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. ITA NO . 6625/MUM/2019. SHRI SARFARAJ ISMAIL SHAIK, MUMBAI. - 3 - 3. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS, UPON CAREFUL CONSIDERATION, WE FIND THAT ASSESSEE HAS PR OVIDED THE DOCUMENTARY EVIDENCES FOR THE PURCHASE. ADVERSE IN FERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODU CE THE SUPPLIERS. WE FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUB TED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS PO SSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HON BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENT ERPRISES (IN WRIT PETITION NO. 2860, ORDER DATED 19.06.2014). IN THI S CASE THE HONBLE HIGH COURT HAS UPHELD 100% ALLOWANCE FOR THE PURCHA SES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER, IN THAT CASE ALL THE SUPPLIERS WERE TO BE GOVERNMENT AGENCY. 3.1 IN THE PRESENT CASE, THE FACTS OF THE CASE INDI CATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHAS ES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT O F NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REG ARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BO GUS/ UNSUSTAINED PURCHASES BY THE ASSESSEE, WE FIND THAT IT IS THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE THAT IN SIMILAR CIRCUMSTANC ES DISALLOWANCE HAS BEEN LIMITED TO 10% OF THE BOGUS PURCHASES BY THE T RIBUNAL IN SEVERAL DECISIONS. ITA NO . 6625/MUM/2019. SHRI SARFARAJ ISMAIL SHAIK, MUMBAI. - 4 - 4. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE SUPPO RTED THE ORDERS OF THE LD. CIT(A). 5. UPON CAREFUL CONSIDERATION, WE FIND CONSIDERABLE COGENCY IN THE ABOVE SUBMISSIONS OF ASSESSEES COUNSEL. WE NOTE T HAT IN SEVERAL DECISIONS IT HAS BEEN HELD THAT DISALLOWANCE ON ACC OUNT OF BOGUS PURCHASES SHOULD BE DONE BY REDUCING THE GROSS PROF IT ALREADY DISCLOSED FROM THE STANDARD 12.5% DISALLOWANCE BEING DONE. F URTHERMORE, HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AD AM H KAZI HAS HELD THAT THE DISALLOWANCE REGARDING BOGUS PURCHASES SHO ULD BE RESTRICTED TO THE DIFFERENCE BETWEEN GROSS PROFIT ON NORMAL PURCH ASES AND PURCHASES THROUGH BOGUS ROUTES. FURTHERMORE, WE ALSO NOTE TH AT SEVERAL DECISIONS THAT ITAT HAS CONSIDERABLY LOWERED THE DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASE. ACCORDINGLY, WE DIRECT THAT DISALL OWANCE IN THIS CASE BE RESTRICTED TO 10% OF THE BOGUS PURCHASES. THE LD. COUNSEL OF THE ASSESSEE FAIRLY AGREED TO THE ABOVE. 5.1 THE OTHER ISSUE RELATING TO ADDITION SUSTAINED ON ACCOUNT OF MISMATCH BETWEEN CONTRACT RECEIPT AS REFLECTED IN T HE 26AS STATEMENT AND THAT ACCOUNTED FOR BY THE ASSESSEE. IT IS THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE THAT DIFFERENCE REFLECTED I N 26AS STATEMENT IS A MISTAKE, HOWEVER, NO EVIDENCE HAS BEEN SUBMITTED. WE FIND THAT MERELY STATING THAT THERE IS A MISTAKE CANNOT SUFFICE. TH E ISSUE NEEDS PROPER VERIFICATION AT THE LEVEL OF AO. HENCE, WE REMIT T HIS ISSUE THE FILE OF AO ITA NO . 6625/MUM/2019. SHRI SARFARAJ ISMAIL SHAIK, MUMBAI. - 5 - TO EXAMINE HAS ASSESSEES SUBMISSION THAT THE SAID RECEIPT REFLECTED IN 26AS STATEMENT IS FACTUALLY INCORRECT. THE ASSESS EE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. THIS ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT ACT ON 30.07.2020. SD/- SD/- (RAMLAL NEGI) ( SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30.07.2020 KRK, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. &'( ) / THE CIT(A) 4. ) ( ) / CONCERNED CIT 5. ,-. //'( , '(# , & / DR, ITAT, MUMBAI 6. .34 5 / GUARD FILE. / BY ORDER, , / //TRUE COPY// 1. / ( ASST. REGISTRAR) $%, / ITAT, MUMBAI