R.D. JAIN & CO., MUMBAI V. ITO 17(3)(1) , MUMBAI

ITA 7116/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1803 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 10-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAILASH GAIKWAD
• Keywords: Bogus purchase; Opportunity of being heard; Set aside
• Section: 201

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI SHRI SHAMIM YAHYA ( A M) I.T.A. NO. 7116 /MUM/ 201 8 (ASSESSMENT YEAR 2009 - 10 ) M/S. R.D. JAIN & COMPANY 507, GUPTA BHAVAN, SANT TUKARAM ROAD MUMBAI - 400 009. PAN : AABFR0957J V S . ITO - 17(3)(1) M UMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY NONE DEPARTMENT BY SHRI KAILASH GAIKWAD DATE OF HEARING 14 . 10 . 20 20 DATE OF PRONOUNCEMENT 26 .11 . 20 20 O R D E R THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [IN SHORT LEARNED CIT(A)] HAS ERRED IN SUSTAINING 5% ON ACCOUNT OF BOGUS PURCHASES, VIDE ORDER DATED 6.9 .2018 P ERTAINING TO ASSESSMENT YEAR 20 0 9 - 1 0 . 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF TRADING. THE DETAILS OF SAME ARE NOT DEALT IN THE ASSESSMENT ORDER. THE ASSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT THAT ASSESSEE HAS MADE BOGUS PURCHASE OF RS. 2,32,43,286 / - . 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 5 % ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE OF RS. 1 1,62,164 / - . 4. UPON ASSESSEES APPEAL LEARNED CIT(A) CONFIRMED THE SAME. M/S. R.D. JAIN & COMPANY 2 5. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. I HAVE HEARD LEARNED DEPARTMENTAL REPRESENTAT IVE AND PERUSED THE RECORDS. 6. UPON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCES HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. I FIND THAT IN THIS C ASE 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. THIS PROPOSITION IS SUPPORTED FROM HO NOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE 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 A RE 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, I FIND THAT AS HELD BY HONOURABLE HIGH COURT OF BOMBA Y 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 THERE OFF), THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGIN G THE GROSS PROFIT 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 REST RICT 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 OPPORTUNITY OF BEING HEARD. M/S. R.D. JAIN & COMPANY 3 8. IN T HE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT RULES BY PLACING THE RESULT ON NOTICE BOARD ON 26.11.2020. SD/ - (SH A MIM YAHYA ) ACCOUNTANT MEMBER MUMBAI ; DATE D : 26 / 1 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