M/S.JITENDRA STEEL CENTRE, PROP-PUKHRAJ CHAMPALALA JAIN, MUMBAI v. ITO 19(2)(5), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI SHAMIM YAHYA ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH JUDICIAL MEMBER ITA NO. 4744/MUM/2018 : A.Y : 2009 - 10 M/S. JITENDRA STEEL CENTRE PROP. PUKHRAJ CHAMPALAL JAIN SHOP NO. 60 SOLANKI BUILDING 4 TH KUMBHARWADA LANE MUMBAI 400 004. PAN : A CFPJ6293H (APPELLANT) VS. I T O - 19 ( 2 ) (5) MUMBAI (RESPONDENT) APPELLANT BY : MS. POOJA M. CHHAWACHHARIA RESPONDENT BY : SHRI CHAITANYA ANJARIA DATE OF HEARING : 29 /08/2019 DATE OF PRONOUNCEMENT : 25 /11/2019 O R D E R PER SHAMIM YAHYA ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING 12.5% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES VIDE ORDER DATED 16.05.2018 PERTAINING TO ASSESSMENT YEAR 2009 - 10. 2. THE BRIEF FACTS OF T HE CASE ARE THAT THE ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METALS. 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 2 M/S. JITENDRA STEEL CENTRE ITA NO. 4744/MUM/2018 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 12.5% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE OF RS.7 64 697/ - . UPON ASSESSEES APPEAL LEARNED CIT(A) CONFIRMED THE SAME. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE COUNSEL AND P ERUSED THE RECORDS. UPON CAREFUL CONSIDERATION WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF ASSESSEE TO PRODUCE THE 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. THIS PROPOSITION IS SUPPORTED BY THE HON'BLE JU RISDICTIONAL HIGH COURT DECISION IN THE CASE OF NICKUNJ EXIMP ENTERPRISES (P.) LTD. (IN WRIT PETITION NO. 2860 ORDER DATED 18.06.2014) . IN THIS CASE THE HON'BLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALE S ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENC Y . 5. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASES FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESS EE SAVINGS ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PURCHASES BY THE 3 M/S. JITENDRA STEEL CENTRE ITA NO. 4744/MUM/2018 ASSESSEE I FIND THAT IT IS THE SUBMISSION OF THE LEA RNED COUNSEL FOR THE ASSESSEE THAT IT WILL BE DOUBLE PREJUDICE IF THE GROSS PROFIT ALREADY DECLARED @ 6.09% IS NOT REDUCED FROM THE STANDARD 12.5% BEING DISALLOWED ON ACCOUNT OF BOGUS PURCHASES. 6. UPON CAREFUL CONSIDERATION WE FIND CONSIDERABLE COGENCY IN THE ABOVE SUBMISSIONS. ACCORDINGLY WE DIRECT THAT DISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5% OF THE BOGUS PURCHASES AS REDUCED BY THE GROSS PROFIT @ 6.09% ALREADY DECLARED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY AGREED TO T HE ABOVE. 7. IN THE RESULT ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 5 T H NOVEMBER 2019. SD/ - SD/ - (AMARJIT SINGH) JUDICIAL MEMBER (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI DATE : 2 5 T H NOVEMBER 2019 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R SMC BENCH MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T MUMBAI