ASHOK PANCHAND MEHTA HUF, MUMBAI v. ITO 22(1)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH MUMBAI BEFORE SHRI SHAMIM YAHYA ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI JUDICIAL MEMBER ITA NOS. 4860 & 4861/MUM/2018 (ASSESSMENT YEARS: 2009-10 & 2010-11) SHRI ASHOK PANCHAND MEHTA (HUF) 41 GAUTAM APARTMENTS JUHU ROAD SANTACRUZ (W) MUMBAI 400054 VS. INCOME TAX OFFICER - 22(1)(2) ROOM NO. 313 PIRAMAL CHAMBER LALBAUG MUMBAI 400012 PAN AAIHA3361C APPELLANT RESPONDENT APPELLANT BY: MS. RUCHI M. RATHOD RESPONDENT BY: SHRI CHAITANYA ANJARIA DATE OF HEARING: 20.08.2019 DATE OF PRONOUNCEMENT: 05.11.2019 O R D E R PER SHAMIM YAHYA AM THESE ARE APPEALS BY THE ASSESSEE WHEREIN THE ASSES SEE IS AGGRIEVED THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING 12. 5 PERCENT DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES VIDE COMMON ORDER DA TED 29.06.2018 PERTAINING TO ASSESSMENT YEARS 2009-10 & 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IN THIS C ASE IS ENGAGED IN THE BUSINESS OF TRADING IN CHEMICALS AND SOLVENT. THE A SSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM THE S ALES TAX DEPARTMENT THAT ASSESSEE HAS MADE BOGUS PURCHASES. THE ASSESSE E SUBMITTED THE PURCHASE VOUCHERS AND THE PAYMENTS WERE MADE THROUG H BANKING CHANNEL. HOWEVER THE SUPPLIERS WERE NOT PRODUCED BE FORE THE ASSESSING OFFICER. SALES IN THIS CASE WERE NOT DOUBTED. THE I NCOME TAX OFFICER IN THIS CASE HAS MADE 12.5 PERCENT ADDITION ON ACCOUNT OF B OGUS PURCHASES RESULTING IN DISALLOWANCE OF ` 15 36 224/- IN A.Y. 2009-10 AND ` 3 18 474/- IN A.Y. 2010-11. UPON ASSESSEES APPEAL THE LEARNED CIT(A) CONFIRMED THE SAME. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEF ORE THE ITAT. ITA NOS. 4860 & 4861/MUM/2018 SHRI ASHOK PANCHAND MEHTA (HUF) 2 3. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECOR DS. UPON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASES. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. ASSESSING OF FICER HAS ISSUED NOTICES TO THE SUPPLIERS WHICH WERE RETURNED UNSERVED. THE ASSESSEE ALSO DID NOT PRODUCE ANY INFORMATION. I FIND THAT IN THIS CASE T HE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE D ONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES . THIS PROPOSITION IS SUPPORTED BY THE HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860 ORDER DATED 18.06.2014). IN THIS CASE THE HONBLE HIGH COURT HA S UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGU S WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENCY. IN THE PRESENT CASE THE FACTS INDICATE THAT ASSESSE E HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX A ND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICA TION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANT IATED PURCHASES BY THE ASSESSEE I FIND THAT AS HELD BY HONBLE HIG H COURT OF BOMBAY IN ITS RECENT JUDGMENT IN THE CASE OF PRINCIPLE COMMISSION ER OF INCOME TAX VS. M HAJI ADAM & CO (ITA NO. 1004 OF 2016 DATED 11.02.20 19 IN PARAGRAPH 8 THERE OFF) THE ADDITION IN RESPECT OF BOGUS PURCHA SES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROSS PROFIT RATE ON SUCH PU RCHASES AT THE SAME RATE AS OF OTHER GENUINE PURCHASES. 4. I RESPECTFULLY FOLLOWING THE AFORESAID JUDGEMENT OF THE HONBLE HIGH COURT SET ASIDE THE MATTER TO THE FILE OF THE ASSES SING OFFICER WITH THE DIRECTION TO RESTRICT THE ADDITION AS REGARDS THE B OGUS PURCHASES BY BRINGING THE GROSS PROFIT RATE ON SUCH BOGUS PURCHA SES AT THE SAME RATE AS THAT OF THE OTHER GENUINE PURCHASES. NEEDLESS TO AD D THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEA RD. ITA NOS. 4860 & 4861/MUM/2018 SHRI ASHOK PANCHAND MEHTA (HUF) 3 5. IN THE RESULT THE APPEALS FILED BY THE ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER 2019. SD/ - (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI DATED: 5 TH NOVEMBER 2019 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -34 MUMBAI 4. THE PR.CIT - 22 MUMBAI 5. THE DR SMC BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.