Case Law Details
Ashok Popatbhai Chaudhari Vs ITO (ITAT Mumbai)
The Income Tax Officer in this case has made 100% addition on account of bogus purchase resulting in disallowance of Rs. 56,085/-. Upon assessee’s appeal ld. CIT(A) confirmed the same.
It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported form Hon’ble 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 Hon’ble High Court has upheld 100% disallowance for the purchases 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 expenses 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 12.5% disallowance should serve the end of justice.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal by the wherein the assessee is aggrieved that the ld. CIT(A) has erred in sustaining 100% disallowance on account of bogus purchase, vide order dated 27.08.2021 pertaining to assessment year 2010-11.
2. Brief facts of the case are that assessee in this case is engaged in the retail trading business.
3. The assessment in this case was reopened upon receipt of information from the Sales Tax Department that assessee has made bogus purchases of Rs. 56,085/-. The assessee submitted the purchase vouchers and the payments were made through banking channel. However the suppliers were not produced before the Assessing Officer. No other materials in support of purchases were produced. But sales in this case were not doubted.
4. The Income Tax Officer in this case has made 100% addition on account of bogus purchase resulting in disallowance of Rs. 56,085/-. Upon assessee’s appeal ld. CIT(A) confirmed the same
5. Against above order assessee is in appeal before the ITAT. I have heard ld. Departmental Representative and perused the records.
6. Up on careful consideration I find that assessee has provided the documentary evidence for the purchase. Adverse inference have been drawn due to the inability of the assessee to produce the suppliers and also lack of other supporting evidence purchases. I find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported form Hon’ble 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 Hon’ble High Court has upheld 100% disallowance for the purchases said to be bogus when sales are not doubted. However in that case all the supplies were to government agency.
7. 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 expenses 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 12.5% disallowance should serve the end of justice. I direct accordingly.
8. In the result appeal is partly allowed.
Order pronounced in open court on 02.05.2022
