100% addition on bogus purchases cannot be done without doubting sales

CA Prarthana Jalan

Honble Mumbai ITAT in the case of Pravin Thanmal Shah Huf Vs. Asst. CIT in I.T.A. No. 4162/Mum/2017  has held that if sales are not doubted than 100% addition on bogus purchases cannot be done.

In the case the AO had made  100% addition on account of bogus purchase amounting to Rs.9,61,350/- from two parties i.e Shubhlabh trading Co & Aayushi Enterprises as their names appeared in the list of hawala operators. The Honb’le Mumbai ITAT restricted the addition to 12.5% of the disallowance by observing as under-

“5. I have heard both the counsel and perused the records. 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 from Hon’ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in Writ Petition No. 2860, order dated 18.6.2014). In this case, the Hon’ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However, the facts of the present 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. In such situation, in our considered opinion, on the facts and circumstances of the case, 12.5% disallowance out of the bogus purchases meets the end of justice. Accordingly, I hold that the disallowance should be restricted to 12.5% of the bogus purchases.”