The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that no 100% disallowance for bogus purchase when sales are not doubted.
The assessee, M/s. D. C. Engineers Private Limited is engaged in the business of manufacturing of engineering goods. Information was received from the Sales Tax Department that the assessee is engaged in making bogus purchases of Rs.62,25,917 from two parties. The assessment was reopened.
The Assessing Officer has made 25% addition on account of bogus purchase amounting to Rs.15,56,480.
The Coram consisting of an Accountant Member, Shamim Yahya clarified that 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.
The ITAT opined that certain disallowance has to be done, out of the bogus purchases to meet the end of justice. In my considered opinion, disallowance of 12.5% of the bogus purchase as reduced by the gross profit already disclosed by the assessee would meet the end of justice. It does not need to be reiterated that if the gross profit already shown is more than 12.5%, no disallowance is required.
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