The Income Tax Appellate Tribunal (ITAT), Mumbai bench has restricted the disallowance to 12.5% for the purchases made by the assessee from grey market against the 100% disallowance made by the income tax Dept.
The assessee, Ashok Popatbhai Chaudhari is engaged in the retail trading business. The assessment against the assessee 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.
Shri Shamim Yahya (Accountant Member) observed that the 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.”
Concluding the order, the Tribunal observed that the 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,” the Tribunal said.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
