Arihant Metal Corporation v. The ITO, Ward 19(1)(1), Mumbai
[Citation -2019-LL-0823-116]

Citation 2019-LL-0823-116
Appellant Name Arihant Metal Corporation
Respondent Name The ITO, Ward 19(1)(1), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 23/08/2019
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags documentary evidence • gross profit rate • bogus purchase • grey market • disallowance of purchases • reopening of assessment • banking channel • actual purchase • non-payment of tax
Bot Summary: The only grievance of the assessee in these appeals is against the sustenance of 12.5 disallowance on account of bogus purchases by the learned CIT(A) amounting to 15,03,464/- for A.Y. 2010-11 and 10,77,391/- for A.Y. 2011-12. The assessee submitted the purchase vouchers and the payments were 2 ITA No.4501 4502/Mum/2018 Arihant Metal Corporation made through banking channel. Upon careful consideration I find that assessee has provided the documentary evidence for the purchase. 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 expense of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that as held by Hon ble High Court of Bombay in its recent judgment in the case of Principal Commissioner of Income tax versus M Haji Adam Co the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. I, respectfully following the aforesaid judgment of the Hon ble High Court set aside the matter to the file of the assessing officer for both the assessment years with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases.


IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI Before Shri Shamim Yahya, Accountant Member ITA Nos.4501 & 4502/MUM/2018 Assessment Years: 2010-11 & 2011-12 Arihant Metal Corporation, ITO Ward 19(1)(1) 58, Rangawala Builidng, Mumbai. Islampura Street, Vs. Mumbai 400 004. PAN AAFFA5502L (Appellant) (Respondent) Appellant By : Ms Dipali Bakliwal Respondent By : Shri Chaitanya Anjaria Date of Hearing :03.07.2019 Date of Pronouncement : 23.08.2019 ORDER These appeals by assessee are directed against separate orders of learned CIT(A)-6, Mumbai, both dated 04.05.2018, pertaining to assessment years 2010-11 and 2011-12. Since issue involved is common, these appeals were heard together and are being disposed of by this consolidated order for sake of convenience. 2. only grievance of assessee in these appeals is against sustenance of 12.5% disallowance on account of bogus purchases by learned CIT(A) amounting to ` 15,03,464/- for A.Y. 2010-11 and ` 10,77,391/- for A.Y. 2011-12. 3. brief facts of case are that assessee in this case is engaged in business of metal trading. assessment in this case was reopened upon receipt of information from Sales Tax Department that assessee has made bogus purchases. assessee submitted purchase vouchers and payments were 2 ITA No.4501 & 4502/Mum/2018 Arihant Metal Corporation made through banking channel. However, suppliers were not produced before Assessing Officer. Sales in this case were not doubted. 4. income tax officer in this case has made 12.5% addition on account of bogus purchase resulting in disallowance of ` 15,03,464/- for A.Y. 2010-11 and ` 10,77,391/- for A.Y. 2011-12. Upon assessees appeal learned CIT confirmed additions made by Assessing Officer. Against above orders assessee is in appeal before ITAT. 5. I have heard both counsel and perused records. Upon careful consideration I find that assessee has provided documentary evidence for purchase. Adverse inferences have been drawn due to inability of assessee to produce suppliers. I find that in this case sales have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. rationale being no sales is possible without actual purchases. This proposition is supported from Hon ble Jurisdictional High Court decision in case of Nikunj Eximp Enterprises Pvt. Limited (in Writ Petition No. 2860, order dt 18.6.2014). In this case Hon ble High Court has upheld hundred percent allowance for purchases said to be bogus when sales are not doubted. However, in that case all supplies were to government agency 6. In present case facts of case indicate that assessee has made purchase from grey market. Making purchases through grey market gives assessee savings on account of non-payment of tax and others at expense of exchequer. As regards quantification of profit element embedded in making of such bogus/unsubstantiated purchases by assessee, we find that as held by Hon ble High Court of Bombay in its recent judgment in case of Principal Commissioner of Income tax versus M Haji Adam & Co (ITA number 1004 of 2016 dated 11/2/2019 in paragraph 8 thereof) addition in respect of bogus purchases is to be limited to extent of bringing gross profit rate on such purchases at same rate as of other genuine purchases. 3 ITA No.4501 & 4502/Mum/2018 Arihant Metal Corporation 7. I, respectfully following aforesaid judgment of Hon ble High Court set aside matter to file of assessing officer for both assessment years with direction to restrict addition as regards bogus purchases by bringing gross profit rate on such bogus purchases at same rate as that of other genuine purchases. Needless to add assessee should be granted adequate opportunity of being heard 8. In result assessee's appeals are partly allowed. Order pronounced in open court on this day of 23rdAugust, 2019. Sd/- (Shamim Yahya) ACCOUNTANT MEMBER Mumbai, Dated : 23rd August, 2019. SA Copy of Order forwarded to : 1. Appellant. 2. Respondent. 3. CIT(A), 4. CIT 5. DR, SMC Bench BY ORDER //True Copy// (Assistant Registrar) Income Tax Appellate Tribunal, Mumbai Arihant Metal Corporation v. ITO, Ward 19(1)(1), Mumbai
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