THE INCOME TAX APPELLATE TRIBUNAL SMC Bench, Mumbai Before Shri Shamim Yahya (AM) I.T.A. No. 4527/Mum/2018 (Assessment Year 2009-10) Viresh Vora HUF ITO Ward 32(3)(5) B-302, Dwarkesh Building V s . Bandra Kurla L.T. Road, Borivali (West) Complex, Bandra Mumbai-400 092. Mumbai-400051. PAN : AACHV5921R (Appellant) (Respondent) Assessee by None Department by Shri Chaitanya Anjaria Date of Hearing 4.7.2019 Date of Pronouncement 3.9.2019 ORDER This is appeal by assessee wherein assessee is aggrieved that learned CIT-A has erred in sustaining 12.5% disallowance on account of bogus purchases, vide order dated 31.5.2018 pertaining to assessment year 2009-10. 2. Brief facts of case are that assessee in this case is engaged in business of trading in plywood. 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 made through banking channel. However suppliers were not produced before assessing officer. Sales in this case were not doubted. income tax officer in this case has made 12.5% addition on account of bogus purchase resulting in disallowance of Rs. 7,62,832/- . 3. Upon assessee s appeal Id CIT(A) confirmed same. Against above order assessee is in appeal before ITAT. 2 V ir e s h V or H U F 4. I have heard learned Departmental Representative and perused records. None appeared on behalf of assessee despite notice. 5. Upon careful consideration I find that assessee has provided documentary evidence for purchase. Adverse inference has 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 honourable jurisdictional High Court decision in case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt 18.6.2014). In this case honourable 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, I find that as held by honourable High Court of Bombay in its recent judgement in case of principle Commissioner of income tax versus M Haji Adam & Co (ITA number 1004 of 2016 dated 11/2/2019 in paragraph 8 there off), 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. I respectfully following aforesaid judgement of honourable High Court set aside matter to file of assessing officer 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. 3 Viresh Vora HUF 7. In result, assessee's appeal is partly allowed. Order has been pronounced in Court on 3.9.2019. Sd/- (SHAMIM YAHYA) ACCOUNTANT MEMBER Mumbai; Dated : 3/9/2019 Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, True Copy (Assistant Registrar) PS ITAT, Mumbai. Viresh Vora HUF v. ITO, Ward 32(3)(5), Mumbai