2020 (9) TMI 1287 - AT - Income Tax

Estimation of income - bogus purchases - CIT-A sustaining addition only 12.5% - HELD THAT - 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 expenses of exchequer - thus 12.5 % disallowance out of the bogus purchases done by the learned CIT(A) meets the end of justice. Accordingly uphold the order of learned CIT(A). Decided against revenue.

Summary

Issues:
- Reduction of addition for bogus purchase by CIT-A
- Validity of 100% addition of bogus purchase by AO
- Application of case laws in determining disallowance percentage
- Interpretation of sales not being doubted in relation to bogus purchases
- Consideration of purchases from the grey market
- Relevance of N.K. Proteins Ltd. decision
- Dismissal of revenue's appeal

Analysis:
The Appellate Tribunal ITAT MUMBAI addressed the issue of reduction of addition for bogus purchase by the CIT-A in an appeal by the revenue. The AO had initially made a 100% addition for the bogus purchase, but the CIT-A sustained only a 12.5% disallowance after considering the facts of the case and various case laws. The Tribunal noted that the sales made by the assessee were not doubted, leading to the conclusion that a hundred percent disallowance for bogus purchase cannot be justified when sales are not in question. Reference was made to the jurisdictional High Court decision in the case of Nikunj Eximp Enterprises to support this rationale. However, it was highlighted that the assessee had made purchases from the grey market, resulting in savings at the expense of the exchequer. Despite this, the Tribunal upheld the CIT-A's decision of 12.5% disallowance as it was deemed to meet the ends of justice.

Regarding the application of case laws, the Tribunal discussed the relevance of the N.K. Proteins Ltd. decision, which was dismissed by the Supreme Court. This decision was further explained and distinguished by the Bombay High Court in the case of M. Hazi Adam & Co. The Tribunal considered these legal precedents in the context of the present case to support its decision to uphold the CIT-A's order of 12.5% disallowance.

Ultimately, the Tribunal dismissed the revenue's appeal, emphasizing the importance of the facts and circumstances of the case in determining the appropriate disallowance percentage for bogus purchases. Additionally, the Tribunal allowed either party to apply for a recall of the order if a cross appeal or cross objection had been filed and remained unheard, ensuring a fair opportunity for both parties to present their case.