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2017 (11) TMI 1232 - AT - Income TaxDisallowance on account of bogus purchase - Held that - The facts of the present case indicate that assessee has made purchase from the grey market. Making purchase through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In similar situation on the facts and circumstance of the case a disallowance of 12.5% of the bogus purchase has been considered to meet the ends of justice in a number of cases at the Mumbai Tribunal following Hon ble Gujarat High Court decision in the case of Simit P.Seth (2013 (10) TMI 1028 - GUJARAT HIGH COURT). Accordingly, hold that the disallowance in this case should be restricted to 12.5% of the bogus purchase. - Decided partly in favour of assessee.
Issues Involved:
1. Bogus Purchases 2. Reopening of Assessment 3. Adequate Opportunity and Principles of Natural Justice 4. Validity of Reopening 5. Quantum of Disallowance Detailed Analysis: 1. Bogus Purchases: The core issue revolves around the disallowance of ?15,93,644 on account of bogus purchases. The Maharashtra Sales Tax Department's investigation revealed a fraudulent racket involving hawala dealers issuing fake bills for goods not actually purchased. The Assessing Officer (AO) disallowed the expenses claimed by the assessee, concluding that the purchases were non-genuine. The AO noted that the assessee failed to provide supporting evidence to prove the genuineness of the transactions despite multiple opportunities. The CIT(A) confirmed the AO's findings, emphasizing that the appellant did not cooperate during the assessment and remand proceedings and failed to produce the suppliers for cross-examination. 2. Reopening of Assessment: The reopening of the assessment was based on information received from the DGIT Investigation (Mumbai) and the Maharashtra Sales Tax Authority, indicating that the assessee was a beneficiary of bogus purchase entries from hawala operators. The AO formed a reason to believe that income had escaped assessment based on this information. The ITAT upheld the reopening, citing that the AO had tangible and cogent incriminating material linking the assessee to bogus purchases, which justified the reopening under Section 147 of the IT Act. 3. Adequate Opportunity and Principles of Natural Justice: The assessee contended that the order was passed without providing copies of affidavits and statements of the suppliers, thereby depriving them of a reasonable opportunity. However, the CIT(A) and the ITAT found that the assessee was given multiple opportunities to present evidence and produce the suppliers but failed to do so. The CIT(A) noted that the appellant did not comply during the assessment and remand proceedings, thus dismissing the ground of lack of opportunity. 4. Validity of Reopening: The ITAT justified the validity of the reopening, referencing the Supreme Court's decision in CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, which held that at the stage of issuing notice, the AO only needs to have a reason to believe that income has escaped assessment, not conclusive proof. The ITAT found that the AO had sufficient cause and justification based on the information received from the Sales Tax Department, which established a live link with the reason to believe that income had escaped assessment. 5. Quantum of Disallowance: While the AO and CIT(A) had disallowed 100% of the bogus purchases, the ITAT noted that the sales were not doubted. Citing precedents, the ITAT held that when sales are not doubted, a 100% disallowance for bogus purchases is not justified. The ITAT referred to the Gujarat High Court decision in the case of Simit P. Seth and other similar cases, concluding that a disallowance of 12.5% of the bogus purchases would meet the ends of justice. Consequently, the ITAT restricted the disallowance to 12.5% of the bogus purchases. Conclusion: The appeal by the assessee was partly allowed, with the ITAT reducing the disallowance from 100% to 12.5% of the bogus purchases. The ITAT upheld the reopening of the assessment and dismissed the grounds related to lack of opportunity, emphasizing the adequate opportunities provided to the assessee to prove the genuineness of the transactions.
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