ITO 22 (1)(4), MUMBAI vs JIGNESH H. RUPARELIA, MUMBAI

This case involves an appeal by the Income Tax Department (ITO) against a decision by the Commissioner of Income Tax (Appeals) regarding additions for bogus purchases made by Shri Jignesh H. Ruparelia. The Assessing Officer had made additions of 35% and 25% for two assessment years, but the CIT(A) reduced these to 12.5%. The Tribunal upheld the CIT(A)'s decision, noting that since the assessee's sales were not doubted, a 100% disallowance for bogus purchases was not appropriate. However, purchases from the 'grey market' were acknowledged, and the 12.5% disallowance was deemed to meet the ends of justice.

THE INCOME TAX APPELLATE TRIBUNAL
“SMC” Bench, Mumbai
Shri Shamim Yahya (AM)

I.T.A. No. 2278/Mum/2019 (Assessment Year 2010-11)
I.T.A. No. 2277/Mum/2019 (Assessment Year 2011-12)

ITO-22(1)(4)
Mumbai
(Appellant) 

V s.

Shri Jignesh H. Ruparelia
13, Hrivallbh CHS
J.K. Mehta Road
Green Street
Santacruz West
Mumbai-400 054.
PAN : AAAPR9319M
(Respondent)

Assessee by None
Department by Shri Kailash Gaikwad
Date of Hearing 13.10.2020
Date of Pronouncement 14.10.2020

O R D E R

These are appeals by the revenue wherein the revenue is aggrieved that Learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] has reduced the addition for bogus purchase done @ 35% for A.Y. 2010-11 & 25% for A.Y. 2011-12 by Assessing Officer by sustaining only 12.5%.

2. The assessee is a proprietor of M/s. Varsha Lables, which is engaged in the business of sticker manufacturing. The assessment was reopened upon information from sales tax department that assessee has made purchases of Rs. 2,57,056/- for A.Y. 2010-11 & Rs. 21,28,774 for A.Y. 2011-12 from bogus dealers. The Assessing Officer made 35% addition of the bogus purchase amounting to Rs. 89,970/- for A.Y. 2011-12 and @ 25% for Rs. 4,25,754/- for A.Y. 2010-11.

3. Against above order revenue is in appeals before the ITAT. None appeared on behalf of the assessee during the course of virtual hearing. I find that in this case the sales have not been doubted it is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). In this case the honourable High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However 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 expense of the exchequer. In such situation in our considered opinion on the facts and circumstances of the case the 12.5 % disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly I uphold the order of learned CIT-A.

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