Bogus Purchase 100 % disallowance-Dismissal of SLP did not merge SLP into order of Supreme Court – ITAT

Bogus Purchase 100% disallowance-Dismissal of SLP by Supreme Court did not merge the dismissal of the SLP into the order of the Apex Court – ITAT

ABCAUS Case Law Citation:
ABCAUS 2516 (2018) 09 ITAT

Important Case Laws Cited/relied upon by the parties:
Malabar Industrial Co. Ltd. vs. CIT
Nikunj Eximp Enterprises
N K Industries vs. Dy CIT

The appellant assessee had challenged the order passed by the Principal Commissioner of Income Tax (CIT) passed under section 263 of the Income Tax Act, 1961 (the Act). 

The assessee had made purchase which were held by the AO as bogus being represented by bills only from without actual purchase of goods.

During finalization of scrutiny proceedings, the Assessing Officer disbelieved the explanation offered by the assessee as the purchase was made through non genuine party known as tainted entry provider and made an addition @ 12.5% of bogus purchase by relying on the decision of the Hon’ble High Court of Gujarat.

However, the CIT was of the opinion that the AO did not properly applied his mind. The CIT referred to Hon’ble Gujarat High Court decision wherein 100% disallowance on bogus purchase was done and the SLP against the said order has been dismissed by the Hon’ble Supreme Court. Hence, the CIT held that the same was erroneous insofar as it is prejudicial to the interest of the Revenue. Accordingly, he passed the order u/s 263 of the Act and set aside the issue to the file of the AO.

The Tribunal observed that the AO had not drawn any adverse inference whatsoever on the genuineness of the sale. In the order passed u/s 263 of the Act, the CIT also did not make any whisper about the verification of the genuineness of the sales. The CIT referred to the catena of the deficiency in the purchase documentation and referred to the decision of the Hon’ble Gujarat High Court, wherein 100% disallowance of bogus purchase was to be done.

The Tribunal opined that de hors any examination or adverse inference on the sales, 100% disallowance of bogus purchase was not sustainable as per the explanation of the Hon’ble jurisdictional High Court.

Also, it was noted that the for the defect in the purchase documentation, the tribunal itself in catena of decision had taken into account the various decisions including that from the Hon’ble jurisdictional High Court and held that 12.50% of the bogus purchase if disallowed would serve the interest of the justice.

The Tribunal further opined noted that the dismissal of the SLP by the Hon’ble Apex Court does not merge the dismissal of the SLP into the order of the Hon’ble Apex Court. Accordingly, the Tribunal held that the order passed by the CIT was liable to be quashed inasmuch as it was in direct contravention of the Hon’ble jurisdictional High Court decision.

Furthermore, the Tribunal opined that as held by the Hon’ble Apex Court if there are two views possible and the AO had adopted one view, with which the CIT is not in agreement, the order cannot be said to be liable to be visited with the revisionary order by the CIT.

Accordingly, the Tribunal quashed the order under 263 passed by the CIT and decided the issue in favour of the assessee.

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