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2019 (3) TMI 316

es Tax (VAT) Department, State of Maharashtra - HELD THAT:- The facts of the 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 on the facts and circumstances of the case, 12.5 % disallowance out of the bogus purchases meets the end of justice. However, in this regard the learned counsel of the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed on acc .....

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ith the above information received from the Sales Tax (VAT) Department, State of Maharashtra and was asked to furnish the copies of purchase orders, bills raised, nature of expenditure, goods receipt note (GRN), goods /survey inspection report, delivery challan (s) / lorry receipt(s), details of payment(s) made, all other relevant details with supporting documentary evidence, details of transportation of goods and documentary evidence reflecting the relevant entries of having received such goods in the premises of the assessee and having consumed such goods either during the year or in subsequent year(s). In response, the assessee company furnished the copies of ledger a/c. of the parties and copies of sales invoices raised by the few parti .....

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d be very clearly seen that there was a clear one-to-one identifiable purchases and sales. Further, the assessee contended without purchasing an item it would not have been possible for it to sell the same. That the purchases were imperative for the sale since there was an item to item correlation and tracking of the afore-stated purchase to the sales recorded by the assessee. The assessee further contended that merely because the aforesaid vendors had defaulted payment under the Sales Tax it could not be considered that the assessee's purchases were not genuine especially since the assessee's quantitative details were of purchases and sales were perfectly tallied and correlated and without purchases the sales could not have been ma .....

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ce on this account was worked out to ₹ 1,04,54,887/- (i.e. 25% of ₹ 4,18,19,549/-). 7. Upon the assessee s appeal, the ld. CIT(A) restricted the disallowance of 25% made by the A.O. to 15%. He held as under: 5.5 I have considered the facts of the case and the appellant s submissions. The appellant has reiterated its submissions made before the Assessing Officer and contended that the purchases made from the impugned parties were genuine. That it has discharged its onus of proving the genuineness of the purchases by submitting copies of purchase bills, proof of Bank payment through account payee cheque, sales bills, proof of sales receipts and one to one quantitative correlation of purchases and sales so as to substantiate the fa .....

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being made from the impugned parties to suppress its profits. In such a situation, the various Courts including the Hon'ble Gujarat High Court in the case of C1T vs Simit P. Sheth, 356 1TR 451 iave held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed. The estimation would vary with the nature of business and no unifoim yardstick could be adopted. The Assessing Officer had estimated the profit @ 25% of the bogus purchases which appears to be on the higher side. The appellant's GP ratio for A.Y.s 2008-09 to 2010-11 ranged from 7.13% to 12.88%. Considering this fact, the disallowance on account of bogus purchases @ 25% is , therefore, scaled down to 15% which will sufficiently .....

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arned counsel of the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed on account of bogus purchase. 10. Upon careful consideration we find considerable cogency in the submission of the learned counsel of the assessee, as otherwise it will be double jeopardy to the assessee. Accordingly, we modify the order of learned CIT-A and direct that the disallowance in this case be restricted to 12.5 % of the bogus purchases as reduced by the gross profit rate already declared by the assessee on these transactions. 11. In the result this appea .....

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