Sterling Steel Industries Vs ITO (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal decided the assessee’s appeal for Assessment Year 2011-12 challenging the order of the Commissioner of Income Tax (Appeals), which had sustained a 12.5% disallowance on account of alleged bogus purchases.
The assessee was engaged in the business of ferrous and non-ferrous metals. The assessment was reopened based on information received from the Sales Tax Department alleging that the assessee had made purchases from bogus dealers.
The Assessing Officer made an addition of 12.5% of the alleged bogus purchases amounting to ₹17,89,063. The addition was based on information received from the Sales Tax Department. The Tribunal noted that the Assessing Officer had not made any enquiry with the alleged bogus suppliers and had not issued notices under Section 133(6) of the Income-tax Act.
On appeal, the Commissioner (Appeals) observed that the sales had not been doubted and, relying upon several judicial decisions and the facts of the case, sustained the disallowance at 12.5% of the alleged bogus purchases.
The Tribunal observed that where sales are not doubted, 100% disallowance of purchases cannot be made because no sales are possible without actual purchases. It referred to the jurisdictional High Court’s decision in Nikunj eximp enterprises (Bombay High Court), Writ Petition No. 2860, order dated 18.06.2014, which upheld allowance of purchases where sales were accepted. The Tribunal further observed that the facts indicated purchases had been made through the grey market, resulting in savings on account of non-payment of taxes and other expenses. However, considering that the Assessing Officer had not conducted any enquiry with the alleged bogus suppliers, the Tribunal held that restricting the disallowance to 2% of the alleged bogus purchases would meet the ends of justice.
Accordingly, the Tribunal directed the Assessing Officer to restrict the disallowance to 2% of the alleged bogus purchases and partly allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal by the assessee wherein the revenue is aggrieved that the learned CIT-A has erred in sustaining only 12.5% disallowance on account of bogus purchases, vide order dated 19.09.2018 pertaining to A.Y.2011-12.
2. The assessee in this case is engaged into business of ferrous & non-ferrous metals.
3. The assessment was reopened upon information from swales tax department that assessee has made purchases from bogus dealers.
4. The AO in this case has made 12.5% addition on account of bogus purchase amounting to Rs.17,89,063/-. The AO made the addition on the basis of information from the sales tax department. He did not make any enquiry from the alleged bogus supplies. He did not issue notice u/s 133(6) of the Act.
5. Up on assessee’s appeal Ld. CIT(A) has noted that the sales has not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 12.5% disallowance out of the bogus purchases.
6. Against above order revenue is in appeal before the ITAT. I have heard Ld. DR and perused the records.
7. 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. However, in the absence of any enquiry by the AO from the alleged bogus supplies in my considered opinion on the facts and circumstances of the case the 2% disallowance out of the bogus purchases meets the end of justice. Accordingly, I direct that disallowance be restricted @ 2% of the bogus purchase.
In the result, this appeal filed by the assessee stands partly allowed.
Order pronounced in the open court on 20/04/2020
