Rakesh Metal & Tubes Vs ITO (ITAT Mumbai)
The assessee, engaged in dealing in ferrous and non-ferrous metal, appealed against the CIT(A)’s order sustaining a 12.5% disallowance on alleged bogus purchases for A.Ys. 2010-11 and 2011-12. The assessments were reopened after information was received from the Sales Tax Department alleging that the assessee had made bogus purchases. The assessee produced purchase vouchers and stated that payments were made through banking channels, but the suppliers were not produced before the Assessing Officer. The sales corresponding to the purchases were not doubted. The Assessing Officer made additions of Rs. 7,22,275 for A.Y. 2010-11 and Rs. 1,20,675 for A.Y. 2011-12, representing 12.5% of the alleged bogus purchases. The CIT(A) confirmed the additions, following which the assessee appealed to the ITAT. Despite notice, none appeared on behalf of the assessee before the Tribunal. The ITAT observed that documentary evidence for the purchases had been provided and that the adverse inference arose from the assessee’s inability to produce the suppliers. It noted that the sales were not doubted and referred to the decision in Nikunj Eximp Enterprises, where the jurisdictional High Court had upheld 100% allowance for purchases treated as bogus when sales were not doubted, although the facts there involved supplies to a government agency. In the present case, the Tribunal noted that the assessee had made purchases from the grey market, resulting in savings from non-payment of tax and others at the expense of the exchequer. On quantification, it relied on the Bombay High Court judgment in principle Commissioner of income tax versus M Haji Adam & Co, which held that the addition relating to bogus purchases should be limited to bringing the gross profit rate on such purchases to the same rate as that of other genuine purchases. The ITAT accordingly set aside the matter to the Assessing Officer with directions to restrict the addition by applying the gross profit rate applicable to genuine purchases and to provide the assessee adequate opportunity of being heard. The appeals were partly allowed.
