Star Track Footwear Pvt. Ltd. Vs DCIT (ITAT Delhi)
When “Footwear” walked into Section 37, ITAT showed AO the right path- AO taxed sales as expense – ITAT laced up & kicked out the disallowance-ITAT Delhi Deletes 25% Disallowance on “Bogus Sales” – AO can’t mix up Section 37 with Sales Transactions
Assessee, engaged in trading of bag materials, had reported total sales of ₹1.50 crore to M/s Jyoti Products. AO, relying on information from Investigation Wing that Jyoti Products was an entry operator, held that these were bogus sales & disallowed 25% of total sales (₹37.60 lakh) u/s 37, alleging non-genuine transactions. AO also initiated penalty u/s 271(1)(c).
Before CIT(A), Assessee produced invoices, import bills, VAT returns, & ledgers confirming the transactions. CIT(A), however, confirmed AO’s order, observing that delivery challans & transport records were missing, & that reply to notice u/s 133(6) from Jyoti Products was not received.
Before Tribunal, Assessee argued that the AO himself accepted the existence of Jyoti Products, its PAN, & ledger confirmation showing the Assessee as creditor. Moreover, AO of Jyoti Products in its own assessment had accepted turnover of ₹3.58 crore, which included transactions with the present Assessee.
Tribunal noted that once sales were duly recorded, supported by import documents & reflected in audited accounts of both parties, the transaction could not be partly treated as bogus merely on presumption. Further, section 37 applies to disallowance of expenditure, not sales, & hence the entire disallowance lacked legal foundation.
