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.
