M/S J P STAINLESS STEEL,MUMBAI vs. ITO WARD 19(2)(1), MUMBAI

The dispute in the present appeal is confined to disallowance made on account of non genuine purchases.

Briefly the facts are, the assessee, a partnership firm, is engaged in the business of trading in ferrous and non ferrous metals. For the assessment year under dispute, assessee filed its return of income on 27-09-2009 declaring total income of Rs.31,523/-. The return of income so filed was initially processed under section 143(1) of the Act. Subsequently, the assessing officer having received information from the Sales-Tax department through the Investigation Wing that purchases worth Rs.34,45,477/- claimed to have been made during the year from three parties are non genuine, reopened the assessment under section 147 of the Act. In course of assessment proceedings, the assessing officer called upon the assessee to prove the genuineness of such purchases. Further, to independently verify such purchases, the assessing officer issued notices under section 133(6) of the Act to the concerned selling dealers. However, as stated by the assessing officer, all such notices returned back unserved. Though, in response to the query raised by the assessing officer, the assessee furnished copies of ledger account, purchase invoices, bank statement evidencing payment through cheque, sales invoice, etc., however, the assessing officer was not convinced. Ultimately, he concluded that the purchases are non genuine. However, considering the fact that the assessee has effected corresponding sales and the profit derived thereon have been offered to tax, instead of disallowing the entire purchases, he disallowed an amount of Rs.4,30,685/- being 12.5% of the non genuine purchases. The disallowance so made was sustained by learned Commissioner (Appeals) while deciding assessee’s appeal.

When the appeal was called for hearing, no one was present on behalf of the assessee to represent the case. Therefore, I proceeded to dispose of the appeal ex parte qua the assessee, after hearing the learned Departmental Representative.

Heard learned Departmental Representative and perused the material available on record. Though, the Assessing Officer has held the disputed purchases to be non genuine; however, he was convinced that not only the assessee had purchased the goods from some other sources, but has also effected corresponding sales. Therefore, he has restricted the disallowance to profit element embedded in such purchases by estimating it at 12.5%. Considering the fact that the assessee is a trader in ferrous and non ferrous metals, on which the normal profit rate as per industry norms varies between 2% to 5%, the disallowance made at 12.5% appears to be on a much higher side. Therefore, I direct the assessing officer to restrict the disallowance to 5% of the non genuine purchases. Ground is partly allowed.

In the result, appeal is partly allowed.