What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to sustain a 12.5% disallowance on bogus purchases. It reasoned that since the assessee's sales were not doubted, a 100% disallowance was not justified, but purchases from the grey market warranted some disallowance.

The Revenue appealed against the CIT(A)'s order reducing additions for bogus purchases. The assessee, a manufacturer of stainless steel utensils, was found to have made purchases from bogus dealers.

What were the issues?

The primary issue was the extent of disallowance for purchases from bogus dealers when the assessee's sales were not doubted.

ITO vs M/S Neelam Metal Industries | ITAT Mumbai 2020

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SHAMIM YAHYA

For Respondent: Shri Akhtar H. Ansari

In these appeals, the Revenue is aggrieved that the learned Commissioner (Appeals) has by respective years’ order reduced the addition for bogus purchase.

2 M/s. Neelam Metal Industries

Assessment Year Purchases by A.O. @ 25% 2009–10 ` 68,232 ` 5,00,011 2010–11 2012–13 ` 50,548

The assessee in this case is engaged in the business of manufacturer of stainless steel utensils. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers. The Assessing Officer made 25% addition of the bogus purchase.

Upon assessee's appeal, the learned CIT(A) has noted that the sales has not been doubted. Accordingly, placing reliance upon several case laws and upon the facts of the case, he sustained 12.5% disallowance out of the bogus purchases. Against the above order, Revenue is in appeal before the Tribunal.

I have heard the learned Departmental Representative and perused the record. 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 Hon'ble Jurisdictional High Court’s decision in the case of Nikunj Eximp Enterprises (in Writ Petition no.2860, order dated 18th June 2014). In this case, the Hon'ble Jurisdictional 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.

3 M/s. Neelam Metal Industries 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. In such situation, in our considered opinion, on the facts and circumstances of the case, 12.5% disallowance out of the bogus purchases done by the learned CIT(A) meets the ends of justice. Accordingly, I uphold the order of the learned CIT(A).

Before parting, I may add that if the assessee has filed a cross appeal or cross objection and the same has remained unheard, either party may apply for recall of this order so that the appeals can be heard together.

In the result, this appeal filed by the revenue stands dismissed. Order pronounced through notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on 16.09.2020

ITO 19(2)(4), MUMBAI vs. M/S NEELAM METAL INDUSTRIES, MUMBAI

What did the Tribunal hold?

What were the facts?

What were the issues?

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