M/S. STERLING STEEL INDUSTRIES,MUMBAI vs. INCOME TAX OFFICE 19(3)(4), MUMBAI, MUMBAI

This is an appeal by the assessee wherein the revenue is aggrieved that the learned CIT-A has erred in sustaining only 12.5% disallowance on account of bogus purchases, vide order dated 19.09.2018 pertaining to A.Y.2011-12. The assessee in this case is engaged into business of ferrous & 2. non-ferrous metals. 3. The assessment was reopened upon information from swales tax department that assessee has made purchases from bogus dealers. 4. The AO in this case has made 12.5% addition on account of bogus purchase amounting to Rs.17,89,063/-. The AO made the A.Y.2011-12 addition on the basis of information from the sales tax department. He did not make any enquiry from the alleged bogus supplies. He did not issue notice u/s 133(6) of the Act. 5. Up on assessee’s appeal Ld. CIT(A) has noted that the sales has not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 12.5% disallowance out of the bogus purchases. 6. Against above order revenue is in appeal before the ITAT. I have heard Ld. DR and perused the records. 7. 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 honourable jurisdictional High Court decision in the case of Nikunj eximp enterprises (in writ petition no 2860, order dt 18.6.2014). In this case the honourable 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. 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. However, in the absence of any enquiry by the AO from the alleged bogus supplies in my considered opinion on the facts and circumstances of the case the 2% disallowance out of the bogus ITA. NO.7096/M/2018 A.Y.2011-12 purchases meets the end of justice. Accordingly, I direct that disallowance be restricted @ 2% of the bogus purchase.