QUALITY ENGINEERING PRODUCTS,MUMBAI vs. ASSISSTANT COMMISSIONER OF INCOME TAX CIRCLE-3, THANE

In this case, the Assessing Officer had made a disallowance of Rs.4,24,975/- being 100% of the bogus purchases. The assessing officer based the addition on the (A.Y. 2010-11) Quality Engineering Products vs. The Asst. CIT basis of information received from the Sales Tax Department that assessee has received hawala purchases. The assessing officer also noted that the assessee had not supplied relevant evidence of movement of goods purchased. Upon assessee’s appeal ld CIT(A) confirmed the same.

Against this order, the assessee has filed appeal before the ITAT.

I have heard both the counsel and perused the records. Upon careful consideration of the facts of the case, I find that evidence in the shape of information from Sales Tax Department have been referred by the authorities below that the impugned purchases are bogus. There is no evidence of the actual movement of the goods under dispute. However, I note that the assessing officer has not made any independent verification of his own. I find sales have not been doubted in this case. It is settled law from Hon'ble jurisdictional High Court in the case of Nikunj Eximp Enterprises that when sales are not doubted, 100% disallowance for purchases cannot be done. However, I find that the present case is different from the above case as in that case before the Hon’ble High Court, the sales were made to government department which is not the case here. I find that on the facts and circumstances of the case, a disallowance of 12.5% of the bogus purchases would serve the interest of justice. Accordingly, I modify the order of ld. Commissioner of Income Tax (Appeals) and direct that disallowance in this case should be limited to 12.5% of the bogus purchases.