ITAT affirms 12.5% disallowance on bogus purchases, rejects full addition. Disallows service tax under section 43B, confirms VAT.

The ITAT upheld the CIT-A's decision to sustain a 12.5% disallowance on account of bogus purchases, rejecting the revenue's appeal for a hundred percent addition. Additionally, the ITAT disallowed the addition under section 43B for service tax based on precedent, while confirming the addition for outstanding VAT due to lack of explanation from the appellant. As a result, the revenue's appeal was dismissed.

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Issues:
1. Deletion of addition on account of bogus purchases
2. Deletion of addition under section 43B for VAT and service tax

Deletion of Addition on Account of Bogus Purchases:
The case involved an appeal by the revenue challenging the deletion of an addition of Rs. 58,750 by sustaining only Rs. 7,344 disallowance on account of bogus purchases for the assessment year 2012-13. The assessing officer had made a hundred percent addition on account of bogus purchases. However, the learned CIT-A noted that the sales were not doubted and sustained a 12.5% disallowance out of the bogus purchases. This decision was based on various case laws and the facts of the case. The ITAT upheld the CIT-A's order, emphasizing that when sales are not doubted, a hundred percent disallowance for bogus purchases cannot be justified. The Tribunal also highlighted that making purchases through the grey market could lead to savings for the assessee at the expense of the exchequer. Therefore, the 12.5% disallowance out of the bogus purchases was deemed appropriate to meet the ends of justice.

Deletion of Addition under Section 43B for VAT and Service Tax:
Regarding the issue of disallowance under section 43B for VAT and service tax, the assessing officer had added amounts of Rs. 1,14,91,532 on account of VAT and service tax not paid before filing the return of income. The CIT-A relied on the assessee's own case decided by the ITAT for AY 2009-10, where it was held that section 43B would not apply to service tax as the service provider acts as an agent of the government and is not entitled to claim a deduction on account of service tax. The ITAT confirmed the CIT-A's decision based on precedent and the absence of contrary decisions. Therefore, the addition made by the assessing officer under section 43B for service tax was disallowed, while the addition for outstanding VAT was confirmed as the appellant failed to provide any explanation or relevant judgment regarding the outstanding VAT amount.

In conclusion, the ITAT upheld the decisions of the CIT-A on both issues, leading to the dismissal of the revenue's appeal.

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