The Tax Publishers

Addition Under Section 69C on Account of Bogus Purchase Not Restricted to Profit Element Only

Dr. CA. Nisha Bhandari

Whenever assessing officer finds any unaccounted purchases and assessee fails to explain the genuineness of such purchase then addition under Section 69C can be made. The amount of addition in such case should be of entire amount and not merely of profit element included therein. It is however incumbent upon the assessing officer to provide fair and proper opportunity of hearing to assessee to prove his case in case of purchases alleged to be bogus. The present write up discusses the applicability of Section 69C in case of bogus purchases.

1. Unexplained expenditure liable for addition under Section 69C

Where in any financial year an assessee has incurred any expenditure, for which he fails to explain any source or explanation offered by him is not satisfactory the amount covered by such expenditure or part thereof, as the case may be, is deemed to be income of the assessee for such financial year under Section 69C.

As held in Ravikiran Ceramics (P) Ltd. v. CIT 2016 TaxPub(DT) 1080 (Guj-HC), where there was unexplained expenditure and source of such expenditure was not satisfactorily explained, provisions of Section 69C would certainly be applicable.

2. Addition on account of bogus purchases

In Grand Bazzar v. Asstt. CIT 2007 TaxPub(DT) 928 (Mad-HC) : (2007) 292 ITR 269 (Mad), assessee had not explained as to the source of purchases and the additions under Section 69C were therefore, sustainable. Commissioner (Appeals) was not justified in reducing/deleting additions. As the funds introduced by assessee as cash credits in books of account had gone into assessees business account and so, the same could not have been utilised for making unaccounted purchases and assessee could not be given credit of any amount already introduced as credits in account books as available to meet any unaccounted expenditure including the unaccounted purchases, therefore, Tribunal was justified in restoring the additions under Section 69C for both assessment years.

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