INCOME TAX ACT, 1961,

Section 69

Income from undisclosed sources - Addition under section 69 - Bogus purchases - Addition to be restricted to profit element

Assessee purchased material from an entity. Income-tax authorities received information from Sales Tax Department that the entity name figured in list of hawala dealers, i.e. parties who were merely issuing bills, but not actually transacting in goods. Therefore, the Income-tax authorities made addition under section 69 by treating the purchases as bogus purchases. Held: The orders of the authorities revealed that the purchases were not properly substantiated by the assessee, but it also reflected the plea of the assessee that the material corresponding to such invoices had been used by the assessee for business. It was also noteworthy that the corresponding sales of the products had not been doubted. Under these circumstances, High Court in case of Simit P. Sheth (2013) 356 ITR 451 (Guj.) : 2013 TaxPub(DT) 2115 (Guj-HC) observed that what was required to be added to the returned income was the savings effected by the assessee by making such purchases not from the stated concern, but from undeclared source in the grey market. Therefore, 12.5% of the impugned purchases be considered as an addition required to be made to the returned income in order to plug the leakage of revenue. Thus, the order of CIT(A) was set aside and the AO was directed to restrict the addition to 12.5% of the impugned purchases and delete the balance.

Relied:Simit P. Sheth (2013) 356 ITR 451 (Guj.) : 2013 TaxPub(DT) 2115 (Guj-HC)

REFERRED :

FAVOUR : Partly in favour of assessee.

A.Y. : 2009-10

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