INCOME TAX ACT, 1961

Section 69C

Income from undisclosed sources - Addition under section 69C - Alleged bogus purchases -

The original return of income filed by assessee was processed under section 143(1). Pursuant to receipt of certain information from DGIT (Investigation), it was alleged that assessee procured bogus purchase bills for Rs. 470 Lacs from 3 entities, the details of which were extracted in para-3 of the assessment order. Although assessee defended the purchase transactions but AO disallowed entire purchases and added the same to the income of assessee as unexplained income under section 69C. The primary factor to disallow the same was that notices issued under section 133(6) to the tainted suppliers did not elicit satisfactory response. Regarding addition of alleged bogus purchases, the attention was drawn to the fact that in support of purchase transactions assessee had already filed copies of purchase invoices, ledger extracts, stock register extracts and copies of bank statements evidencing payment through banking channels and therefore, additions would not be justified merely because notices could not be served. Assessee also placed on record itemised summary of purchases and corresponding sales made against these purchases. CIT(A) concurred that invocation of section 69C would not be proper since the source of tainted purchases was assessee's bank account. However, on the facts of the case, assessee may have made purchases from grey market, but it procured bogus bills and therefore, the profit element embedded in these transactions was to be estimated. The estimation was made @ 5% of these purchases. Held: It was evident that assessee was in possession of purchase invoices and it placed on record confirmation of accounts. The payments to the suppliers were through banking channels. The assessee produced stock register extract and correlated the tainted purchases with sales transactions. There could be no sale without actual purchase of material keeping in view the assessee's nature of business. The sales have not been disputed or disturbed by the revenue. In such a case, the approach of CIT(A) in estimating the additions @5% was quite fair and reasonable. The Tribunal concurred with the same and therefore, this ground raised by the revenue was dismissed.

Relied:Raymond Woollen Mills Ltd. v. ITO (1999) 36 ITR 34 (SC) : 1999 TaxPub(DT) 348 (SC).

REFERRED :

FAVOUR : In assessee's favour (Partly).

A.Y. : 2009-10

INCOME TAX ACT, 1961

Section 68

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