INCOME TAX ACT, 1961

Section 69C

Income from undisclosed sources - Addition under section 69C - Bogus purchases - Estimation of income--Only profit element to be added

Assessee-firm was engaged in trading of chemicals and iron and steel. AO transpired that the assessee was involved in inflating expenses by booking bogus purchases. Assessee, in defense of purchases, submitted that there was one-to-one correlation between purchases and corresponding sales and all the payments were through banking channels. However, AO alleged that as the assessee failed to prove the dispatch, transportation and delivery of goods and further, notices issued under section 133(6) to all the suppliers were returned back unserved and also the assessee failed to produce any of the suppliers to confirm the transactions, thus, he termed the said purchases as non-genuine or bogus. However, CIT(A) restricted the said addition to 12.5%. Held: Keeping in view the fact that there was one-to-one correlation between purchases and sales and assessee was in possession of primary purchase documents and the payments to the suppliers were through banking channels, it was a fit case to make estimated additions to account for profit element embedded in alleged bogus purchases, which CIT(A) had rightly done. Further, accepting the submissions that the assessee was dealing in low margin item like iron and steel, which would warrant lower estimation and keeping in view the healthy gross profit rate of 5.43% already reflected by the assessee, the estimation was restricted to net 5% of alleged bogus purchases.

REFERRED :

FAVOUR : Partly in favour of assessee

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 14A

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