INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Bogus purchases and GP rate thereon -

Return of assessee was processed under section 143(1). On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained bogus purchase bills of Rs. 8,16,358 from Emkey Engineers and Rs. 2,78,42,777 from SB Industries during the financial year 2008-09, the AO re-opened the assessment by issuing notice under section 148. During the course of reassessment proceedings, the AO asked the assessee to produce the parties so that the genuineness of purchases could be verified. However, the assessee failed to produce the parties before the AO. In order to verify the transactions, the AO deputed the Inspector to make an inquiry and submit a report. The Inspector filed a Report, dt. 23-3-2015 stating that the above two concerns could not be located at their given address. AO held that as per the inquiry conducted by the Sales Tax Department and the subsequent inquiry done through the Inspector of Income Tax, the genuineness of purchases was not established. Therefore, he made an addition of Rs. 2,86,59,135. The CIT(A) confirmed order of AO in respect of addition of bogus purchases from SB Industries amounting to Rs. 2,78,42,777 he restricted the disallowance to 2% of the purchases of Rs. 2,78,42,777 which comes to Rs. 5,54,420. Held: Order of CIT(A) was set aside and the AO was directed to restrict the additions in respect of purchases from Emkey Engineers and S.B. Industries, limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases. The assessee was directed to file the relevant documents evidence before the AO.

Followed:N.K. Industries Ltd. v. Dy. CIT Tax Appeal No. 240 of 2003 : 2016 TaxPub(DT) 3862 (Guj-HC). Relied:Pr. CIT v. Mohommad Haji Adam & co. ITA No. 1004 of 2006.

REFERRED : CIT v. Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom) : 2015 TaxPub(DT) 1855 (Bom-HC) and Ramesh Kumar Daulatraj Mehta v. ITO, ITA No. 4192/Mum/2018.