INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Assessee failed to substantiate genuineness of purchases - Treatment as bogus purchases

AO observed that assessee-company claimed to have made purchases from hawala operators. Assessee was asked to substantiate such purchases by furnishing documents related to the purchases and to produce parties for verification. As the assessee failed to produce the parties for verification and relevant documents to prove genuineness of the purchases, the AO disallowed the entire purchases made from such parties on account of bogus purchases. Further, CIT (A) observing that the AO had not doubted the duly accounted sales of the assessee, restricted such disallowance to 12.5%. Held: Assessee failed to produce any evidence to substantiate the genuineness of purchases made by it, such purchases were righty disallowed on account of bogus purchases. However, as AO had not doubted the duly accounted sales of the assessee, the entire value of purchases could not have been disallowed. Apart from that, the disallowance of the entire value of purchases would result into an abnormal increase in GP/NP by 26%, which was unheard of in the trade line of the assessee. Further, it is settled that only real income can be taxed by Revenue, even if the transaction is not verifiable due to any reason, the only taxable is the taxable income component and not aggregate of the transaction. Accordingly, the CIT (A) was justified in sustaining the disallowance to the extent of 12.5% of the aggregate value of the impugned purchases.

REFERRED : Shri Sai Steel Industries India (P) Ltd. v. ACIT-8(2)(1), Mumbai (ITA No. 4576/Mum/2017, dated 20-12-2017)

FAVOUR : Partly in favour of assessee

A.Y. :

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