The Tax Publishers2020 TaxPub(DT) 2335 (Kol-Trib)

INCOME TAX ACT, 1961

Section 68

Trade creditors being farmers living in rural areas were not educated and not even organized enough to give/keep correct accounts at their end. AO examined few farmers under section 131 and based on their statements AO sought to treat entire creditors as bogus., however, not finding any discrepancy in relation to sale of purchased goods to all the parties. Accordingly, only profit embedded in concerned transaction could be brought to tax. Therefore, CIT(A) rightly rejected books of account of assessee and made estimate 1% of net profit taking into account past net profit history of assessee.

Income from undisclosed sources - Addition under section 68 - Trade creditors treated as unexplained on account of no response to section 133(6) notices. -

AO required assessee to furnish details of sundry creditors. Assessee furnished list of 38 sundry creditors along with total purchases with addresses. Being asked, the assessee again furnished list of creditors along with purchases with addresses. Letters sent by AO to the sundry creditors at the given addresses calling for information under section 133(6) returned unserved with postal remarks: 'not known'/'no such person'/insufficient address'/'wrong address,' etc. Only three suppliers could be produced by assessee and one appeared in response to summon under section 131. Accordingly, AO treated purchase as bogus, and made addition on account of unexplained cash credit under section 68. CIT(A) restricted addition to 1% of net profit. Revenue challenged this.Held: Suppliers (farmers) living in rural areas were not educated and not even organized enough to give/keep correct accounts at their end. AO examined few farmers under section 131 and based on their statements AO sought to treat entire creditors as bogus., however, not finding any discrepancy in relation to sale of purchased goods to all the parties. Accordingly, only profit embedded in concerned transaction could be brought to tax. Therefore, CIT(A) rightly rejected books of account of assessee and made estimate 1% of net profit taking into account past net profit history of assessee.

REFERRED :

FAVOUR : Partly in assessee.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 56(2)(viib) Section 64(1A)

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