INCOME TAX ACT, 1961

Section 69C

Income from undisclosed sources - Addition under section 69C - Purchases made from bogus suppliers - Assessee failed to substantiate genuineness of transactions

AO received information that assessee accepted bogus entries in respect of purchases made during the year. Assessee submitted ledger copies as well as details of parties from which alleged bogus purchases were made. Further, details of payment which were made by account payee cheques were also brought to the notice of the AO. However, AO was of the view that the assessee did not produce the purchasers so demanded and he also did not file any evidences showing genuineness of such transactions. Accordingly, the AO made disallowance of 12.5% of bogus purchases, which was, in turn, reduced by CIT (A) to 5% of such purchases. Aggrieved, Revenue was in appeal. Held: AO as well as CIT (A) did not doubt the sales made by assessee. Further, the plea of the assessee that since the purchases were made through banking transactions, the same were genuine, was not accepted by the CIT (A) in its totality on the basis of the finding of the Sales Tax Department that the suppliers in the case of the assessee were bogus. Therefore, the CIT (A) was of the view that the question of genuineness of such transactions, in the absence of valid documents to that effect produced by the assessee, remained undecided. However, he opined that the entire purchase could not be disallowed but only profit embedded in the doubtful transaction had to be taxed. CIT (A) further opined that assessee made cash purchases from other parties though those were not recorded in the books otherwise the sales made could not have taken place. Moreover, when the assessee already recorded a GP of 3.56% in his books and the sales had not been doubted, the CIT(A) was justified in restricting the disallowance to 5% of the alleged bogus purchases.

REFERRED : CIT v. Bholanath Poly Fab (P) Ltd. (2013) 355 ITR 290 (Guj) : 2013 TaxPub(DT) 1852 (Guj-HC) Shri Madhukant B. Gandhi v. ITO [ITA No.1950/Mum/2009, dt. 23-2-2010]

FAVOUR : Partly in favour of assessee.

A.Y. : 2010-11

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