INCOME TAX ACT, 1961

Section 69C

Income from undisclosed sources - Addition under section 69C - Bogus purchases from hawala operators - Extent of addition

AO received information from Sales Tax Department indicating that assessee was one of the beneficiaries of transactions shown by some hawala operators. Accordingly, AO reopened assessment and made addition under section 69C treating entire purchases as bogus. Assessee pleaded that even if purchases were from hawala operators, still only excess gross profit element ought to have been added instead of full amount of purchases. Held: Issue of bogus purchases came up for consideration before Bombay High Court in Pr. CIT v. Mohommad Haji Adam & Co. Vide its judgment dt. 11-2-2019 in ITA No.1004 of 2016 and others, wherein High Court held that no ad hoc addition for bogus purchases can be made and addition should be made to the extent of difference between gross profit rate on genuine purchases and gross profit rate on hawala purchases. Such case specific details were not readily available either with assessee or AO for facilitating calculation of gross profit rate of genuine and hawala purchases. Under these circumstances, issue was remanded back to AO for applying the ratio laid down by jurisdictional High Court in the above noted case and recomputed amount of additions, if any, after allowing a reasonable opportunity of hearing to assessee.

Pr. CIT v. Mohommad Haji Adam & Co. [ITA No.1004 of 2016, judgment dt. 11-2-2019]nd Dinesh Rathi v. Dy. CIT ITA No. 975/PUN/2017 : 2019 TaxPub(DT) 6714 (Pune-Trib).