INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Assessee took accommodation entries of bogus purchase bills issued by Hawala dealers - Estimation of profit from bogus purchases

AO made addition of 40.50% gross profit on alleged bogus purchases on the ground that assessee took accommodation entries of bogus purchase bills issued by hawala dealers. According to AO, although the assessee filed certain basic evidences, but failed to file further evidence in the backdrop of clear finding by the Sales Tax Department that those parties were involved in providing accommodation entries without actual delivery of goods. CIT(A) upheld such addition. Assessee submitted that the purchases from the said parties were supported by necessary evidences. Further, it submitted that it furnished all possible evidences, including books of account, stock details and bank statement to prove that payments against the said purchases were made through proper banking channels, therefore, said addition was not justified. Held: Although, assessee filed certain basic evidences but it failed to file further evidences to conclusively prove purchases to the satisfactions of the AO. Further, mere payment by cheque would not prove the genuineness of purchase, more particularly when other circumstantial evidences said otherwise. At the same time, the AO solely relied upon information received from investigation wing, which was further supported by the information received from the Sales Tax Department. Further, the AO neither pointed out any discrepancies in books of account nor made out a case of sales outside the books. Moreover, it is settled that in case of purchases claims to have made from alleged hawala dealers, only profit element embedded in those purchases needs to be taxed, but not total purchase from those parties and at the time of estimation of profit from alleged bogus purchases, no uniform yardsticks could be adopted, but it depends upon facts of each case. In instant case, the AO estimated 40.50% gross profit, which seemed to be on higher side when compared to nature of business of the assessee and hence, to settle dispute between the parties, the AO was directed to estimate 12.50% gross profit on alleged bogus purchases.

REFERRED : CIT v. Simit P. Sheth (2013) 219 Taxman 85 (Guj) : 2013 TaxPub(DT) 2115 (Guj-HC)

FAVOUR : Partly in favour of assessee

A.Y. : 2009-10

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