INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Purchases made from bogus parties - Sales being not doubted

Assessee was engaged into business of civil engineers works. AO alleged that parties, from which purchases were made by the assessee, were found to be bogus. Therefore, he disallowed entire purchases by treating them as bogus. Further, CIT (A) held that not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appeared to be inflation of purchase price so as to suppress true profits. Accordingly, he estimated the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities, as the suppressed profit element embedded in such purchases. Aggrieved, Revenue was in appeal. Held: It was undisputed that the sales made by the assessee had not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done because no sales is possible without actual purchases. In instant case, assessee made purchase from grey market and making purchases through the grey market gave the assessee savings on account of non-payment of tax and others at the expense of the exchequer. Therefore, the motive of the assessee was only to suppress true profits and hence, only profit element embedded in such purchases could be added to the assessee's income. Accordingly, the CIT (A) was justified in reducing disallowance to 12.5% out of the bogus purchases.

Distinguished:N.K. Proteins Ltd v. ITO (OSD) [Civil Application No. 24746 of 2006, dt. 20-9-2016] : 2016 TaxPub(DT) 5158 (Guj-HC)

REFERRED : Nickunj Eximp Enterprises Pvt. Ltd. v. ACIT 2014 TaxPub(DT) 3516 (Bom-HC)

FAVOUR : Partly in favour of assessee

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 43B

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