INCOME TAX ACT, 1961

Section 263

Ravision under section 263 - Estimation of additional profit at the rate of 11.27 % towards bogus purchases by AO - Addition of amount of difference between gross profit rate on genuine purchase and on hawala purchase -

AO received an information from the Sales Tax Department about assessee having procured bogus bills in the Hawala racket. AO completed the assessment by holding that 15% of profit on such purchases was liable to be taxed as additional income. Since assessee had already declared gross profit @3.73%, AO added additional profit. CIT, exercising his revisional power under section 263 held assessment order to be erroneous and prejudicial to the interest of revenue. Held: The view taken by AO in not taxing 100% but only profit element in such hawala purchases was fortified by the judgment in PCIT v. Mohommad Haji Adam & Co. [Income Tax Appeal No. 1004 of 2016 with 1013 of 2016 with 1059 of 2016 with 1064 of 2016 with 1075 of 2016 with 1095 of 2016 with 1204 of 2016 with 1012 of 2016, dt. 11-2-2019], wherein it was held that no ad hoc addition for bogus purchases can be made. Rather, the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. Since AO in the instant case had made addition for the additional profit at the rate of 11.27% towards bogus purchases, order treating such assessment order as erroneous and prejudicial to interest of revenue, cannot be validated.

Followed:PCIT v. Mohommad Haji Adam & Co. [Income Tax Appeal No. 1004 of 2016 with 1013 of 2016 with 1059 of 2016 with 1064 of 2016 with 1075 of 2016 with 1095 of 2016 with 1204 of 2016 with 1012 of 2016, dt. 11-2-2019]

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2009-10

SUBSCRIBE FOR FULL CONTENT