INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Bogus purchases - Estimation of income--Estimation on higher side

AO received information that assessee was indulged in bogus purchases. Accordingly, he made addition @12.5% on account of bogus purchases. CIT(A) confirmed the addition made by the AO. It was submitted on behalf of the assessee that the CIT (A) sustained the addition overlooking that the assessee already declared GP ratio. Accordingly, it was submitted that the addition @12.5% as estimated by the AO was too high. Held: The complete onus to prove the purchases, was on assessee, which remained undischarged, however, the turnover achieved by the assessee had not been disputed by Revenue. In such a scenario, the addition, which could be made, was to account for profit element embedded in those purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which the AO had rightly done. Further, on an average, the assessee already declared 9.5% of GP rate. Therefore, considering the GP rate of already reflected by the assessee, i.e., as well as VAT rate applicable to the goods being dealt with by the assessee, it was found that the estimation as made by the AO was on the higher side and hence, the AO was directed to estimate the income @3% of the bogus purchases.

REFERRED :

FAVOUR : Partly in favour of assessee.

A.Y. : 2010-11

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