INCOME TAX ACT, 1961

Section 69

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

AO received information that assessee made bogus purchases from hawala parties. Assessee filed before the AO, copies of bank statements evidencing payments made to those parties, ledger account of all the parties, purchase invoices from those parties and sale invoices as issued against the purchases made. However, the AO was not convinced with such explanation /reply of the assessee for the reason that no direct evidence like stock register, journal, etc., and indirect evidence such as delivery challans, lorry receipts, quantity tally, etc., were produced. Accordingly, he made addition of entire purchases considering them as bogus. However, CIT(A) restricted such addition by directing the AO to estimate profit @12.5% on the disputed purchases. Aggrieved, Revenue was in appeal. Held: Assessee filed before AO, copies of bank statements evidencing payments made to those parties, ledger account of all the parties, purchase invoices from those parties and sale invoices as issued against the purchases made. Therefore, the AO could have made further verifications /enquiries. However, without making any verification /enquiry, the AO made addition of entire purchases. Further, as the sales made by the assessee was not disputed, the entire purchases could not be added considering them as bogus and only profit embedded in such purchases was required to be added. Further, the purchases might have been made from bogus parties; nevertheless, the purchases themselves were not bogus. Accordingly, the CIT (A) was justified in directing the AO to estimate profit @12.5% on the disputed purchases.

REFERRED : CIT v. Bholanath Poly Fab Pvt Ltd. (2013) 355 ITR 290 (Guj.) : 2013 TaxPub(DT) 1852 (Guj-HC).

FAVOUR : In assessee's favour/Against the appellant.

A.Y. : 2011-12

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