INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Unexplained purchases - Sales being not disputed--Addition restricted to profit element

AO received information that assessee was a beneficiary of accommodation bills issued by certain entities identified as Hawala operators by Sales Tax Department. Accordingly, he called upon the assessee to prove genuineness of purchases made from the said parties. As alleged by the AO, the assessee was unable to prove the genuineness of purchases by furnishing any transportation bill or stock register. Further, he observed that before the Sales Tax Authorities, the concerned parties admitted that they were providing accommodation bills. In addition, the AO observed that the notices issued under section 133(6) to the concerned parties were returned unserved. Thus, he made disallowance of the purchases made from such parties by treating them as unexplained. However, CIT (A) restricted the disallowance to 12.5% of the non-genuine purchases. Aggrieved, Revenue was in appeal. Held: It was found that assessee furnished purchase bills, delivery challans, ledger account copy, bank statement showing payment, etc. The only reason for which the AO disallowed the purchases was that the parties admitted before the Sales Tax Authorities that they were providing accommodation bills and secondly, the assessee could not furnish the transportation bills. However, the sales effected by the assessee was not doubted or disputed by the AO, thus, the entire purchases made by the assessee could not be disallowed but only profit element embedded in such purchases could be considered for addition. Hence the CIT (A) was justified in restricting the disallowance to 12.5% of the alleged non-genuine purchases.