INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Non-genuine purchases - Estimation of income---Consumption/Sales of materials purchased not doubted

AO found that assessee-company entered into bogus purchase transactions with three parties, which were identified as Hawala dealers. Therefore, he called upon the assessee to furnish various documentary evidences such as bills, bank statement, ledger account copies, etc., to prove genuineness of transactions. Assessee furnished all documentary evidences called for by the AO. However, the assessee was unable to produce the concerned parties before the AO. Therefore, the AO disallowed the entire purchases made from the said three parties by treating them as bogus. CIT(A) observed that the AO had not doubted the consumption/sales of material purchased. Thus, he was of the view that the assessee obtained bogus bills to inflate the purchase price so as to suppress profit rate. Accordingly, he estimated the suppressed profit at 12.5% of the alleged non-genuine purchases and restricted the disallowance to that amount. Aggrieved, Revenue was in appeal. Held: Assessee furnished all documentary evidences for proving genuineness of purchases, including goods received note/delivery challans/store receipt, vouchers and also bank statement showing payment made to the parties. Thus, it was clearly proved that the assessee, indeed, purchased the goods and the goods were utilized/consumed in the work. The only reason for which the AO doubted the genuineness of transaction was that the assessee could not produce the concerned parties. Inability to produce the parties could be for various factors, including, their non-cooperation with the assessee. But, that by itself could not be a reason to disallow the entire purchase by treating them as non-genuine. Therefore, the CIT (A) rightly observed that the entire purchases could not be disallowed and only profit element embedded in such purchases could be considered for disallowance. Further, considering the nature of business carried on by the assessee, the disallowance @ 12.5% of the alleged non-genuine purchases was fair and reasonable and hence, the same was upheld.

Distinguished:N.K. Protein v. DCIT, SLP No. 769/2017, dated 16-1-2017

REFERRED :

FAVOUR : Partly in favour of assessee/Against the appellant.

A.Y. : 2015-16

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