The Tax Publishers2020 TaxPub(DT) 4890 (Mum-Trib)

Income Tax Act, 1961

Section 69

In case of bogus purchases, it is only the profit element which has to be assessed to tax, and not the entire purchases.

Income from undisclosed sources - Addition under section 69 - Bogus purchases - Estimation of income

Assessee was a scrap dealer. AO found that assessee was beneficiary of Hawala purchase entries from three parties and accordingly, the entire purchases made from said three parties were added by the AO to the income of the assessee by treating them as bogus. Further, CIT(A) sustained the addition to the extent of 25% of the bogus purchases by holding that only profit element had to be assessed to tax and not the entire purchases. Held: CIT(A) was justified in holding that in case of bogus purchases, only net profit could be brought to tax, and not the entire purchases. However, considering the nature of business of the assessee and the margin on the trading, it was found that the addition sustained by the CIT(A) was on the higher side and was unreasonable. In such type of cases, the normal presumption would be that the assessee might have purchased the goods from the grey market thereby saving incidental expenses thereby earning a higher profit than the normal profits. Therefore, it would be fair and reasonable if a rate of 8% would be applied on the said alleged bogus purchases. Accordingly, the AO was directed to apply GP @ 8%.


FAVOUR : Partly in favour of assessee

A.Y. : 2009-10



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