INCOME TAX ACT, 1961

Section 69C

Income from undisclosed sources - Addition under section 69C - Bogus purchases - CIT(A) restricting addition made on account of non-genuine purchases at 12.5%

Assessee was a trader dealing in metal. Pursuant to information received from Sales Tax Department that assessee had made certain purchases from some parties whose names appear as tainted dealers in the records of Sales Tax Department. AO directed the assessee to furnish addresses of the aforesaid parties, which were duly furnished by assessee. AO issued notice under section 133(6) to those parties which were returned back by postal authorities. AO observed that assessee could not furnish the new address of these parties and was not able to produce the parties in person as directed and also could not prove the genuineness of purchases made from those parties. Accordingly, AO concluded that assessee had obtained accommodation bills for inflating purchases and treated the same as unexplained expenditure and made an addition under section 69C. CIT(A) restricted the addition made on account of non-genuine purchases at 12.5%. Held: It was not in the dispute that assessee had indeed made purchases from certain parties whose names appeared in the list of Hawala bills maintained by the Sales Tax Department, but, however, assessee could not prove the genuineness of such purchases. There could not be any sales without making purchases. Hence, it could be safely presumed that assessee could have made purchases from the grey market in order to saving indirect taxes and incidental profit element thereon. CIT(A) had reasonably estimated such profit element to be at 12.5% of the value of disputed purchases, which was prevalent rate adopted by the Tribunal. Therefore, appeal of revenue was dismissed.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

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