INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Bogus purchases - Addition on estimation basis

Assessee made purchases from two concerns that had been characterised as tainted parties by the Income Tax department and it submitted that the purchase bills of the suppliers, invoices of corresponding export sales of polished diamonds, and various documents before AO. However, AO disregarded the entire documentation and disallowed 100% value of purchases being bought from tainted parties. CIT(A) however, appreciated the contentions of assessee and observed that since the sales made by assessee was not doubted out of the disputed purchases, only the profit element embedded thereon could be brought to tax. Accordingly, CIT(A) restricted the disallowance at 12.5% of disputed purchases. Aggrieved by this order of CIT(A), the Revenue was in present appeal. Held: It was found that the report of the task group for diamond sector submitted to Department of Commerce suggested that the net profit that could be derived in the diamond manufacturing ranges from 1.5% to 4.5% and in trading activity thereof, the profitability range was 1% to 3%. This Tribunal in number of times had placed reliance on the said task force report and had estimated the profit percentage within the aforesaid range. Considering the documents submitted by assessee and also considering the fact that assessee had not proved the veracity of the purchases beyond reasonable doubt in the instant case, it was held that estimation of profit percentage @3% of value of disputed purchases would meet the ends of justice.

REFERRED :

FAVOUR : Partly in assessee's favour

A.Y. :

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