Sun Polymers v. ITO [ITA No. 956/Pun/2017, dt. 5-8-2020] : 2020 TaxPub(DT) 3114 (Pn-Trib)

Bogus purchase of machinery -- Addition under section 69

Facts:

It was controverted with evidences that assessee had indulged in accommodation bills for purchasing machinery during the assessment year. Accordingly the said asset purchase for Rs. 59 lakhs was added as an unexplained investments under section 69. On higher appeal to ITAT -

Held by the ITAT in favour of the assessee that addition could only be done on the gross profit rate on the higher asset value claimed to be bogus. Since being an asset purchase the disallowance can only be to the extent of depreciation on the gross profit portion alone.

The working explained is noteworthy -- Rs. 100 machinery bills were fake bogus/accommodation bills.

This was paid by banking channels for Rs. 100 and the assessee got back Rs. 99 cash back with Re. 1 as commission for the accommodation bills.

The cash of Rs. 99 then was invested in the machinery from the black market for Rs. 85.

Thus assessee gained only Rs. 15 (100-85) by the hawala transaction and depreciation on the Rs. 15 which is what can be disallowed.