INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Bogus purchases - Addition on basis of material collected by Investigation Wing

Assessee-company was engaged in business of trading of gold and diamond jewellery, etc. AO on the basis of information received from Investigation Wing found that during year under consideration, assessee made purchases from two parties, which were involved in issuing bogus bills. Assessee submitted that it purchased certain gold and diamond jewellery from those parties and duly accounted for the same in its books of account after taking the physical delivery thereof. Further, it also submitted that the said jewellery items were purchased after declaring the same on prescribed declaration forms issued by the UP Trade Tax Department and all the payments of purchases were made through cheques. AO, however, in view of the report of Investigation Wing, considered the entire purchases made by assessee from its unaccounted money/undisclosed source and thus made addition on account of bogus purchases.Held: It was found that material collected by Investigation Wing was not provided to assessee for rebuttal on behalf of the assessee. The right to rebut to such adverse material should have been provided to assessee for explanation of assessee. It was sufficient to hold that the material collected by Investigation Wing could not be used in evidence against the assessee. Further, the assessee produced copies of purchase bills, U.P. Trade Tax Department and bank statements to prove that purchases were made through purchase bills and through banking channel but AO did not make any investigation on the same and without any investigation disbelieved the documentary evidences produced on record. Thus, there was no justification to consider that the purchases made by the assessee to be bogus purchases and hence, the addition made on such basis would not be sustainable.

Relied: i>Andaman Timber Industries v. CCE (2015) 281 CTR 214 (SC): 2015 TaxPub(DT) 5186 (SC) and Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC): 1980 TaxPub(DT) 1130 (SC).