The Tax Publishers2020 TaxPub(DT) 3285 (Mum-Trib)

INCOME TAX ACT, 1961

Section 68

High Court in case of CIT v. Simit P. Sheth, (2013) 356 ITR 451 (Guj) : 2013 TaxPub(DT) 2115 (Guj-HC) held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed, therefore, disallowance made by AO was restricted to 12.5% of total alleged bogus purchases which should sufficiently cover the profit element embedded in the impugned purchases.

Income from undisclosed sources - Addition under section 68 - Bogus purchases - CIT(A) restricted addition to 12.5%

Assessee was engaged in business of development of real estate properties. AO observed that assessee had made purchases from hawala parties, as listed in hawala dealers by Sales Tax Department who were providing bogus bills of purchase. Assessee also made alleged purchases from these hawala dealers. AO issued noticed under section 133(6) to the parties which returned back with the remark as 'left' and assessee failed to produce these parties. During the course of assessment proceedings, assessee submitted all documentary evidences such as inward register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. But assessee could not produce transportation bills, delivery challans and weighment slips. According to AO, assessee failed to establish the genuineness of purchase and accordingly, he made addition of unproved purchase. CIT(A) restricted the disallowance at 12.5% of the bogus purchases. Held: High Court in case of CIT v. Simit P. Sheth, (2013) 356 ITR 451 (Guj) : 2013 TaxPub(DT) 2115 (Guj-HC) held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed and accordingly held that 12.5% of purchases would be reasonable as profit on margin against the bogus purchases. Therefore, disallowance made by AO was restricted to 12.5% of the total alleged bogus purchases which should sufficiently cover the profit element embedded in the impugned purchases.

Followed:CIT v. Simit P Sheth (2013) 356 ITR 451 (Guj) : 2013 TaxPub(DT) 2115 (Guj-HC)

REFERRED :

FAVOUR : Partly in assessee's favour

A.Y. :



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