INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Bogus purchases - Purchases from grey market

AO received information from DGIT(Inv.) that assessee had obtained accommodation entries. Assessee was asked to furnish relevant documents to prove genuineness of purchases and the supplier of goods. The assessee could neither produce the supplier nor assessee could furnish relevant documents, viz. Purchase orders, delivery challans, transport bills, etc., to substantiate genuineness of purchases. AO made addition of entire bogus purchases. CIT(A) restricted the disallowance in respect of bogus purchases to 30%. Held: Assessee was a work contractor and without material the assessee could not have completed the contract job. Ostensibly, assessee had procured the material for performing contract job either from grey market or any other sources. High Court in the case of Pr. CIT v. Paramshakhti Distributors (P) Ltd. in Income Tax Appeal No.413 of 2017 decided on 15-7-2019 : 2019 TaxPub(DT) 5788 (Bom-HC) had upheld the proposition that it was only the profit element embedded in the bogus purchases that had to be brought to tax. Estimation of disallowance at 30% by CIT(A) was very much on the higher side. Thus, estimation of GP @12% of bogus purchases would meet the ends of justice.

Followed:Pr. CIT v. Paramshakti Distributors (P) Ltd. [ITA No. 413 of 2017, decided on 15-7-2019] : 2019 TaxPub(DT) 5788 (Bom-HC).

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2011-12

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