INCOME TAX ACT, 1961

Section 69C

Income from undisclosed sources - Addition under section 69C - Estimation of profit embedded in alleged bogus purchases -

In case of assessee engaged in trading of iron products. AO made addition under section 69C @ 6% of alleged bogus purchases, without disputing corresponding sales. CIT(A) directed AO to restrict addition to 3% of disputed purchases for all the four years under consideration. Assessee contended that gross profit rate of 2.41%, 2.86%, 3.59% and 3.83% was declared by assessee for assessment years 2011-12, 2012-13, 2013-14 and 2014-15 respectively and since gross profit rate so declared by assessee by itself was quite fair and reasonable keeping in view the nature of the business of assessee, additional GP rate of 3% adopted by CIT(A) was excessive and unreasonable as the same would give a net profit of more than 3% which was far excessive than net profit earned in the business. Held: Even though claim of assessee as regards quantum of purchases in question could not be disputed because of corresponding sales made by assessee and accepted by AO, the fact remained to be seen was that bills produced by assessee in support of said purchases were found to be bogus and therefore, claim of assessee at least value-wise could not be fully verified. Such unverifiable element involved in the purchases in question called for addition and same could be to the extent of percentage of purchases which could be estimated by a reference to gross profit rates. The resultant net profit, was not relevant in this context. In so far as gross profit rate was concerned, assessee for the immediately succeeding three years, i.e., assessment years 2015-16, 2016-17 and 2017-18 wherein the turnover shown by the assessee was comparable to the four years under consideration was 6.14% as against average GP rate of 3.17% declared by assessee for all four years under consideration. The average GP rate declared by assessee for all the four years under consideration thus was less by about 3% than average GP rate declared by assessee for immediately succeeding three years. Keeping in view this factual position, additional GP rate of 3% adopted by CIT(A) as the profit element embedded in disputed purchases for all the four years under consideration was quite fair and reasonable.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2011-12 & 2012-13

INCOME TAX ACT, 1961

Section 40A(3)

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