S. 69C : Unexplained expenditure-Bogus purchases- Information from sales tax Department-Sales not doubted-Books of account not rejected-Order of Tribunal affirming the estimate of profit at 12.5% of alleged bogus purchases are affirmed-Court also observed that, it is the solemn obligation and duty of the Income Tax Authorities and more particularly of the A.O. to undertake all necessary enquiry including to procure all the information on such transactions from the other departments / authorities so as to ascertain the correct facts and bring such transactions to tax. [S. 133(6), 145(3)]
The assessee is engaged in the business of trading in resins and chemicals on wholesale basis. On information received from the DGIT (Investigation), the assessment was reopened. The Assessing Officer has added entire purchases from six parties as unexplained expenditure under section 69C of the Act . On appeal the CIT(A) estimated the profit at 12.5% on the purchases made by the assessee. As the assessee had shown gross profit at 4.74% in the assessment year in question, the CIT(A) reduced the same from 12.5% and confirmed the addition to the extent of 7.76%. Against the order of CIT(A) the revenue had approached the tribunal, against the reduction of the said addition. The assessee also filed a cross appeal against sustaining the addition at 7.76%. Against the aforesaid orders passed by the CIT(A) the revenue had approached the tribunal, against the reduction of the said addition. The assessee also filed a cross appeal against sustaining the addition at 7.76%. The Tribunal held that the CIT(A) has rightly estimated the profit in regard to the purchases at 12.5%, however, the Tribunal also held that CIT(A) was not correct in reducing the gross profit already returned by the assessee at 4.74% out of the 12%, for the reason that the gross profit returned by the assessee related to the sales made by the assessee and did not have link to the purchases for which assessee might have procured bills by making savings in VAT etc. For such reason the tribunal partly allowed the grounds as raised by the revenue and directed the AO to estimate the income at 12.5% in each of the assessment year, on the purchases so made. On appeal by the Revenue the Court affirmed the order of the Tribunal. Court also observed that in a given case if the Income Tax Authorities are of the view that there are questionable and / or bogus purchases, in that event, it is the solemn obligation and duty of the Income Tax Authorities and more particularly of the A.O. to undertake all necessary enquiry including to procure all the information on such transactions from the other departments / authorities so as to ascertain the correct facts and bring such transactions to tax. If such approach is not adopted, it may also lead to assessee getting away with a bonanza of tax evasion and the real income would remain to be taxed on account of a defective approach being followed by the department. (ITA No. 1662 of 2018 dt.7-8 -2024) (AY. 2009-10, 2010-11)
PCIT v. SVD Resins & Plastics Pvt. Ltd. (Bom)(HC) www.itatonline.org
[Coram : Hon’ble Shri Justice G. S. Kulkarni & Hon’ble Shri Justice Somasekhar Sundaresan]