Bogus purchase – Taxation?

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ITO v. Prompt Toys (P.) Ltd.

Decision:    Partly in assessee’s favour.

Income from undisclosed sources–Addition under section 69C– Bogus purchases–Genuineness of purchaser

Facts:

During the assessment proceedings, the AO noticed that the assessee was the beneficiary of bogus bills issue by two parties as both the parties were categorize as hawala operators indulging in the activity of providing accommodation entries.
Therefore, the AO called upon the assessee to furnish necessary evidences to justify purchases from the above two parties and also to produce the parties in person. In response to notices, the assessee, vide letter, submitted purchase bills and payment proof to prove purchases from the above parties as genuine.
To ascertain the correctness of purchases, the AO issued notices under section 133(6) to the parties to file necessary evidence. The notices issued under section 133(6) were returned unanswered with remarks “no such parties are available at the give address”. The AO, based on the information received from DGIT (Inv), coupled with further enquiries conducted during the course of assessment proceedings, came to the conclusion that purchases from the above two parties were bogus in nature and hence, made addition under section 69C.
Held:

Addition cannot be make towards allege bogus purchases only on the basis of information received from Sales Tax Department. At the same time, it was also an undisputed fact that the notices issued under section 133(6). Were returned unserved with remarks, “not known” or “unclaim”. The assessee had failed to furnish correct addresses of the parties. Under these circumstances, it was very difficult to accept that the purchases from those parties were explain to the satisfaction of the AO.

Considering the facts and circumstances of the case, only profit element embed in purchases needs to be tax. Hence, AO was direct to estimate net profit of 12.5% on total purchases make from the above parties.

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