Supreme Court upholds 100% addition of bogus purchases where source of expenditure remained unexplained
Issue
Whether the Assessing Officer (AO) was justified in adding the entire amount of alleged bogus purchases to the income of the assessee under Section 69C, rather than restricting the addition to a profit percentage, when the assessee failed to explain the source of the expenditure.
Facts
Assessee’s Business: A company engaged in the trading of iron and steel.
Reopening: The assessment for AY 2009-10 was reopened based on information from the DGIT(Inv.) and Sales Tax Department that the assessee was a beneficiary of bogus purchase bills from hawala operators.
AO’s Order: The AO treated the purchases as unexplained expenditure under Section 69C and added the entire value of the purchases to the assessee’s income.
Lower Appeals: Both the Commissioner (Appeals) and the Tribunal (ITAT) granted relief, restricting the disallowance only to the profit margin embedded in the unproven purchases (a common practice in such cases).
High Court’s Stance: The High Court reversed the relief. It held that since the assessee failed to offer any explanation regarding the source of the expenditure during the reassessment, the strict provisions of Section 69C were attracted. Therefore, the addition of the full amount was justified.
Decision
Supreme Court’s Verdict: The Supreme Court saw no reason to interfere with the High Court’s order.
SLP Dismissed: The Special Leave Petition (SLP) filed by the assessee was dismissed.
Outcome: The addition of the entire amount (100%) of the bogus purchases was sustained in favour of the Revenue.
Key Takeaways
Section 69C Severity: While many courts estimate only the profit element in bogus purchase cases (assuming the goods were bought from the grey market), this judgment highlights that if the assessee fails to prove the source of funds used for the expenditure, the entire amount can be added as unexplained expenditure under Section 69C.
Burden of Proof: The onus is entirely on the assessee to explain the source of expenditure. Silence or lack of evidence regarding the money trail can lead to a 100% addition, overriding the general trend of “profit estimation.”