2026 (3) TMI 1179 - AT - Income Tax

Estimation of income from suspect purchases permitted where books are accepted; AO directed to apply a reasonable percentage.

When recorded purchases are alleged to be accommodation entries but the assessee produces invoices, e-way bills, transport receipts and bank payment ... Unexplained purchases u/s 69C - estimation of income from bogus purchases by applying percentage where books not rejected Whether the addition of the entire purchases as unexplained expenditure under Section 69C was justified, and if not, the manner of estimating income attributable to the bogus purchases? - HELD THAT: - The Tribunal found that the assessee produced copies of invoices, e-way bills, transport receipts and bank payment evidence for the purchases though the supplier was alleged to be a provider of fake GST invoices. The books of account were not rejected under Section 145(3) and the corresponding sales were not doubted; therefore the entire purchases could not be disallowed as unexplained. The Tribunal held that, at most, income embedded in such purchases should be estimated by applying a reasonable percentage to reflect extra profit earned from purchases made through the grey market. As the assessee did not furnish its gross profit or net profit rates, the Tribunal applied a 3% rate as a reasonable estimate and directed the AO to compute income accordingly, over and above the profits already declared in the books. [Paras 5] Final Conclusion: The appeal is partly allowed: the Tribunal disallowed the addition of the entire purchases under Section 69C and remitted the matter to the Assessing Officer to compute income by applying 3% on the contested purchases over and above the profits declared in the books. Issues: Whether the addition of Rs. 45,36,000 under Section 69C of the Income-tax Act, 1961 on account of alleged bogus purchases should be sustained in full or requires modification.Analysis: Undisputed evidence shows purchases of Rs. 45,36,000 from a supplier alleged to be an accommodation entry provider; the assessee produced invoices, e-way bills, transport receipts and bank payment records which were not accepted by the Assessing Officer. The corresponding sales were not doubted and the books of account were not rejected under Section 145(3) of the Income-tax Act, 1961. Where books are accepted and sales are not disbelieved, a complete disallowance of recorded purchases as unexplained expenditure under Section 69C is not automatically warranted. In such circumstances, an assessment of the additional income embedded in suspect purchases by application of a reasonable estimated percentage is an appropriate method when specific gross profit or net profit rates for the trade are not furnished.Conclusion: The order under appeal is set aside in part and the matter is remitted to the Assessing Officer with a direction to estimate income at the rate of 3% on the disputed purchases of Rs. 45,36,000 under Section 69C of the Income-tax Act, 1961, in addition to the profits already declared in the books.