Case Law Details
1.If addition has to be made for bogus purchases then sales should also be disturbed ; 2.Until and unless both parties don’t confirm the cessation of liability then addition cannot be made u/s 41(1); 3.If books of accounts are rejected then net profit estimation basis should be considered for computation of income.
Brief of the case:
1.ITAT Delhi held in ACIT vs Advert Communication that if the AO had considered that the purchases claimed by the asseessee in the profit & Loss account were bogus then along with the adjustment made in the purchases, AO should also made adjustment in sales also because only addition made in the purchase was not valid because if the purchases were not made by the assesse then sales could also not be made. Without purchase sales could not be made so if adjustment had been made in purchases then adjustment should also be made in sales. So observation of the AO was not correct.
2.ITAT Delhi held in ACIT vs Advert Communication that as the AO had considered the creditors standing in the books of account as bogus which was not valid because that amount was also standing in the receiving party books of account So if the amount was standing in both the parties then AO could not made addition to the income of assesse for cessation of liability. AO’s conclusion that the amount was outstanding form long period would not be repaid was not correct.
ITAT Delhi held in ACIT vs Advert Communication that as the AO had rejected the books of account of the assesse and computed the assessed income after making addition in the purchase account as mentioned in point no 1, So making substantial addition of purchases to the income and also addition of cessation of liability u/s 41(1) was not correct. AO should estimate the income of the assesse on the net profit estimation basis because he had rejected the books of account.
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