Hi Everyone,
I have a query regarding applicability of section 68. Whether the credit purchase transaction of raw materials will be hit by section 68? i.e. if AO treats the transaction as bogus can he proceed to add the liability shown towards creditor as income under section 68 i.e. as unexplained cash credit? Or is section 68 applicable only for loan transactions?
Thank You.
You have misunderstood the provision
Section 68 will be hit when there is unexplained cash credit in the books of the assessee. Ex: Rs 5 lakhs credited in bank account and assessee unable explain the source of income, then section 68 will be applicable. In your case, it is disallowance of expenditure.
So can AO make an addition as a unexplained cash credit in the above given case i.e. bogus credit purchase transaction under section 68?
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