2012 (10) TMI 1071 - AT - Income Tax

Additions on account of unexplained purchases u/s 69C - sale/ purchase made in cash as genuine - disallowance of expenditure - Held that - there cannot be addition u/s 69C for expenses recorded in the books - sec 69C refers to the source of the expenditure and not to the expenditure itself - decision of Hon ble Delhi High Court in case of CIT vs. Radhika Creation 2010 (4) TMI 100 - DELHI HIGH COURT followed - Decided in favor of assessee Held that - all sales made by the assessee stood recorded in the books, which included the sales and purchase vouchers and stock registers maintained on a day-to-day basis - Decided in favor of assessee Genuineness of cash expenditure - Held that - The expenditure were incurred wholly and exclusively for the purpose of the business - disallowance was made completely on ad hoc basis - Decided in favor of assessee

Issues Involved:
1. Deletion of addition on account of unexplained purchases under Section 69C of the Income-tax Act, 1961.
2. Acceptance of cash transactions as genuine.
3. Deletion of addition by disallowance of 50% of expenditure claimed by the assessee.
4. Evidentiary value of statements not confronted to the assessee.
5. Validity of notice and assessment order under Section 153C/143(3) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Purchases under Section 69C:

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition of Rs. 40,83,460/- made by the Assessing Officer (AO) on account of unexplained purchases under Section 69C of the Income-tax Act, 1961. The CIT(A) found that the purchases were recorded in the regular books of accounts, and thus, the source of the expenditure was explained. The ITAT upheld this decision, citing the Hon'ble Delhi High Court's ruling in CIT vs. Radhika Creation, which clarified that Section 69C focuses on the source of expenditure, not the expenditure itself. The ITAT also referenced similar cases (ACIT vs. Blue Luxury Impex Pvt. Ltd., ACIT vs. Anupama Links Pvt. Ltd., and ACIT vs. AA Testronics Solutions Pvt. Ltd.) where the additions were deleted on similar grounds.

2. Acceptance of Cash Transactions as Genuine:

The CIT(A) accepted the cash transactions of sale and purchase as genuine. The ITAT supported this view, noting that the sales were made through account payee cheques and were reflected in the stock registers, supported by sales and purchase vouchers. The AO did not reject the books of accounts or provide evidence to contradict the assessee's claims. The ITAT found no basis to interfere with the CIT(A)'s findings.

3. Deletion of Addition by Disallowance of 50% of Expenditure Claimed:

The CIT(A) deleted the addition of Rs. 75,867/- made by the AO by disallowing 50% of the expenditure claimed by the assessee. The ITAT noted that the disallowance was made on an ad hoc basis without pointing out specific defects in the expenditure claims. The CIT(A) relied on various decisions of the Hon'ble Delhi High Court, which held that ad hoc additions are liable to be deleted. The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

4. Evidentiary Value of Statements Not Confronted to the Assessee:

The CIT(A) held that the statements of various persons, without being confronted to the assessee, had no evidentiary value and did not have any connection with the assessee. The ITAT agreed with this view, emphasizing the importance of confronting the assessee with any statements used as evidence against them.

5. Validity of Notice and Assessment Order under Section 153C/143(3):

The assessee's cross objection challenged the validity of the notice issued under Section 153C and the assessment order passed under Section 153C/143(3), claiming they were illegal, bad in law, and without jurisdiction. The CIT(A) upheld the validity of the assessment, stating that the assessment was framed in conformity with the statutory provisions of Section 153C read with Section 153A. The ITAT noted that the assessee's AR did not press the cross objection, and thus, it was dismissed.

Conclusion:

The ITAT dismissed both the revenue's appeal and the assessee's cross objection. The appeal of the revenue was dismissed on the grounds that the CIT(A) correctly deleted the additions made by the AO, and the cross objection was dismissed as it was not pressed by the assessee's AR. The ITAT's decision was pronounced in open court on October 31, 2012.

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