2012 (7) TMI 467 - AT - Income Tax

Addition on account of unexplained purchases u/s 69C of the Income Tax Act section 69C would apply only when there is some expenditure for which the assessee is not in a position to explain the source of the same Held that - section 69C refers to the source of the expenditure and not to the expenditure itself. In the instant case before us, indisputably, the purchases and sales are accounted for in the books of accounts. Thus, source of the expenditure incurred in purchases is obviously explained. - Decided in favor of assessee.

Issues Involved:
1. Deletion of additions made on account of unexplained purchases under Section 69C of the Income Tax Act, 1961.
2. Acceptance of cash transactions regarding sale and purchase by the assessee company.
3. Deletion of disallowance of 50% of expenditure and depreciation.
4. Validity of notice and assessment order issued under Section 153C/143(3) of the Income Tax Act.
5. Jurisdictional issues related to seized documents and their relevance to the assessee.
6. Validity of assessment proceedings and assumption of jurisdiction under Section 153C.
7. Consistency in assessment proceedings for different assessment years.

Detailed Analysis:

1. Deletion of Additions under Section 69C:
The Assessing Officer (AO) added amounts for unexplained purchases under Section 69C for the assessment years 2003-04 to 2008-09. The CIT(A) deleted these additions, stating that the purchases were duly accounted for in the assessee's books of accounts, and the books were not rejected by the AO. The ITAT upheld this view, referencing the Delhi High Court's judgment in CIT vs. Radhika Creation, which clarified that Section 69C focuses on the "source" of expenditure, not the expenditure itself. Since the purchases were recorded in the regular books, the source was deemed explained, making Section 69C inapplicable.

2. Acceptance of Cash Transactions:
The AO questioned the cash transactions for sales and purchases, adding the sales consideration under Section 68. The CIT(A) found that the sales were made through account payee cheques and supported by vouchers and stock registers. The ITAT agreed, noting that the AO did not provide adverse comments in the remand report and that the transactions were duly reflected in the books. Therefore, the addition under Section 68 was deleted.

3. Deletion of Disallowance of 50% of Expenditure:
The AO disallowed 50% of the expenses on the grounds of unverifiability. The CIT(A) deleted this disallowance, stating that the books of accounts were complete, audited, and no defects were pointed out by the AO. The ITAT upheld this decision, noting that no specific unverifiable expenses were identified by the AO.

4. Validity of Notice and Assessment under Section 153C:
The assessee challenged the validity of the notice and assessment order issued under Section 153C, arguing that the documents found during the search did not belong to them but were part of the working papers of their CA. The CIT(A) upheld the assessment, stating it was in conformity with statutory provisions. The ITAT found the issue academic in light of its findings on the main grounds and did not adjudicate further.

5. Jurisdictional Issues Related to Seized Documents:
The assessee contended that no seized documents related to the relevant assessment years were found, and the documents were already reflected in the regular books. The CIT(A) upheld the assessment, and the ITAT did not find grounds to interfere, dismissing the related grounds as academic.

6. Validity of Assessment Proceedings and Assumption of Jurisdiction:
The assessee argued that the assessment proceedings were initiated under the non-existent old name of the company and that the proceedings were not pending on the date of recording satisfaction under Section 153C. The CIT(A) upheld the proceedings, and the ITAT dismissed the related grounds as academic.

7. Consistency in Assessment Proceedings:
The CIT(A) and ITAT noted that in the assessment for AY 2002-03, no disallowance of expenses was made, and the AO did not point out any defects in the books for the years under consideration. The ITAT emphasized the need for consistency, dismissing the Revenue's appeals on these grounds.

Conclusion:
The ITAT upheld the CIT(A)'s decision to delete the additions under Sections 69C and 68 and the disallowance of expenses. The appeals by the Revenue were dismissed, and the cross-objections by the assessee were deemed academic. The judgment emphasized the importance of accounting for transactions in regular books and the need for consistency in assessment proceedings. The ITAT's decision was pronounced in open court on June 13, 2012.

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