2017 (2) TMI 75 - AT - Income Tax

Unexplained expenditure u/s 69C - Held that - Assessee had enclosed copies of account of the said parties appearing in his account books, copies of purchase invoices, copies of bank statement for payment to the parties, etc. At the time of hearing, the learned representative for the assessee has also referred to the Paper Book, wherein the relevant documents have also been placed. Under these circumstances, having regard to the material on record, it is not possible to uphold the charge of Assessing Officer that the purchases from the 7 parties in question are bogus. In the present case, the Assessing Officer has invoked Sec. 69C to treat the expenditure on purchases of ₹ 37,45,965/- as unexplained. So however, the assessee has demonstrated that the payments for such purchases have been made through account payee cheques for which there is no repudiation by the Assessing Officer thereby implying that the source of expenditure stands explained. In fact, the case of Assessing Officer is that the purchase transactions are only accommodation entries and not really purchases , thereby implying that as per the Assessing Officer assessee has not incurred such expenditure. To hold the transactions as mere accommodation entries and not real purchases is quite different from saying that the sources of expenditure for the purchases from the 7 parties in question have not been explained in the context of Sec. 69C of the Act. Therefore, invoking of Sec. 69C of the Act in the present case to treat the purchases of ₹ 37,45,965/- stated to have been made from the 7 parties in question is on a wrong footing. Thus, on this aspect also, assessee deserves to succeed.

Summary

Issues:
Appeal against addition of unexplained expenditure under section 69C of the Income Tax Act, 1961 for the Assessment Year 2011-12.

Analysis:
1. The Assessing Officer added &8377; 37,45,965/- as unexplained expenditure under section 69C of the Act based on information received regarding accommodation entries from certain purchase parties.
2. The Assessee contended before the CIT(A) that detailed evidence of purchases, payments, bank statements, and sales were provided, challenging the Assessing Officer's decision.
3. The CIT(A) upheld part of the addition, applying a profit rate on the bogus purchases, considering the Assessing Officer's doubts on the genuineness of transactions.
4. Before the Tribunal, the Assessee argued that the purchases were justified, payments explained, and requested for cross-examination of witnesses, invoking principles of natural justice.
5. The Tribunal noted that the Assessing Officer's reliance on information without specific material was insufficient to treat the purchases as bogus, especially when payments were made through legitimate channels.
6. Non-service of notices to parties did not conclusively prove transactions as non-genuine, as the Assessee provided evidence of payments, stock records, and maintained account books.
7. The Tribunal found the application of Sec. 69C of the Act in this case to be erroneous, as the source of expenditure for purchases was explained through account payee cheques, leading to the decision to delete the addition.
8. Consequently, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to delete the addition of &8377; 37,45,965/-, allowing the Assessee's cross-objection and dismissing the Revenue's appeal.