2017 (11) TMI 498 - AT - Income Tax

Unexplained expenditure u/s.69C - unexplained purchases - source of the payment - Held that - Considering the provision of Section 69C where in it has been explained that in any financial year, an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure then the Assessing Officer may make the addition. But in this case, the assessee has produced the bank statement, sales register, purchase register etc; before the Ld. CIT(A). The bank statement clearly shows that the purchases were made through account payee cheque. In addition to this, the assessee has contended from the beginning that the source of the payment was the sale proceeds of these unrecorded purchases only which has been deposited in the bank account and thus, no addition is called for the unrecorded purchases as the GP on this unrecorded purchase has already been taxed in the original scrutiny assessment order u/s 143(3) of the Act, the ld. CIT(A) failed to controvert the same. The assessee has explained the reconciliation of purchases and sales which were not recorded and the Ld. CIT(A) has failed to find out any mistake. Therefore, sources of the purchases were explained by the assessee and hence, it is not a fit case to make the addition u/s 69C - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the addition of ?17,22,132/- under Section 69C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of the Addition of ?17,22,132/- under Section 69C of the Income Tax Act, 1961:

The assessee filed its return of income for the assessment year 2008-09, declaring a total income of ?2,83,313/-. The case was selected for scrutiny, and the Assessing Officer (AO) made various additions, including an addition of ?17,22,132/- under Section 69C of the Income Tax Act, 1961, for unexplained expenditure. The AO noted that the assessee purchased goods worth ?1,88,62,363.56 from M/s. Paradeep Phosphates Ltd. but only recorded purchases of ?1,71,40,231/-, resulting in an underreported purchase of ?17,22,132/-. This discrepancy was not reflected in the stock register or party ledger and was admitted by the assessee as an undisclosed purchase. Consequently, the AO added this amount as unexplained expenditure under Section 69C.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal, stating that the assessee failed to substantiate the claim that the purchases were made out of sale proceeds obtained in cash. The CIT(A) emphasized the lack of evidence to establish a nexus between the claimed cash received from sales and the cash payments for the purchases, thus upholding the AO's addition.

The assessee further appealed to the ITAT, arguing that the payments for the purchases were made through regular bank accounts and the source of these payments was the sale proceeds of the unrecorded purchases. The assessee submitted bank statements, purchase and sales registers, and other relevant documents to substantiate the claim. The ITAT observed that the CIT(A) failed to appreciate the materials submitted and did not discuss the various documents like cash summary, stock register, and sales bills in the order.

The ITAT referred to Section 69C of the Income Tax Act, which states that if an assessee incurs any expenditure and offers no satisfactory explanation about the source, the expenditure may be deemed as income. However, in this case, the assessee provided bank statements showing that the purchases were made through account payee cheques and explained that the source of payment was the sale proceeds of the unrecorded purchases deposited in the bank account. The ITAT concluded that the CIT(A) failed to find any mistake in the reconciliation of purchases and sales provided by the assessee and that the sources of the purchases were adequately explained. Therefore, the addition of ?17,22,132/- under Section 69C was not justified and needed to be deleted.

Conclusion:

The ITAT allowed the appeal filed by the assessee, deleting the addition of ?17,22,132/- made under Section 69C of the Income Tax Act, 1961. The order was pronounced in the open court on 09/08/2017.