2014 (4) TMI 440 - AT - Income Tax

Tribunal dismisses Revenue's appeal, upholds CIT(A)'s findings on accounting practices

The Tribunal dismissed the Revenue's appeal against the deletion of additions under Section 69C and disallowance of expenditure and depreciation. The ... Addition u/s 69C of the Act – Unexplained purchases – Deletion of disallowance of 100% expenditure and depreciation – Held that:- The decision in ACIT, Central Circle-21 Vs. Blue Luxury Index Pvt. Ltd. [2012 (7) TMI 467 - ITAT DELHI] followed - The entire purchases added by the AO are accounted for the books of account - The AO, without rejecting the books results added the entire purchases, source of which, according to the CIT(A), was duly explained - CIT(A) found that sales had been made by account payee cheques and duly reflected in stock registers and supported by sale and purchase vouchers – the AO in his remand report did not comment adversely on the contentions of the assessee in respect of purchases and sales – thus, the CIT(A) rightly deleted the additions - source of the expenditure incurred in purchases is obviously explained - the Revenue did not place any material for controverting the findings of facts recorded by the CIT(A) – Decided against Revenue. Disallowance of expenses – Held that:- CIT(A) found that in the assessment of the assessee for Assessment Year 2002-03, no disallowance of expenses was made while the AO, did not point out any item of expenditure, warranting disallowance – thus, in the absence of any basis, when the Revenue did not even identify any specific amount of expenditure, which was not related to the business of the assessee, any interference cannot be called for – Decided against Revenue. Issues Involved:1. Deletion of addition on account of unexplained purchases under Section 69C of the Income Tax Act, 1961.2. Deletion of addition by way of disallowance of 100% of expenditure and depreciation claimed by the assessee.3. Validity of notice issued under Section 153C and the assessment order passed under Section 153C/143(3) of the Income Tax Act, 1961.Detailed Analysis:1. Deletion of Addition on Account of Unexplained Purchases under Section 69C:The Revenue appealed against the deletion of an addition of Rs. 8,03,063/- made by the Assessing Officer (AO) on account of unexplained purchases under Section 69C of the Income Tax Act, 1961. The assessee argued that the issue was covered in their favor by three decisions of the Co-ordinate Benches of the ITAT, Delhi Bench, which stemmed from the same search operation. The Tribunal noted that the purchases were accounted for in the books of account, and the AO had not rejected the books' results. The CIT(A) found that the source of the expenditure was explained, and sales were made by account payee cheques, duly reflected in stock registers and supported by sale and purchase vouchers. The Tribunal upheld the CIT(A)'s findings, emphasizing that Section 69C focuses on the 'source' of the expenditure, not its authenticity. Since the purchases and sales were accounted for in the books, the source was explained, making Section 69C inapplicable. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.2. Deletion of Addition by Way of Disallowance of 100% of Expenditure and Depreciation:The Revenue also appealed against the deletion of an addition of Rs. 2,08,002/- made by the AO by disallowing 100% of the expenditure and depreciation claimed by the assessee. The CIT(A) found that in the assessment for the Assessment Year 2002-03, no disallowance of expenses was made, and the AO did not point out any specific item of expenditure warranting disallowance in the years under consideration. The Tribunal noted that the Revenue did not identify any specific amount of expenditure unrelated to the business of the assessee. Therefore, the Tribunal found no basis to interfere with the CIT(A)'s order and dismissed the Revenue's appeal on this ground as well.3. Validity of Notice Issued under Section 153C and the Assessment Order Passed under Section 153C/143(3):The assessee raised cross-objections, arguing that the notice issued under Section 153C and the assessment order passed under Section 153C/143(3) were illegal, without jurisdiction, and barred by time limitation. The Tribunal observed that similar objections were raised in the cross-objections filed in the aforementioned three appeals decided by the co-ordinate benches, but these grounds were not pressed before it and were dismissed. The Tribunal noted that after granting relief to the assessee on merits, the grounds raised in the cross-objections became academic and an exercise in futility. Therefore, following the co-ordinate bench order, the Tribunal dismissed the assessee's cross-objections.Conclusion:The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objections, upholding the CIT(A)'s order. The decision emphasized the importance of accounting for purchases and sales in the books of account and clarified the applicability of Section 69C concerning the source of expenditure. The Tribunal also reiterated the significance of specific identification of disallowable expenditure by the Revenue. The order was pronounced in the open court on 28.03.2014.