ITAT allows appeal, deletes addition under Sec. 69C of Income Tax Act due to lack of evidence.

The ITAT allowed the appeal, deleting the addition of Rs. 17,22,132/- under Section 69C of the Income Tax Act, 1961, as the assessee provided evidence that the purchases were made through account payee cheques using sale proceeds. The ITAT found the CIT(A) failed to identify any errors in the reconciliation of purchases and sales, concluding that the addition was unjustified.

---

---

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

Issue-wise Detailed Analysis:

1. Legality of the Addition of Rs. 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 Rs. 2,83,313/-. The case was selected for scrutiny, and the Assessing Officer (AO) made various additions, including an addition of Rs. 17,22,132/- under Section 69C of the Income Tax Act, 1961, for unexplained expenditure. The AO noted that the assessee purchased goods worth Rs. 1,88,62,363.56 from M/s. Paradeep Phosphates Ltd. but only recorded purchases of Rs. 1,71,40,231/-, resulting in an underreported purchase of Rs. 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 Rs. 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 Rs. 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.

---