Section 69C addition fails when purchases are recorded, banking payments are made, and books are not rejected.

Section 69C could not be invoked where the alleged purchases were recorded in the books, payments were made through account payee banking channels, and the books of account were not rejected. The provision applies only when expenditure is incurred and its source remains unsatisfactorily explained; here, the dispute went to the genuineness and verifiability of the purchases, not to an unexplained source of expenditure. On those facts, the statutory precondition for section 69C was absent, and the addition was deleted in favour of the assessee.

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Issues: Whether an addition made under section 69C of the Income-tax Act, 1961, on account of alleged bogus purchases and unverifiable expenditure could survive when the purchases were recorded in the books, payments were made through banking channels, and the books of account were not rejected.

Analysis: Section 69C applies where expenditure is incurred but its source remains unsatisfactorily explained. In the present case, the purchases were entered in the books of account and the payments were made through account payee banking channels. The books of account were not rejected by the Revenue. The dispute raised by the authorities was essentially about the genuineness or verifiability of the purchases, not about an unexplained source of expenditure. On these facts, the precondition for invoking section 69C was absent.

Conclusion: The addition under section 69C could not be sustained and was deleted in favour of the assessee.

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