2025 (9) TMI 1622 - AT - Income Tax

Section 69C deletion upheld where taxpayer proved genuine purchases with invoices, ledgers, delivery challans and transport records

ITAT, Ahmedabad upheld CIT(A)'s deletion of additions under s. 69C, finding the AO erred in treating transactions as sham after ignoring the assessee's ... Addition u/s 69C - assessee entered into sham/bogus transaction - information received from the GST department that supplier does not have any genuine business activity - CIT(A) deleted addition - HELD THAT:- AO has not at all taken into account the details filed by the assessee vide reply dated 25-01-2023 and 27-01-2023. These details reveal that the assessee has given the details of ledger account of Bright Corporation in assessee’s books account invoice issued from Bright Corporation, delivery challan issued by Bright Corporation, inventory register regarding goods received and goods sold as well as bank statement clarifying the payment made either through NEFT/RTGS transfers. Assessee has also given the details of inward and outward entry and exit of vehicles regarding purchases made from Bright Corporation as well as lorry receipts and log books of warehouses as well. These documents were totally ignored by the AO and has not at all disputed by the AO at any point of time. Besides this, cancellation of GST registration was w.e.f. 01- 01-2019 and the purchases made by the assessee from Bright Corporation was prior to the said date i.e. 01-01- 2019. AO was not right in making addition when the assessee has explained all the expenditure related to the purchase. CIT(A) has rightly allowed the appeal of the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether additions under section 69C of the Income-tax Act can be sustained where the assessee furnishes invoices, delivery challans, ledger entries, inventory registers and bank payment evidence for alleged purchases shown as unexplained expenditure. 2. Whether adverse information from the GST department (alleging that a supplier merely passed on fraudulent input tax credit and had no genuine business activity) permits the Assessing Officer to ignore documentary evidence of supply and make additions under section 69C. 3. Whether procedural validity of reassessment under section 147 and issue of notice under section 148 (and consequent reliance on sections 142(1), 143(2) and show-cause/assessment process including section 144) affects the merits of addition under section 69C when the assessee has supplied substantive documentary proof during assessment proceedings. 4. Whether delay in filing a cross-objection should be condoned where the cross-objection supports the order of the first appellate authority and the merits favour the assessee. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition under section 69C vs. documentary explanation of purchases Legal framework: Section 69C treats certain investments or expenditures as unexplained and taxable if not satisfactorily explained by the assessee; the Assessing Officer may make additions where purchases are unexplained. Assessment procedure included notices under section 148 (reopening), with subsequent reliance on sections 142(1), 143(2) and show-cause/assessment steps. Precedent Treatment: The judgment does not cite or rely upon any external judicial precedents in resolving this issue; determination is based on facts and statutory scheme. Interpretation and reasoning: The Tribunal examined the documentary record furnished by the assessee on specified dates (invoices, delivery challans, party ledgers, inventory register, bank statements showing NEFT/RTGS payments, lorry receipts, vehicle entry/exit records and warehouse logbooks). The Tribunal found that these documents, which were filed before the Assessing Officer, furnished a detailed and coherent explanation of the purchases in dispute and of actual supply/receipt of goods. The Assessing Officer had not disputed the authenticity of these documents on record but proceeded to treat the expenditure as unexplained. The Tribunal also noted temporal relevance of the supplier's GST cancellation (cancelled w.e.f. 01-01-2019) while the purchases occurred prior to that date, undermining the AO's reliance on later GST status to impugn earlier transactions. Ratio vs. Obiter: Ratio - where the assessee furnishes contemporaneous invoices, delivery challans, ledger entries, inventory records and payment proofs that remain undisputed on record, additions under section 69C cannot be sustained merely by characterizing supplier as non-genuine without confronting or discrediting such primary documents. Obiter - factual observation on the supplier's GST cancellation date as corroborative of explanation. Conclusions: The Tribunal concluded that the purchases were satisfactorily explained and that the addition under section 69C was unsustainable; the first appellate authority's deletion of the addition was upheld. Issue 2 - Weight of GST department information alleging supplier's sham transactions Legal framework: Administrative information from other departments (e.g., GST) may be a pointer for tax scrutiny but cannot supplant the requirement that the assessee be given an opportunity and that documentary explanation be tested in the assessment process. Precedent Treatment: No precedents cited; the Tribunal addressed the evidentiary effect of inter-departmental information on assessment findings. Interpretation and reasoning: The Tribunal observed that the Assessing Officer relied on GST department information alleging fraudulent input tax credit utilization by the supplier but did not confront or discredit the invoices and other evidence produced by the assessee. The Tribunal emphasized that mere receipt of adverse information from GST authorities does not automatically render transactions of an assessee unexplained where the assessee produces cogent and unchallenged documentary proof of supply and payment. The AO's approach was found to be presumptive rather than an adjudicative rejection of the materials produced. Ratio vs. Obiter: Ratio - adverse administrative information alone cannot justify treating transactions as sham if the assessee produces primary documentary evidence that is not shown to be forged or otherwise unreliable. Obiter - note that departmental action (or lack of action) by the GST authority is not determinative of income-tax consequences absent adjudication or contested evidence. Conclusions: The Tribunal rejected the contention that GST information alone justified sustaining the addition; it upheld the deletion made by the CIT(A) since the assessee's documentary explanation was neither disputed nor disproved by the AO. Issue 3 - Procedural aspects of reassessment and issuance of notices (sections 147/148/142(1)/143(2)/144) in relation to merits Legal framework: Reopening under section 147 with notice under section 148 must comply with statutory requirements; further proceedings (including notices under section 142(1) and assessment steps) must be conducted fairly, allowing the assessee to lead evidence. Precedent Treatment: The Tribunal did not rely on specific procedural precedents; reasoning is fact-driven and confined to record conduct of AO and CIT(A). Interpretation and reasoning: The Tribunal noted the reassessment initiation and service of notices; it also recorded that the assessee had filed an 'invalid return' initially but subsequently provided documentary evidence in response to show-cause notices. The Tribunal emphasized that despite the evidence being on record (with no adverse comment from the AO as to authenticity), the AO proceeded to treat the purchases as unexplained. The Tribunal treated the procedural posture as insufficient to justify the substantive addition where evidence supplied in the course of reassessment remained unexamined or unrefuted. Ratio vs. Obiter: Ratio - procedural initiation of reassessment does not relieve the assessing authority of the obligation to consider and either accept or rebut documentary evidence; failure to consider undisputed evidence is fatal to an addition. Obiter - references to interplay among the statutory notices are explanatory of record sequence. Conclusions: The Tribunal found that procedural steps taken did not validate the AO's substantive conclusion; the undisputed documentary explanation provided during reassessment warranted deletion of the addition. Issue 4 - Condonation of delay in filing cross-objection Legal framework: Courts/tribunals may condone delay in filing appeals or cross-objections for sufficient cause where the interests of justice warrant. Precedent Treatment: No specific authorities cited; decision exercised tribunal's discretionary power to condone delay. Interpretation and reasoning: The Tribunal found the cross-objection to be delayed by 175 days but noted that it was filed in support of the order of the first appellate authority and that the merits favoured the assessee. In the circumstances, the Tribunal exercised discretion to condone the delay to avoid prejudice and to align with substantive correctness of the outcome. Ratio vs. Obiter: Ratio - delay may be condoned where the cross-objection supports a favourable first appellate order and merits warrant admission. Obiter - assessment of sufficiency of cause is fact-specific. Conclusions: The Tribunal condoned the delay and allowed the cross-objection. Final Disposition The Tribunal dismissed the Revenue's appeal against deletion of the addition under section 69C and allowed the cross-objection after condoning delay; the Tribunal concluded that the assessee had satisfactorily explained the purchases with documentary evidence which the Assessing Officer failed to rebut or discredit, and adverse GST information alone did not justify sustaining the addition.