Revenue appeal fails; addition for alleged bogus purchases u/s 69C deleted for lack of primary evidence

ITAT Ahmedabad dismissed the Revenue's appeal and upheld the order of CIT(A) deleting the addition made u/s 69C on alleged bogus purchases/accommodation entries. The Tribunal held that the AO relied solely on generic Investigation Wing information and uncorroborated third-party materials (loose sheets, unsigned digital data) without producing primary evidence of any actual transaction involving the assessee, nor permitting cross-examination of third parties. The assessee had produced bank statements, GST returns, purchase/sales registers, ledgers and reconciliations, which were not disproved by the AO. Additions based on conjectures and presumptions were found unsustainable in law, and the reassessment failed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the addition under section 69C could be sustained when based solely on generic information from the Investigation Wing alleging accommodation entries from a third party, without primary or corroborative evidence linking the assessee to the alleged transactions.

1.2 Whether, in making an addition under section 69C on the basis of third-party material and alleged statements, failure to furnish such material to the assessee and denial of effective cross-examination vitiated the reassessment on merits.

1.3 Whether any interference was warranted with the appellate finding that, once the addition on merits was deleted and no disallowance under section 14A was made, the challenge to the reassessment notice became infructuous.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sustainability of addition under section 69C based solely on Investigation Wing information and third-party material

Legal framework (as discussed)

2.1 The addition in dispute was made under section 69C for alleged unexplained expenditure, premised on information from the Investigation Wing that the assessee had obtained accommodation entries from a third party. The Court referred to settled law that third-party loose sheets, unsigned digital data, or uncorroborated documents cannot be used as evidence against an assessee unless supported by independent corroboration and a demonstrated live nexus with the assessee, and after affording cross-examination of the persons relied upon.

Interpretation and reasoning

2.2 The Court endorsed the findings that the Assessing Officer made the section 69C addition of Rs. 10,00,059/- solely on generic Investigation Wing information asserting receipt of accommodation entries from a named third party, without placing on record any primary evidence of actual transactions in the relevant year.

2.3 It was noted that no documentary trail such as bank entries, specific ledger extracts, invoices, or confirmations demonstrating any nexus between the assessee and the alleged entry provider had been produced or confronted to the assessee. No statement implicating the assessee was brought on record.

2.4 The appellate authority had found that the assessee had placed on record bank statements, GST returns, purchase and sales registers, party-wise ledgers, invoices and reconciliation statements, which were neither disproved nor found to be incorrect by the Assessing Officer. These materials directly addressed the allegations and showed no such transactions with the alleged entry operator.

2.5 The Court relied on a line of judicial precedents holding that:

(i) Unsigned Excel sheets or documents seized from a third party, without corroboration and linkage to the assessee, have no evidentiary value for making additions.

(ii) Notings in the books or loose papers of another person, indicating alleged on-money or cash payments, cannot justify additions in the hands of an assessee absent cogent evidence of actual payments.

(iii) Documents or data such as WhatsApp images or unsigned sheets, which neither bear the assessee's name nor are corroborated by independent evidence and where no corresponding physical cash or transaction trail is found, are to be treated as "dumb documents" and cannot sustain additions under sections 69, 69A or 69C.

(iv) Reassessment or additions based purely on such uncorroborated third-party documents, without independent evidence showing payment or receipt by the assessee, are unsustainable.

2.6 Applying these principles, the Court held that the impugned addition under section 69C was purely conjectural and based on presumption, in the absence of independent material establishing that any unexplained expenditure was incurred by the assessee during the relevant year in connection with the alleged accommodation entries.

Conclusions

2.7 The Court held that the conditions for invoking section 69C were not satisfied, as there was no primary or corroborative evidence of unexplained expenditure incurred by the assessee, nor any established link with the alleged entry operator. The deletion of the addition of Rs. 10,00,059/- under section 69C was upheld.

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Issue 2: Effect of non-supply of underlying material and denial of cross-examination where third-party statements/documents are relied upon

Legal framework (as discussed)

2.8 The Court referred to the settled legal position, including the principle reiterated in Andaman Timber Industries v. CCE, that where the revenue relies on third-party statements or material to make an addition, denial of cross-examination of such third parties vitiates the assessment.

Interpretation and reasoning

2.9 It was recorded that during reassessment the Assessing Officer neither provided the assessee with any documentary evidence or statements underlying the allegation of accommodation entries, nor afforded an opportunity to cross-examine the alleged entry operator, despite the assessee's denial of having entered into any transactions with such person.

2.10 The appellate findings, with which the Court concurred, were that the reassessment on merits was carried out mechanically on the basis of an investigation report, without bringing any independent material on record and without confronting the assessee with specific adverse material or permitting cross-examination.

2.11 The Court held that reliance on third-party material without affording the assessee an opportunity to meet such material and cross-examine the persons relied upon offends principles of natural justice and weakens, if not vitiates, the basis of the addition.

Conclusions

2.12 The Court accepted that the denial of cross-examination and failure to confront the assessee with the alleged third-party material rendered the reassessment on merits unsustainable. This formed an additional ground for upholding deletion of the section 69C addition.

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Issue 3: Consequence for challenge to reassessment notice after deletion of addition on merits

Interpretation and reasoning

2.13 The appellate authority had recorded that, in view of the deletion of the substantive addition on merits and the fact that no disallowance under section 14A was made, the ground challenging the reassessment notice had become infructuous.

2.14 The Court, while affirming the deletion of the addition and dismissing the revenue's appeal, did not find any ground to disturb this conclusion, as the substantive dispute in appeal concerned only the merits of the section 69C addition.

Conclusions

2.15 The finding that the ground relating to the reassessment notice was infructuous, once the addition on merits stood deleted and no other injury to the assessee survived, remained undisturbed. The revenue's appeal was dismissed in entirety.

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