Addition u/s69C for alleged bogus purchases deleted as books not rejected u/s145(3), payments verified

ITAT Delhi allowed the assessee's appeal and deleted the addition made u/s 69C on alleged bogus purchases and estimated profit @ 12.5%. The Tribunal held that the AO had not rejected the assessee's books of account u/s 145(3), and the purchases were duly recorded therein. Bank statements showed sufficient balances and actual payments to suppliers, establishing the source of expenditure. As the Revenue neither disproved the genuineness of the expenditure nor the funding thereof, the preconditions for invoking s.69C were not satisfied, rendering the addition unsustainable.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an addition on account of alleged bogus purchases could be sustained under section 69C of the Income-tax Act, 1961, by estimating profit at 12.5% of the value of recorded purchases.

1.2 Whether the confirmation of such addition, without independent findings, was justified when the books of account and supporting records had not been rejected under section 145(3).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of section 69C to purchases recorded in the books and paid through banking channels

Legal framework (as discussed)

2.1 The judgment examines section 69C of the Act, which deals with unexplained expenditure, and section 145(3), which empowers rejection of books of account where not satisfied about correctness or completeness.

Interpretation and reasoning

2.2 The Tribunal notes that the assessee is engaged in trading of iron and steel and has fully recorded total purchases in its books of account, with corresponding sales, purchase register, sales register, stock register, and party-wise and commodity-wise details produced before the tax authorities.

2.3 Notices under section 133(6) issued to suppliers were not complied with by those third-party suppliers; based mainly on such non-compliance and alleged non-establishment of delivery of goods, the Assessing Officer treated the purchases as non-genuine and brought to tax 12.5% of the purchase value under section 69C as profit element.

2.4 The Tribunal records that: - All purchases are reflected in audited books of account; - Payments to suppliers are made through regular banking channels; - Sufficient bank balance for making such payments is demonstrated; and - The corresponding sales have been accepted and not doubted by the Revenue.

2.5 The Tribunal holds that, for invoking section 69C, the Revenue must first establish the existence of an "expenditure" genuinely incurred whose source remains unexplained. In this case, the source of the expenditure on purchases is traceable and explained through the assessee's books and bank statements, and is not disputed by the Revenue.

2.6 It is further emphasized that the books of account and registers produced by the assessee have not been rejected under section 145(3); in the absence of such rejection, the purchases already recorded therein cannot be treated as unexplained expenditure under section 69C.

2.7 The Tribunal relies on a coordinate bench decision wherein it was held that once purchases and payments are recorded in the books and made from disclosed bank accounts, nothing in such transactions can be treated as unexplained to attract section 69C, particularly when it is not the Revenue's case that the expenditure is disallowable under section 37 as not incurred for business purposes.

Conclusions

2.8 The Tribunal concludes that section 69C is per se inapplicable to the facts, as the source of payment for the purchases is explained and traceable in the books; therefore, the addition made by estimating profit at 12.5% of the purchase value under section 69C is unsustainable in law.

2.9 Consequently, the confirmation of the addition by the appellate authority, without independent reasoning and despite non-rejection of books, is set aside, and the addition is deleted.

2.10 The grounds raised by the assessee are allowed on this limited ground, and the appeal stands allowed.

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