2025 (12) TMI 1043 - AT - Income Tax

Addition u/s 69 quashed where alleged bogus purchases were fully recorded and no unexplained investment found

ITAT Delhi-AT allowed the assessee's appeal, deleting the addition made u/s 69. While the reopening u/s 147/151 was based on information alleging bogus ... Validity of reopening of assessment - valid approval u/s 151 - Addition made u/s 69 - Non rejection of books of accounts - Onus to prove - HELD THAT:- We find on perusal of the proforma for obtaining approval u/s 151 of the Act shows that approval was granted for reopening by reliance the reasons for believe as per the annexure attached and annexure attached containing the reasons to believe gives details of the information received and mentions that assessee has given an amount through RTGS from Yes Bank during the Financial Year 2011-12, M/s Bhawani Enterprises proprietorship Virender Singh which establishes that the assessee has been made bogus purchases/expenses. Now when the ld. AO specifically invokes unexplained deemed income provision forming part of Section 68 to Section 69C of the Act then for every provision so invoked casts a different sort of onus on the assessee and for the purpose of Section 69 of the Act what is material is that explanation sought rests on the fact that in the preceding financial year the assessee had made ‘investments’ which ware not recorded in the books of accounts, however, in the case of alleged bogus purchases there is no case of investments being found held by the assessee but not recorded in books of account. If inventory is considered to be an ‘investment’ then for that there should be some examination of stock to allege and establish discrepancy in stock or inventory, which is not the case here. Then, further onus u/s 69 of the Act on the assessee would be to explain nature and source of investment which in the case in hand admittedly are in the form of purchases made from the books itself. There is no allegation of the source of purchases being outside the books or that books maintained by the assessee lacked veracity to show that the purchases could not have been made out of the known sources reflected in the books. Thus section 69 if invoked needed specific rebuttal and on basis of assertion that merely quoting wrong section does not prejudice the assessee does not help the department. Then ld. AO at some stage should come forward to claim as to how other deeming income provision was attracted. Same is also not the case here. Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether an addition on account of alleged bogus purchases, for which payments are made through regular banking channels and recorded in the books of account and debited to the profit and loss account, can be sustained under section 69 of the Income Tax Act without rejection or discrediting of the books of account. 1.2 Whether an addition made under an inapplicable deeming provision (section 69) can be upheld on the ground that merely quoting a wrong section is not fatal, or by notionally treating it as referable to another provision such as section 69C, in the absence of a specific foundational finding attracting such other provision. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of addition under section 69 for bogus purchases recorded in books Legal framework (as discussed) 2.1 The Tribunal examined section 69 as a part of the deeming income provisions in sections 68 to 69C. It noted that section 69 concerns 'investments' made in a financial year which are not recorded in the books of account, and casts on the assessee an onus to explain the nature and source of such investments found to be outside the books. Interpretation and reasoning 2.2 The Tribunal found that, on the basis of the reasons recorded for reopening and the assessment order itself, the Assessing Officer had proceeded specifically on the footing that the assessee had made bogus purchases/expenses from M/s Bhiwani Enterprises, and that payments of Rs. 4,55,50,000/- (noted in the reasons as Rs. 4,45,50,000/-) were made through RTGS from the assessee's Yes Bank account during the relevant financial year. 2.3 It was recorded that the Assessing Officer required the assessee to furnish confirmation and supporting evidences for purchases from M/s Bhiwani Enterprises and, on non-filing of such evidence and on the basis that M/s Bhiwani Enterprises was an 'entry provider' with no real business activity, treated the purchases as bogus and disallowed them, adding the amount under section 69. 2.4 The Tribunal observed that the conclusion of the Assessing Officer, as reflected in the assessment order, was that the purchases debited to the profit and loss account and paid through banking channels were non-genuine, and were therefore disallowed as expenditure. The Tribunal further noted that there was no finding that the assessee's regular books of account in respect of its real estate and construction business were unreliable or had been rejected. 2.5 The Tribunal held that, for section 69 to apply, there must be 'investments' not recorded in the books. In the present case, there was no finding that any investment or inventory existed outside the books or that any discrepancy in stock or inventory was detected. The transactions in question represented purchases recorded in the books and paid from disclosed bank accounts. Even if inventory could, in some cases, be regarded as 'investment', the Tribunal found that there had been no examination or finding of discrepancy in stock or inventory. 2.6 It was further noted that there was no allegation that the source of these purchases was outside the books or that the sources reflected in the books were not sufficient to cover the purchases. Thus, the factual matrix did not satisfy the conditions for invoking section 69. Conclusions 2.7 The Tribunal concluded that section 69 was mis-invoked because the case did not involve unrecorded investments but allegedly bogus purchases recorded in the books and paid through banking channels. In the absence of any finding that investments existed outside the books or that the books lacked veracity, the addition under section 69 was unsustainable. 2.8 Accordingly, the Tribunal held that the addition of Rs. 4,55,50,000/- made under section 69 on account of alleged bogus purchases was liable to be deleted. Issue 2: Effect of quoting a wrong section and possible recourse to section 69C or other deeming provisions Legal framework (as discussed) 2.9 The Tribunal considered the submission of the Revenue that merely quoting a wrong section is not fatal if the substantive conditions for addition are otherwise met. It situated section 69 within the broader scheme of deeming provisions in sections 68 to 69C, each imposing different kinds of onus and premised on distinct factual foundations (e.g., unexplained cash credits, unexplained investments, unexplained expenditure, etc.). Interpretation and reasoning 2.10 The Tribunal noted that, in correspondence during the appellate proceedings, the Assessing Officer had reaffirmed that the addition was made under section 69 on account of bogus purchases, and had not asserted that a wrong section was invoked or indicated reliance on any alternative provision (such as section 69C). 2.11 It observed that, when a specific deeming provision like section 69 is invoked, the assessee's onus and defence are structured around that provision. Therefore, if another provision such as section 69C were to be applied, the Assessing Officer would be required to lay the necessary factual foundation and explicitly bring the case within its scope. 2.12 The Tribunal held that the mere assertion by the Revenue that wrong quoting of section is not prejudicial to the assessee is insufficient where the factual findings and reasoning do not support the application of any other deeming provision, and where the Assessing Officer has neither invoked nor justified any such alternative provision. Conclusions 2.13 The Tribunal rejected the Revenue's contention that the defect of invoking section 69 could be overlooked or cured by treating the addition as one under another deeming provision. It held that, in the absence of any specific case made out under another section (such as section 69C), and given that the factual matrix did not attract section 69, the addition could not be sustained by re-characterising it. 2.14 On this basis, along with the reasons under Issue 1, the Tribunal allowed the relevant grounds of appeal and directed deletion of the impugned addition.