Section 69C additions based on alleged bogus purchases cannot be invoked where sales are accepted; evidence required.

Where sales and turnover declared by the taxpayer are accepted, corresponding purchases used to effect those sales should also be accepted and the deeming provision for unexplained income cannot be invoked in respect of those purchases; this precludes addition on that basis. Additions treating purchases as bogus must be supported by tangible evidentiary justificationmere suspicion from supplier non-filing, GST status anomalies, multiple GST registrations, transient registrations, or lack of supplier replies is insufficient unless books of account (stock, sales and corresponding expenditures) are first rejected; absent fabricated documents, such supplier-centric indicia do not sustain disallowance.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, on the facts found, the entire amount of purchases treated as bogus could be added as unexplained expenditure under section 69C, despite the assessee having produced primary purchase and movement documents and the Department having accepted sales/turnover.

(ii) Whether the appellate restriction of disallowance to 5% of the purchases (though holding the suppliers/purchases to be bogus) required interference, having regard to the evidentiary material produced and the absence of rejection of books and allied records.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii) (grouped): Sustainability of full addition under section 69C versus limited disallowance where sales are accepted and primary purchase evidence is on record

Legal framework (as discussed by the Court): The Court considered invocation of section 69C in the context of an addition of purchases treated as bogus. It reasoned that where sales/turnover are accepted and corresponding purchase/stock records are available and relied upon, section 69C cannot be used to deem the entire purchase amount as income merely on suspicion arising from supplier-related adverse indicators.

Interpretation and reasoning: The Court noted that the assessee had furnished substantial primary evidence acknowledged in the assessment order, including invoices, e-way bills, transport consignment notes, bank statements, month-wise purchase and sales details, and opening/closing stock details in value and quantity. The Court treated these documents as discharging the assessee's initial onus and as evidencing receipt of stock and its subsequent sale as reflected in the financial results and stock records. It further held that when sales and turnover are accepted by the Department, the goods purchased in relation to such sales are "bound to be accepted" unless the Department first dislodges the underlying book results/records with cogent reasons and evidence. The Court found that the revenue's reliance on suspicious circumstances about the suppliers (non-filing of returns, non-response to notices, GST cancellation/suspension, multiple GST registrations, "transient" registrations, and database indications about non-dealing in fabrics) could not, by itself, justify a 100% purchase addition under section 69C without rejecting the books/stock and sales records and other corresponding expenditures. The Court also emphasised that there was no allegation that the documentary evidence produced by the assessee was fabricated.

Conclusions: The Court upheld the appellate conclusion that full disallowance/addition of the purchases under section 69C was not warranted on these facts. It held that the restricted disallowance sustained by the appellate authority required no interference because the Department had accepted sales and had not rejected the supporting stock/sales records or demonstrated fabrication of the assessee's purchase evidence. Consequently, the revenue's grounds seeking restoration of 100% addition were dismissed.

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