Recorded purchases and disclosed sales cannot be reclassified as unexplained income without rejecting books or tracing unexplained sources.

Recorded purchases supported by invoices, stock entries and banking payments from disclosed funds do not satisfy section 69C, so they cannot be treated as unexplained expenditure. Sales already offered as taxable revenue, with corresponding stock reduction and unrejected books, cannot be taxed again as unexplained cash credit under section 68 because that would amount to double addition. The ITAT Delhi AT reasoning turns on the absence of any unexplained source for the purchases and the fact that the same turnover had already been recorded and taxed in the accounts.

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Issues: (i) Whether the purchase addition made as unexplained expenditure under section 69C was sustainable when the purchases were recorded in the books and payments were made through banking channels from disclosed sources. (ii) Whether the sale receipts already disclosed as taxable revenue could again be taxed as unexplained cash credit under section 68 in the absence of rejection of the books or stock records.

Issue (i): Whether the purchase addition made as unexplained expenditure under section 69C was sustainable when the purchases were recorded in the books and payments were made through banking channels from disclosed sources.

Analysis: The purchases were reflected in the books of account, supported by invoices, stock register entries and bank payments. The source of payment was explained and traceable from disclosed funds. Once the expenditure itself is recorded and the source of payment is not found unexplained, the ingredients of section 69C are not satisfied.

Conclusion: The addition under section 69C was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the sale receipts already disclosed as taxable revenue could again be taxed as unexplained cash credit under section 68 in the absence of rejection of the books or stock records.

Analysis: The sales were already offered as taxable receipts and corresponding stock reduction had taken place. The books of account, quantitative details and stock records were not rejected. In these circumstances, the same turnover could not be brought to tax again as unexplained cash credit, as that would amount to double addition.

Conclusion: The addition under section 68 was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantive additions and the assessment was disturbed only to the extent that the impugned additions were removed.

Ratio Decidendi: Recorded purchases paid from disclosed banking sources cannot be treated as unexplained expenditure under section 69C, and sales already disclosed in the return cannot be assessed again as unexplained cash credit under section 68 in the absence of rejection of the books or stock records.

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