2026 (4) TMI 565

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....ppeal, has assailed the impugned order primarily on two counts. Firstly, it has challenged the action of the learned CIT(A) in deleting the addition of Rs. 9,90,46,583/- made by the Assessing Officer under section 69C on account of alleged unexplained expenditure, which had been computed by disallowing 10% of the total purchases debited by the assessee. Secondly, the Revenue has also contested the relief granted by the learned CIT(A) in respect of addition of Rs. 5,16,905/- made on account of alleged TDS defaults, stated to have been noticed on the basis of certain discrepancies reflected in Form 26AS. The grievance of the Revenue, thus, essentially revolves around the correctness of the deletion of these two additions. 3. The brief factual matrix, as culled out from the record, is that the assessee company is engaged in the business of industrial automation and energy power solutions, and is part of a larger global group having substantial international presence. It has been brought on record that the assessee has multiple subsidiaries, a large employee base and an extensive network of branches, forming a wide distribution and sales channel across various countries. A significa....

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.... The assessee also explained that the overwhelming majority of purchases were from its group entity in China, and the outstanding trade payables were largely attributable to such transactions. 6. It was, however, specifically and emphatically clarified by the assessee that it had not made any purchases from the parties referred to by the Assessing Officer in the show cause notice, which parties were stated to have been identified through certain third-party information available on the Insight Portal. The assessee categorically denied having any dealings with those parties and asserted that all purchases recorded in its books pertained only to genuine and disclosed suppliers. Despite such categorical denial and despite the detailed documentary evidences furnished in support of its claim, the Assessing Officer proceeded to make an ad hoc disallowance of 10% of the total purchases amounting to Rs. 99,04,65,833/-, thereby making an addition of Rs. 9,90,46,583/- under section 69C. He further subjected the same to tax under the provisions of section 115BBE, without bringing any specific material on record to demonstrate that the purchases were either bogus or unexplained. 7. Ap....

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....d examining the revised Forms 26AS placed on record, deemed it appropriate, in the interest of justice, to direct the Assessing Officer to verify the claim of the assessee and to delete the addition if the same was found to be correct, while observing that in case the claim was found to be contrary, the addition would stand affirmed. The relevant observation of the learned CIT(A) is reproduced hereunder: "6.3.1. I have considered the submissions made by the Appellant. I have also perused the two Forms 26AS submitted by the Appellant dated 28/12/2023 and 16/04/2024. In my considered opinion, it would be interest of justice that the AO gets an opportunity to examine the claim made by the Appellant. Accordingly, the Appellant is directed to furnish before the AO relevant details in this regard. The AO is directed to examine the same and delete the addition, if the claim is found correct. If found contrary, the addition made by the AO stands affirmed. The AO is, further, directed to give effect by passing a speaking order." 11. We have heard the rival submissions at considerable length, perused the orders of the authorities below and carefully examined the entire m....

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....ssessing Officer in proceeding to make an ad hoc disallowance of 10% of the total purchases, without any rational basis or nexus to any identified defect, is nothing but an arbitrary estimation, bereft of any legal foundation. It is a settled proposition of law that estimation cannot be a substitute for evidence, and suspicion, however strong, cannot partake the character of proof, particularly when the documentary trail remains intact, consistent and uncontroverted. 13. What further renders the approach of the Assessing Officer wholly untenable is the inherent contradiction embedded in his reasoning. On one hand, he accepts the purchases as recorded in the books and does not disturb the trading results or reject the books of account, and on the other hand, he proceeds to treat a portion thereof as unexplained expenditure under section 69C by applying an arbitrary percentage. Such an approach runs counter to the settled principles governing assessment proceedings, inasmuch as once the purchases are duly recorded, supported by invoices, reflected in stock and the resultant sales are accepted, the same cannot be partially disallowed in the absence of any material to indicate that ....