TaxTMI 
TaxTMI 
2026 (6) TMI 921
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....der the complete scrutiny category on account of low income from TCS receipts-scrap. During the course of assessment proceedings, the ld. AO noted that the assessee had purchased goods were Rs. 6,71,02,655/- from a party namely Patiyala Metals, whose proprietor one Shri Karamsingh. The Ld. AO got enquiries conducted through the verification unit, before whom Shri Singh denied having any transactions with the assessee. He also submitted that his accounts and particulars were misused by some other person against whom he wishes to file legal action. Enquiry also revealed that the GSTIN account of Shri Singh was cancelled by the GSTIN authorities. The ld. AO therefore presumed that Patiyala Metals was a bogus party and proceed to impugned amount of Rs. 6,71,02,655/- vide his order u/s 143(3) dated 16.03.2023. 3. Aggrieved by the impugned addition, the assessee preferred an appeal before the ld. CIT(A) who deleted the impugned addition through order dated 21.08.2025 holding that the assessee had submitted all relevant documentary evidences substantiating the transactions with Patiyala Metals. He also held that the Ld. AO did not bring on record to counter the evidences furnished by t....
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....ncerned Verification Unit. The Verification Unit recorded statement of Shri Karamsingh S/o. Shri Chanderpal, age 45 years resident of Randhwa Farm, Manimajra, Chandigarh u/s. 131(1)(b) of the IT Act during the course of Faceless Assessment proceedings for the AY 2022-23 of the IT Act, 1961. In the statement, Shri Karamsingh denied to have entered into any business activity with the appellant and also denied to have made any transactions with him. Based on the statement AO has issued show cause notice to the appellant to submit reply with respect to purchase of material from Shri Karamsingh Prop of Patiala Metals (seller party) stating that why not the purchases amounting to Rs. 6,71,02,655/- should not be treated as bogus purchases and be added as unexplained expenditure u/s. 69C of the IT Act. In response to the show cause notice, appellant refuted the submission made by Shri Karamsingh in his statement stating that Shri Karamsingh was filing return of income since last 5 years and suddenly stopped with effect from AY 2022-23 and the current account through which transactions were made were opened and operated on his PAN and Aadhar number. The appellant further asked the AO to col....
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....l which was mentioned by the Verification Unit's question. Based on these facts and the statement of Shri Karamsingh denying the knowledge of the appellant and the transactions thereon, AO made addition of Rs. 6,71,02,655/- as bogus purchases u/s. 69C of the IT Act and passed the assessment order determining the total income of the appellant at Rs. 8,10,68,515/-. Aggrieved with the above addition made by the AO, the appellant has filed the present appeal with 6 grounds of appeal. Later, along with the submission made, the appellant revised his grounds of appeal and filed 4 effective grounds of appeal. All the grounds raised by the appellant are inter-related and mainly against addition made by the AO of Rs. 6,71,02,655/- u/s. 69C of the IT Act. Therefore, all the grounds of appeal of the appellant are hereby adjudicated combinedly as under: 5.2 The AO made addition of Rs. 6,71,02,655/-u/s.69C of the IT Act concluding that purchases from M/s. Patiala Metals were bogus. Shri Karamsingh, Prop. of Patiala Metals denied knowing the appellant or conducting any transactions stating alleged misuse of his documents. However, during the appellate proceedings appellant submi....
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....concluded that purchases were bogus. The appellant submitted that supplier had verified the GST number through his Aadhar authentication which is not possible without his concern. AO never tried to verify the same from the GST department nor any question regarding the same was asked from Mr. Karamsingh. The appellant further quoted the decisions of Hon'ble Supreme Court of India 99 taxman 288 (SC) in the case of CIT vs Jagdishprasad Mohanlal Joshi, where Hon'ble Supreme Court held that AO made addition to assessee's income on the basis of confessional statement made by one 'R' under Maharashtra Central Organized Crime Act, 1999 to effect that he made certain unaccounted payments to assessee. No corroborative evidences have been produced or brought on record to substantiate the fact of alleged payment. Similarly, the appellant also quoted the decision of Hon'ble High Court of Bombay in the case of PCIT vs Bairagra Builders Pvt Ltd 164 taxman.com 162 (2024) where on the basis of statement of one PKJ recorded during search and seizure operation that had provided accommodation entries to assessee, AO treated said loans as fake. Since assessee had submitted all evidences to substantiate....
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....e following points emerge: i) The AO has relied on the statement of Shri Karamsingh, prop. of Patiala Metals who has denied making any sales to the appellant but failed to afford opportunity of cross-examination to the appellant. ii) The appellant has submitted all the evidences substantiating his transactions with M/s. Patiala Metals and AO has not brought any adverse findings with respect to the said evidences furnished by the appellant. iii) The GSTR Number of the Patiala Metals was verified with Aadhar credentials and the GSTR 2A of the appellant reflects the purchases made from Patiala Metals. iv) The appellant submitted complete details of transporter along with the data showing fastag payments to prove the actual movement of goods. v) The books of accounts have not been rejected and no discrepancy has been pointed out in the production chart and sales of the appellant. vi) The AO also failed to enquire the mediator by name Shri Madhur Goyal who coordinated the transactions between the parties inspite of having his mobile number and address inspite of specific request by the appellant. vii) The AO has relied only ....
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....usion drawn by ld. CIT(A) therefore cannot be faulted upon. 7. We have noted that Hon'ble jurisdictional High Court in the case of CIT vs Radhika Creation [2011] 10 taxmann.com 138 (Delhi) has held as under:- "5. Insofar as the first aspect of the matter is concerned, we find that section 69C clearly stipulates that where, in any financial year, the assessee has incurred an expenditure and he offers no explanation about 'the source of such expenditure or part thereof' or the explanation, if it is offered by him, is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Thus, the focus of section 69C is on the "source" of such expenditure and not on the authenticity of the expenditure itself. It is an admitted position that the expenditure was shown by the assessee in its regular books of account and it is because of this reason that the Income-tax Appellate Tribunal had observed :- "As the expenditure was accounted in the regular books, the source is obviously explained. The provisions of section 69C ar....
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....the premises but it was categorically denied by person of nearby shops that iron bar trading was ever made from this shop. Therefore, it is clear that the premises were used by the group to take accommodation entry of bogus purchases iron bar. M/s. V. N. enterprises 39/C, Jain nagar, meerut No such Concern in the name of V.N. Enterprises could be located there. From the Local enquiry, no trace of V.N. Enterprises could be found at the given address. Hari Om Steel 1021, Behind Ind. Area, Bijoli, Jhansi No such concern in the name of Hari Om Steel could be located there. From the local enquiry, no trace of Hari Om Steel Could be found at the given address. 8.7 The ld AO observed that in response to the various documents called for by him from the assessee, only ledger account of the suppliers and some bill copies were enclosed for verification by the ld AO. Further, notice u/s 133(6) of the Act dated 10.12.2018 was issued to the concerned suppliers seeking to examine the identity of the parties and genuineness of the transactions. Out of this, part replies were received from Hari Om Steel. Remaining parties did not respond before the ld AO by furnishing the....
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....venue that the purchase made from aforesaid 3 parties were made out of books and for which assessee is not able to explain the source of making payment. Hence, the provisions of section 69C of the Act per se cannot be applied to the facts of the instant case. In our considered opinion, when the provisions of section 69C of the Act are sought to be invoked, the revenue does not doubt the genuineness of incurrence of such expenditure. Only the source of such expenditure is being doubted by the revenue. Here the source is drawn from the regular books of accounts of the assessee which were not rejected by the lower authorities. Hence on this ground itself, the addition deserves to be deleted. Reliance in this regard has been rightly placed by the ld AR before us on the decision of the Hon'ble Bombay High Court in the case of Pr. CIT v. Sanjay Dhokad [2023] 150 taxmann.com 362/293 Taxman 482/456 ITR 77 (Bombay)/Income Tax Appeal No. 795/2018 dated 09.11.2023, wherein, the Hon'ble Bombay High Court adjudicated the identical issue of addition made on account of in genuine purchases u/s 69C of the Act on the ground that the suppliers did not supply any material and had merely provi....
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....eld enquiry and investigations carried out by him and the assessee had not discharged his legal obligation to prove the receipt of the Share Capital/premium to the satisfaction of the Assessing Officer. The ratio laid down in Principal Commissioner of Income-Tax (Central)-1.V/s. NRA Iron and Steel (P.) Ltd., (supra), was in the facts of that case and would have no application to the present case. 17. The Bombay High Court in case of The Commissioner of Income Tax-1, Mumbai.V/s. M/s. Nikunj Eximp Enterprises Pvt. Ltd., (supra), has in a similar case, where the assessee produced his books of accounts, copies of invoices for purchases, and copies of bank statements indicating that purchases were made, has held as under: "We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30.04.2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent assessee have not been rejected. Similarly, the sales have not been doubted and....
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....he assessee in ITA No. 1167/Del/2021 is partly allowed..." 9. Again, another co-ordinate Bench in the case of Assistant Commissioner of Income Tax vs Inlay Marketing (P) Ltd. [2015] 60 taxmann.com 431 (Delhi - Trib.) ruled that "51. On careful consideration of impugned order in the light of contention and submissions of both the parties, we observe that since from the earlier part of this order, we have upheld the deletion of additions made by the AO on account of rejection of purchases made by the assessee during the year, therefore, when a major part of the sales was made against the opening stock and the purchases made during the year, then the sales is nothing but the conversion of stock into liquidity and that too when the profit earned from these purchases and sales activities has been already offered to tax, then it cannot be inferred that the sale proceeds represent income from undisclosed sales of the assessee. In this situation, we can easily infer that the AO made additions on the basis of conjectures and surmises which was rightly deleted by the CIT(A). We have no reason to interfere with the findings of the CIT(A) in the impugned order in this regard. Accor....
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....e assessee company are duly audited under the provisions of the Companies Act and there is no negative observation in the auditor's report, then the claim of expenses and depreciation cannot be doubted. Learned counsel for the assessee also pointed out that the entire books of account were produced before the AO and the same were examined by him and no deficiency or defect has been pointed out by the AO in the audited books of account of the assessee, then no disallowance of expenses claimed could be made. Learned Authorised Representative supporting the impugned order submitted that the CIT(A) was not justified in granting relief for the assessee. 55. From bare reading of the impugned order, we observe that the CIT(A) granted relief for the assessee by relying on the books of account which were duly audited and there was no negative comment in the audit report. The Departmental Representative has not disputed the fact that the audited books of account were examined by the AO and no defect or deficiency was found by the AO. In this situation, we are in agreement with the findings of the CIT(A) that lump sum disallowance of expenses is not sustainable and we hold that t....
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....entiary value. Hence, ground No. 4 of the Revenue is also dismissed..." 10. Once again, in the case of Manoj Sharma vs ITO [2019] 103 taxmann.com 105, it was concluded that 10. Once the quantity of opening stock and purchases on the debit side; and sales and closing stock in the credit side in the books of account has been accepted, then to hold that the some quantity of purchases recorded in the books are unexplained or outside books of account, is very difficult proposition to accept. Because, the quantitative details of stock, purchases, sales have not been discarded or any defect has been found, then purchases as debited in the books of accounts cannot be added u/s 69C. Here in this case, even balancing figure of the gross profit shown by the assessee has not disturbed. Even if it is to be accepted that the purchases made from the three parties were in the nature of accommodation entries, then it has to be seen, firstly, whether these purchases have been made outside books or does not matches with the quantitative tally; or secondly, whether such bills have been obtained merely to suppress the gross profit. Ostensibly, the first reason is lacking here in this case a....
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....et, we find that the addition on account of profit element embedded in the value of purchase had been sought to be added by the revenue in the instant case by invoking the provisions of section 69C of the Act. In our considered opinion, the provisions of section 69C of the Act, per se cannot be applied at all as the purchase had been accounted already in the books of account of the assessee. The assessee on his part has furnished the complete details of purchase party-wise and commodity-wise, corresponding sales made out of purchase together with the purchase register, sales register and stock register, among other books of account. Admitted the books of account and other registers submitted by the assessee had not been rejected by the ld AO by invoking the provisions of section 145(3) of the Act. For the purpose of invoking Section 69C of the Act, the revenue should first bring on record that there is an expenditure which has been genuinely incurred by the assessee and assessee was not able to prove the source of such expenditure. In the instant case, the purchase recorded and reflected in the books of account of the assessee had been properly met out of various sources emanating ....