Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 26 August 2020 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2011–12. The Assessing Officer had made an addition of ₹7,17,95,500/- treating certain purchases as ‘unexplained expenditure’ under Section 69C of the Income Tax Act, 1961.

The Revenue alleged that the entities from whom purchases were made were bogus and non-existent, particularly as they were not traceable during search and post-search proceedings.

However, both the Commissioner of Income Tax (Appeals) [CIT(A)] and ITAT held that the purchases were genuine.

Issues Involved

  1. Whether purchases made from allegedly non-existent entities can be treated as unexplained expenditure under Section 69C.
  2. Whether non-traceability of sellers is sufficient to disallow purchases despite proof of delivery and payment.
  3. Whether addition under Section 69C can be sustained in absence of incriminating evidence found during search.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in upholding the deletion of addition made by the Assessing Officer.
  • The purchases were claimed from entities which were found to be non-existent during investigation.
  • The accounting treatment and standards were allegedly disregarded by the assessee.
  • The transactions were argued to be bogus and liable to be taxed as unexplained expenditure.

Respondent’s Arguments (Assessee)

  • The purchases were genuine and supported by proper documentation.
  • Goods were actually received at site and utilized.
  • Payments were made through proper banking channels.
  • No incriminating material or evidence was found during the search operation indicating bogus transactions.
  • The burden of proof regarding genuineness of purchases had been discharged.

Court’s Findings / Order

The Delhi High Court upheld the concurrent findings of CIT(A) and ITAT and dismissed the Revenue’s appeal, holding that:

  • The receipt of goods was not disputed by the Assessing Officer.
  • Payments were made through banking channels, establishing transaction authenticity.
  • Mere non-availability or non-traceability of sellers cannot lead to the conclusion that purchases are bogus.
  • No incriminating evidence was found during search proceedings to suggest cash transactions or bogus purchases.
  • The Assessing Officer’s conclusion was based on assumptions and conjectures.

Accordingly, the Court held that no substantial question of law arises, and the appeal was dismissed.

Important Clarification by the Court

  • Section 69C cannot be invoked merely on suspicion or presumption.
  • If goods are received and payments are made through banking channels, the burden shifts away from the assessee.
  • Non-traceability of suppliers alone is insufficient to treat transactions as bogus.
  • Additions under Section 69C require concrete evidence, not assumptions.

Section Involved

  • Section 69C, Income Tax Act, 1961 – Unexplained Expenditure

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:993-DB/MMH21032022ITA552022_221304.pdf 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.