2025 (5) TMI 1943 - AT - Income Tax

Addition made u/s 69C - bogus purchases - HELD THAT - As evident from the record that the lower authorities have not disputed the source of expenditure incurred by the assessee while purchasing the commodities and have only disputed the genuineness of the purchase transaction in the absence of necessary details being furnished by the assessee. Normal yardsticks applicable for determining the genuineness of the transaction cannot be applied in the present case and this case needs to be examined in its own facts which as noted above has not been done by any of the lower authorities. Therefore we deem it appropriate to restore this matter to the file of the jurisdictional AO for de novo adjudication after the necessary examination of the details/documents furnished by the assessee. We further direct that the AO shall be at liberty to seek any other information from the assessee such as open market transaction details commodity exchange transaction records etc. Appeal by the assessee is allowed for statistical purposes.

Summary

The core legal questions considered in this appeal are:

1. Whether the addition made under section 69C of the Income Tax Act, 1961, in relation to purchases totaling Rs. 3,34,87,077/- was justified, given the explanations and documents furnished by the assessee regarding the genuineness of these purchase transactions.

2. Whether the lower authorities correctly applied the legal standards and evidentiary requirements to determine the genuineness of the purchases, especially considering the nature of the assessee's business model involving commodity trading through open markets and recognized commodity exchanges.

3. Whether the failure to furnish certain transportation or delivery proof, such as delivery challans or lorry receipts, could be a valid ground to treat the entire purchase amount as unexplained expenditure under section 69C.

4. Whether the delay in filing the appeal should be condoned given the circumstances of non-receipt of the impugned order.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeal

The appeal was delayed by 56 days. The assessee filed an application for condonation of delay, supported by an affidavit explaining that the impugned order was not received via the email ID provided in Form 35 or through postal service. The email communications were received on an email ID of an employee who had left the company, leading to non-receipt of the order. Upon discovering the order on the Income Tax e-filing portal, the assessee promptly filed the appeal.

The Tribunal considered these facts and held that there was sufficient cause for the delay, thereby condoning it and deciding the appeal on merits.

2. Validity of Addition under Section 69C on Purchases of Rs. 3,34,87,077/-

Legal Framework and Precedents: Section 69C of the Income Tax Act deals with unexplained expenditure. It states that if an assessee incurs any expenditure and fails to satisfactorily explain the source of such expenditure, the amount may be deemed income. The burden lies on the assessee to establish the genuineness of the expenditure and its source.

Court's Interpretation and Reasoning: The Assessing Officer (AO) disallowed purchases from 13 suppliers amounting to Rs. 3,34,87,077/- on the ground that the assessee failed to provide PAN details, confirmation from suppliers, and proof of delivery such as delivery challans or lorry receipts. The AO treated these purchases as bogus and added the amount under section 69C. The Commissioner of Income Tax (Appeals) upheld this addition.

The Tribunal noted that the assessee's business involves trading in agricultural commodities and other stocks through open market transactions and recognized commodity exchanges (MCX, NCDEX, NMCE). The Tribunal emphasized that in such transactions, physical delivery of goods to the assessee does not occur in the conventional manner. Instead, commodities are delivered directly to designated warehouses by vendors, and ownership is transferred virtually in commodity exchange transactions.

The Tribunal found that the lower authorities failed to appreciate this business model and erroneously applied standard tests for physical delivery and transportation proof, which are not applicable in this context. The Tribunal observed that the assessee had furnished PAN details and invoices for all suppliers and had provided warehouse commodity deposit receipts and sample warehouse invoices to substantiate the transactions.

Key Evidence and Findings: The assessee submitted documentary evidence including PAN details, invoices, warehouse receipts, and explained the nature of commodity exchange transactions. The lower authorities did not dispute the source of funds used for purchases, which were made through banking channels.

Application of Law to Facts: The Tribunal held that since the source of expenditure was not disputed and the nature of the business involves non-physical delivery of goods, the absence of traditional transportation proofs cannot be a sole ground for deeming purchases as bogus. The standard yardsticks for determining genuineness in conventional trading do not apply here.

Treatment of Competing Arguments: The AO and CIT(A) relied on lack of delivery proofs and supplier confirmations to disallow purchases. The assessee argued that such proofs are not generated due to the business model and that ownership and physical possession occur at warehouses. The Tribunal accepted the assessee's explanation and found the lower authorities' approach to be erroneous.

Conclusion: The Tribunal set aside the addition and restored the matter to the AO for de novo adjudication, directing the AO to examine the details/documents furnished by the assessee in light of the business model. The AO was also permitted to seek additional information such as open market transaction details and commodity exchange records. The assessee was directed to cooperate fully and the AO was instructed to provide reasonable opportunity of hearing before passing any order.

Significant Holdings:

"The normal yardsticks applicable for determining the genuineness of the transaction cannot be applied in the present case and this case needs to be examined in its own facts, which as noted above has not been done by any of the lower authorities."

"The transactions entered into by the assessee cannot be compared with any other trading transaction where there is a physical delivery of goods to the assessee."

"The lower authorities have not disputed the source of expenditure incurred by the assessee while purchasing the commodities and have only disputed the genuineness of the purchase transaction in the absence of necessary details being furnished by the assessee."

"We deem it appropriate to restore this matter to the file of the jurisdictional AO for de novo adjudication after the necessary examination of the details/documents furnished by the assessee."

Core Principles Established:

1. In cases involving commodity trading through recognized exchanges and open markets where delivery occurs at designated warehouses, traditional evidentiary requirements such as delivery challans and transportation proofs may not be applicable to establish genuineness of purchases.

2. The genuineness of expenditure under section 69C must be examined in the context of the specific business model and facts of the case rather than applying a rigid standard.

3. Non-receipt of impugned orders due to communication failures can constitute sufficient cause for condonation of delay in filing appeals.

Final Determinations:

The Tribunal condoned the delay in filing the appeal and allowed the appeal for statistical purposes by setting aside the impugned order. The matter was remanded to the AO for fresh adjudication with directions to examine the evidence in light of the business model and to afford the assessee adequate opportunity to present its case. The addition under section 69C was not upheld at this stage, pending fresh examination.