2025 (7) TMI 1510 - HC - Income Tax

Bogus purchases u/s 69C - unverifiable sources based on credible investigation - HELD THAT - Assessee was able to prove the purchases by producing the stock register which shows that the purchase is on a day to day basis and the production of the finished goods was supported by RG-23A and RG-23C register regularly maintained which has been verified by the Auditor and is also available in Annexure IV of the TAR. Therefore the assessee was fully justified in contending that the sales are accepted purchase cannot be treated as bogus. CIT(A) was of the view that the notices issued under section 133(6) of the Act to the other party remained non-complied and the inspector deputed from the department for verification has reported that the said party is not found. Admittedly this fact was never brought to the notice of the assessee and the assessee came to know of it only from the assessment order. That apart the transaction was done about seven years back and the address given by the other party was about seven years back and there is every possibility that the party may change their address. These factual details were never disputed by the AO. Therefore Tribunal was right in holding that section 69C would not stand admitted in the facts of the case.

Summary

ISSUES:

Whether the Learned Tribunal was justified in law to delete the addition under Section 69C of the Income Tax Act, 1961, made on account of bogus purchases from unverifiable sources based on credible investigation'Whether the Learned Tribunal erred in deciding the application of Section 69C without considering the findings of the Assessing Officer and the Commissioner of Income Tax (Appeals) on merit'Whether the Learned Tribunal was correct in not appreciating that the primary onus of proving the actual source, genuineness of transactions, and creditworthiness of the supplier was on the assessee, who allegedly failed to discharge this onus?

RULINGS / HOLDINGS:

The Tribunal correctly held that Section 69C of the Act will not be attracted where the assessee has "duly disclosed the total purchases in their books of accounts" and the payments were "from and out of the books of accounts with explained sources," thereby negating the addition under Section 69C.The Tribunal was justified in focusing solely on the application of Section 69C, as the substantial questions of law raised pertained only to this provision, and it was not required to revisit the Assessing Officer's or CIT(A)'s findings on merit.The Tribunal rightly found that the assessee discharged the onus by producing cogent evidence such as purchase and stock registers, RG-23A and RG-23C registers, and demonstrating that the purchases were genuine raw materials consumed in production, and that the goods purchased were sold with recorded sales proceeds, thus negating the claim of bogus purchases.

RATIONALE:

The Court applied the legal framework under Section 69C of the Income Tax Act, 1961, which provides that if an assessee incurs expenditure and fails to satisfactorily explain the source, such expenditure may be deemed income.The Tribunal's interpretation emphasized that Section 69C is attracted only when the source of expenditure is not satisfactorily explained; here, the assessee's explanation and documentary evidence were found satisfactory.The Tribunal considered credible investigation reports, including non-compliance with notices under Section 133(6) to the alleged supplier, but found such facts immaterial since the assessee was not informed and the transactions were several years old, with a reasonable possibility of change in address.The Tribunal relied on documentary evidence such as purchase registers, stock registers, and production records verified by auditors to establish the genuineness of transactions, aligning with established principles that the burden of proof lies on the assessee to explain the source and genuineness, which was discharged here.No dissent or doctrinal shift was indicated; the Court affirmed the Tribunal's approach as consistent with statutory provisions and precedents regarding the application of Section 69C.