ITAT Delhi Rules Consequential Section 69C Addition Unsustainable After Relief Under Section 69A

The ITAT Delhi held that once the primary addition under Section 69A was deleted and the transaction was accepted as genuine, the consequential commission addition of Rs 40,500 under Section 69C could not survive independently and therefore deserved to be deleted.

The tax authorities had reopened the assessee’s case based on a search action conducted on the Johnson Watch & Kapoor Watch group under section 132 of the Income Tax Act. M/s. Gurukripa Trading Co. is part of the said group. The tax department, in its statement, admitted that “accommodation entries were provided to various beneficiaries through dummy entries controlled by him. Therefore, the assessment in the case of the assessee was reopened.”

During the relevant assessment year, i.e., 2020-21, the assessee, being a trader of luxury watches, had sold a watch to M/s. Guru Kirpa Trading Company. The watch was worth Rs 13.50 lakh. During reassessment of the assessee’s case, the tax authorities held this transaction as bogus and consequently made an addition of 10% of the value of the transaction, i.e., Rs 1.35 lakh, to the assessee’s income under Section 69A/115BBE of the Act. Also made another addition of Rs 40,500 under 69C of the Act on the assumption that the assessee would have paid commission @3% of transaction value for obtaining accommodation entry.

When approached, the First Appellate Authority, the CIT(A), deleted the addition of Rs 13.50 lakh; however, it sustained the Rs 40,500 addition after analysing the relevant documents, including sales invoices, RTGS details, GST compliances, etc., furnished by the assessee proving the genuineness of the transaction.

Being aggrieved with the CIT(A)’s order, the assessee approached the ITAT Delhi, claiming that, “Once the addition u/s 69A has been deleted, the consequential addition u/s 69C of the Act amounting to Rs.40,500/- is unsustainable.” Hence, the impugned Rs 40,500 addition is liable to be deleted.

When the tribunal analysed the facts of the case, it partly allowed the appeal, noting that once the main addition under Section 69A had been deleted and the transaction itself was accepted as genuine, the consequential addition under Section 69C could not survive independently. In conclusion, the impugned Rs 40,500 addition was deleted.