ITAT Delhi Deletes Bogus Purchase Addition Made Under 69 Without Rejecting Books of Accounts

The Income Tax Appellate Tribunal (ITAT), Delhi, has ruled that bogus purchase additions cannot be made under Section 69 when the purchases are recorded in books of account and the Assessing Officer has not rejected those books.

A search and seizure operation was conducted on the KBP/MGI Group on September 29, 2024, and after the completion of the assessment, the AO added Rs 2,88,50,000 to the income of the assessee. Later, the assessee’s case was reopened based on the information received by the Investigation wing regarding the bogus purchase from M/s Bhawani Enterprises of Rs 4,55,50,000 and the same was added to the income of the assessee as an addition under section 69 of the Income Tax Act, 1961.

The AO claimed that the purchases made from M/s Bhawani were not genuine, the supplier was an entry provider, and no business activity had ever been done by M/s Bhawani Enterprises. Further, the assessee could not produce the supporting evidence; therefore, the purchases were disallowed and added as unexplained under section 69.

However, the assessee argued that the payments were made through banking channels and were also recorded in books and the books of account were never rejected by the AO. The assessee further contended that Section 69 can be invoked only when the investments are not recorded in the books, which was not the case here.

The Tribunal noted that purchases were recorded in the books of account if there was no establishment for the discrepancy in stock or inventory. Further, the court highlighted that section 69 requires the assessee to explain the nature and source of investment, which are in the form of purchases made from the books themselves. Further, it observed that the books maintained by the assessee were not rejected.

“Thus section 69 of the Act if invoked needed specific rebuttal and on basis of assertion that merely quoting wrong section does not prejudice the assessee does not help the department“, the tribunal said.

Based on these findings, the ITAT deleted the addition.