ITAT Holds Mere Non-Availability of PAN of Farmers Cannot Trigger Section 69C

The Income Tax Appellate Tribunal, Bangalore, has held that an ad hoc disallowance of purchases cannot be sustained merely because the assessee could not furnish PAN details of whom purchases were made.

The assessee is an individual engaged in trading in copra through the Agricultural Produce Market Committee (APMC) and filed her return for assessment year 2018-19 declaring income of Rs 23.28 lakh. During scrutiny proceedings, the AO examined the purchases made by the assessee and noticed that purchases aggregating to Rs 1.38 crore were claimed to have been made directly from farmers but their PAN details were not available. The AO treated such purchases as non-genuine and passed an order under Sections 143(3) read with 144B of the Income Tax Act, 1961 that disallowed 20 per cent of the purchases amounting to Rs 27.73 lakh under Section 69C read with Section 115BBE.

The assessee was aggrieved by this assessment order and preferred an appeal before the CIT(A). The CIT(A), while granting partial relief, restricted the disallowance to 12.5 per cent but sustained an addition of Rs 17.33 lakh. Then the appeal before the Tribunal was filed with a delay of 310 days. The assessee submitted that the delay occurred because she had first pursued a rectification application under Section 154 read with Section 250 of the Act. The Tribunal accepted this explanation and accordingly condoned the delay.

The Tribunal observed that the assessee maintained regular books of account which were duly audited under Section 44AB and that the purchases made directly from agriculturists were supported by bills. It further held that Section 69C cannot be invoked where the expenditure is duly recorded and the source of such expenditure is duly examined.

Accordingly, the Tribunal directed the AO to delete the addition of Rs 17.33 lakh while allowing the appeal of the assessee.