ITAT: Once purchases are accepted, the related expenditure cannot be treated as unexplained

The Income Tax Appellate Tribunal (ITAT) deleted an addition made towards the expenses incurred on purchases, observing that the said purchases were accepted by the Assessing Officer.

It was observed that the assessee, Ishwarbhai Shantilal Patel, had made purchases from an entity that allegedly provided accommodation entry of fake payments. It was claimed that payments were made through cheques, and cash was received back. As a result, the AO made an addition of Rs 10,17,870 towards the expenses incurred on such purchases as unexplained expenditure under section 69C and Rs 9,60,162 as unexplained money.

The assessee approached the ITAT contending that the AO had accepted the purchases, but the expenses incurred on the purchases were questioned.

The Tribunal observed that since the purchases were accepted by the AO, related expenditure on such purchases cannot be treated as unexplained under section 69C.

themselves were not disputed by the Assessing Officer. It held that once purchases are accepted, the related expenditure cannot be treated as unexplained. Therefore, the addition of Rs 10,17,870 under Section 69C was deleted.

However, for another addition of Rs 9,60,162 the tribunal noted that the assessee failed to provide enough evidence regarding the unregistered dealer’s purchase. The Tribunal cited a Gujarat High Court ruling and directed the Assessing Officer to estimate profit at 2.5% of Rs 9,60,16.