Section 69C Requires Proving Unexplained Source of Genuine Expenditure First: ITAT:

Section 69C Requires Proving Unexplained Source of Genuine Expenditure First: ITAT The Income Tax Appellate Tribunal (ITAT), Delhi, quashed an income tax addition worth Rs 1.03 crore made by the Assessing Officer towards alleged bogus purchases. The assessee, Vinod Kumar Goyal, showed purchases worth Rs 8,26,85,437 in his profit and loss account. He declared a gross loss of 0.61% in his trading account, but in the previous year, the gross profit reported by him stood at 1.99%. The AO questioned the genuineness of purchases made by the assessee.

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The assessee submitted a copy of the ledger account in respect of sundry creditors and sundry debtors, the stock register, the purchase register, the sales register, details of sundry debtors and details of sundry creditors, along with purchase invoices, to prove that the purchases were genuine.  Notices to suppliers under Section 133(6) were not answered; therefore, the AO held that the purchases were bogus and added a 12.5% profit element (Rs 1,03,35,679) to the income of the assessee under Section 69C of the Income Tax Act. The CIT(A) also dismissed the appeal filed by the assessee. Therefore, the assessee filed an appeal before the ITAT, Delhi. The assessee argued that the purchases were genuine and that he had submitted the documents. Further, he said that his purchases were also reflected in the audited books of accounts, and the payments were made through regular banking channels. Additionally, the sales were not doubted by the revenue. The ITAT agreed with the contentions of the assessee and held that section 69C of the Income Tax Act is not applicable here, as the purchases were accounted for in the books of accounts and the assessee submitted all the supporting documents. Therefore, the assessee had proved that the purchases were not bogus. Tribunal also noted that the books of accounts had not been rejected by the AO under Section 145(3) of the Act.

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"For the purpose of invoking Section 69C of the Act, the revenue should first bring on record that there is an expenditure which has been genuinely incurred by the assessee and the assessee was not able to prove the source of such expenditure," the tribunal ruled. As a result, the ITAT allowed Goyal's appeal and deleted the addition made by the tax authorities.