Case Law Details
ACIT Vs Archean Chemical Industries Ltd (ITAT Chennai)
In ACIT Vs Archean Chemical Industries Ltd, the Chennai ITAT considered the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) deleting an addition of Rs. 51.81 crore made under Section 69C of the Income Tax Act for Assessment Year 2022-23. The Assessing Officer had treated the difference between import data reflected in the Income Tax Department’s Insight Portal and Form GSTR-2A as unexplained expenditure.
The assessee, a public limited company engaged in manufacturing industrial salt, bromine, and other industrial chemicals, had filed its return declaring nil income after set-off of brought forward losses. During assessment proceedings under Sections 143(3) read with 144B, the Assessing Officer concluded that the difference in import figures represented unaccounted imports or purchases and added the amount under Section 69C.
The Revenue argued before the Tribunal that the CIT(A) wrongly deleted the addition without properly appreciating the facts and contended that the assessee failed to reconcile the import data with documentary evidence. It also argued that the CIT(A) accepted the assessee’s explanation regarding returnable empty ISO containers without verifying their accounting treatment or impact on computation of income. The Revenue further submitted that the assessment order was not violative of natural justice since show-cause notices had been issued and replies considered.
The assessee submitted that the addition was based entirely on differences between two sets of system-generated third-party data sources, namely the Insight Portal and GSTR-2A, neither of which was maintained or controlled by the assessee. According to the assessee, the data contained duplication of Bills of Entry and the discrepancies were fully reconciled using primary documents such as Bills of Entry, export invoices, and reconciliation statements. The assessee also explained that many entries related to re-import of empty ISO containers used for export of bromine, which continued to remain the property of the assessee.
The assessee further stated that these ISO containers were already capital assets capitalised in earlier years and depreciation had been claimed on them. Their re-import did not involve acquisition of a new asset or fresh expenditure, and therefore no purchase or expenditure entry was recorded in the books at the time of re-import.
After hearing both sides, the Tribunal observed that the Assessing Officer had not identified any defect or inconsistency in the reconciliation statements or Bills of Entry produced by the assessee. It noted that no independent material had been brought on record to establish that the assessee incurred unexplained expenditure not recorded in the books of account. The Tribunal held that mere differences between two sets of third-party system-generated data could not by themselves establish unexplained expenditure under Section 69C.
The Tribunal also held that the Assessing Officer ignored statutory documents, accounting treatment consistently followed by the assessee, and the fact that the ISO containers had already been capitalised and depreciated. It agreed with the CIT(A)’s finding that the notional customs value assigned to returnable containers could not be equated with actual expenditure incurred during the relevant year.
The ITAT further noted that the assessee’s grievance had been examined by a Local Committee dealing with high-pitched assessments. The Committee observed that the returnable containers were already part of fixed assets, that the system-generated data was auto-populated and not modifiable by the assessee, and that the reconciliation furnished by the assessee had not been properly considered by the Assessing Officer. The Committee viewed the assessment as high-pitched and lacking proper application of mind.
The Tribunal additionally observed that in the assessee’s own case for Assessment Year 2023-24, similar reconciliation differences were accepted by the Assessing Officer and no addition was made. It concluded that the differences arose only due to variations in system-generated data and did not represent unexplained expenditure. Accordingly, the Revenue’s appeal was dismissed and the deletion of the addition under Section 69C was upheld.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the Revenue is against the order dated 07.07.2025 passed by the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Centre(NFAC), Delhi, for the assessment years 2022-23.
2. The appellant/Revenue raised seven grounds of appeal amongst which only issue emanates for our consideration is whether the ld.CIT(A) justified in deleting the addition made by the AO on account of unexplained expenditure u/s. 69C of the Income Tax Act, 1961 [herein after “Act”].
3. The brief facts of the case are that, the assessee is a public limited company engaged in the manufacture of industrial salt, bromine and other industrial chemicals and filed return of income declaring nil income after set off of brought forward losses. The assessment was completed u/s. 143(3) r.w.s. 144B of the Act, dated 25.03.2024, wherein the AO has made an addition of Rs.51,81,81,096/- u/s. 69C of the Act treating the difference between imports as per Insight Portal (maintained by the Income-tax Department) and imports reflected in Form GSTR-2A (details of inward supplies as per CGST Act) as unexplained expenditure. In the first appellate proceedings, the ld.CIT(A) after examining the assessment order, reconciliation statements, bills of entry and documentary evidence, held that no unexplained expenditure existed and deleted the addition made u/s. 69C of the Act.
4. The ld.DR, Shri. Shiva Srinivas, CIT, submits that the ld.CIT(A) has erred in law in deleting the addition made by the AO u/s. 69C of the Act towards unaccounted imports/purchases without properly appreciating the facts brought on record. He vehemently argued that the ld.CIT(A) has failed to appreciate that the assessee could not substantiate the reconciliation of imports data as per the insight portal vis-a-vis GSTR-2A and books of accounts with cogent documentary evidence. He further submits that the ld.CIT(A) erred in law in accepting the assessee’s contention that the impugned imports represent returnable empty ISO containers, without verifying the accounting treatment of such containers, whether the assessee claimed the value as expenditure treated as depreciable asset, or amortized the cost over its useful life. Further he argued that the ld.CIT(A) has erred in holding the assessment order as non-speaking, in violation of natural justice and the AO had duly issued show cause notice and considered the assessee’s reply before completing the assessment. Further, he argued that the ld.CIT(A) failed to examine the actual impact of expenditure on returnable containers on the computation of income for the year under consideration and the ld.CIT(A) further erred in law in deleting the addition merely on procedural grounds without addressing the substantive findings of the AO on unexplained purchases and non-verification of entries. He prayed to set aside the order of the ld.CIT(A) and restore the order of the AO.
5. The ld.AR, Shri. K.M. Mohandass, CA submits that the impugned order passed by the Ld. CIT(A) is in accordance with the provisions of the Income-tax Act, 1961 and the facts on record. The Ld. CIT(A) has examined the assessment order, the material relied upon by the Assessing Officer, and the submissions and evidences furnished by the assessee, and has rendered findings after due application of mind. The conclusions arrived at by the Ld. CIT(A) are reasoned, based on record, and supported by settled legal principles. The Ld. CIT(A) has correctly deleted the addition of Rs. 51.81,81,096/- made under section 69C of the Act after examining the detailed explanations and documentary evidences furnished by the assessee during the assessment proceedings. He argued that the addition was made solely on the basis of an alleged difference between the import figures appearing in the Insight Portal and those auto-populated in Form GSTR-2A, both of which are system-generated, third-party data sources not maintained or controlled by the assessee. He submits that the assessee had demonstrated, on the basis of the very data furnished by the Assessing Officer, that the information contained therein suffered from duplication of Bills of Entry and specifically identified and highlighted the duplicate Bills of Entry in the data provided by the Assessing Officer and thereafter furnished a comprehensive reconciliation by mapping the unique Bills of Entry with the actual Bills of Entry on record. Further reconciled the differences by explaining the impact of inclusion or exclusion of statutory levies such as customs duty, cess and handling charges, as well as the fact that certain Bills of Entry appeared in one data source but not in the other. All the Bills of Entry relating to the impugned amount were furnished and explained, and the reconciliation was based entirely on primary documents.
6. Further, he submits that the Ld. CIT(A) has correctly deleted the addition after appreciating the true nature of the transactions, the accounting treatment followed by the assessee, and the factual material placed on record. The ld.AR argued that the Assessing Officer proceeded on the erroneous presumption that the value appearing in the Bills of Entry in respect of re-import of empty ISO containers represented unaccounted purchases or expenditure incurred by the assessee and the assessee had consistently explained, with reference to the Bills of Entry, described the goods as “re-import of empty unclean ISO/SOC tanks bromine returnable packing tank container (value for customs purpose only)”, and the export invoices, that the ISO containers were returnable packing material used for export of Bromine and that such containers continued to remain the property of the assessee at all times.
7. Further, the ld.AR submits that the ISO containers were capital assets owned by the assessee and were not purchased afresh at the time of reimport and the containers were originally acquired by the assessee, capitalised in the books of account in earlier years as part of the block of assets, and depreciation was claimed thereon in accordance with the provisions of the Act. He submits that the assessee had not treated the reimport of empty containers as purchases or expenditure in the books of account, as there was no acquisition of a new asset or incurrence of any expenditure at the time of re-import. Further, the containers, having already been capitalised and depreciated, continued to form part of the existing block of assets, and their temporary movement outside India for export purposes and subsequent return did not give rise to any fresh accounting entry by way of purchase or expense. He prayed to dismiss the grounds and supported the order of the ld.CIT(A).
8. Heard both the parties, perused the materials available on record. We find that the AO did not point out any specific defect, inconsistency or inaccuracy either in the reconciliation statement or in the Bills of Entry produced by the assessee. No independent material was brought on record to establish that the assessee had in fact incurred any expenditure which was not recorded in the books of account. We note that in the absence of any finding that actual expenditure had been incurred and remained unexplained, in our opinion, the essential and jurisdictional precondition for invoking section 69C of the Act was not satisfied. Further, we find the Ld. CIT(A) has rightly appreciated that a mere difference between two sets of third-party, system-generated information, by itself, cannot lead to the conclusion that the assessee had incurred unexplained expenditure.
The Ld. CIT(A) has also taken note of the settled legal position, that section 69C can be invoked only where actual incurrence of expenditure is established by the appellant/Revenue and the source thereof remains unexplained, and that additions cannot be made merely on the basis of assumptions, presumptions or unverified third-party data. We find the deletion of the addition is thus based on proper appreciation of facts, documentary evidence, and the correct application of law, and does not warrant any interference.
9. With reference to the assessment order, we find the Assessing Officer, however, ignored the statutory documents, the accounting treatment consistently followed by the assessee, and the explanation that the containers were already capitalised and depreciated, and mechanically treated the notional customs value as unexplained expenditure. We find the Ld. CIT(A), after examining the Bills of Entry, reconciliation statements, export invoices, and the manner in which the ISO containers were reflected in the books of account, rightly held that the re-import of returnable empty ISO containers could not be construed as unexplained expenditure under section 69C of the Act. We note that the Ld. CIT(A) further observed that the Assessing Officer had failed to demonstrate how a notional value assigned solely for customs purposes, in respect of an asset already owned, capitalised, and depreciated by the assessee, could be equated with actual expenditure incurred during the relevant year.
10. We find the findings of the Ld. CIT(A) are supported by the fact that the assessee’s grievance was examined by the Local Committee constituted to deal with cases of high-pitched assessments. The ld.AR placed on record letter dated 23.12.2024 in CHE/Coord/104/46(25B1)/2024-25, the relevant part of which is reproduced herein below:
“3. The decision of the Committee is communicated as under:
The Committee has gone through the facts of the case, case history notings, the submissions made by the petitioner and the assessment record. It is seen that the returnable containers are already part of fixed asset, not a new purchase. Also, the data of insight portal and GSTR-2A are not emanating from the data of the assessee but was auto populated and assessee cannot update/modify the said data. Nevertheless, the assessee has furnished the reconciliation, which was not considered by the AO. Hence, it is observed that the addition is not backed by sound reason or logic and non-application of mind is also observed. Thus, the committee is of the considered view that the assessment is High Pitched.”
11. On perusal of the above, we find the Local Committee, after examining the assessment records, reconciliation statements, statutory documents, and the accounting treatment adopted by the assessee, accepted the assessee’s contention that the addition was made without proper application of mind, by ignoring primary evidences and by placing undue reliance on third-party system-generated data. The Local Committee also took note of the failure of the Assessing Officer to appreciate the nature of the re-imports, the continued ownership of the ISO containers with the assessee, and the purely notional character of the values reflected in the Bills of Entry. We find the relevant portion of the observations of the Local Committee at Para 3 of the Letter of the Office of Pr. CCIT dated 23.12.2024 is reproduced at pages 13 & 14 of the impugned order. We, therefore, find the consistent accounting treatment followed by the assessee, the depreciation already claimed on the ISO containers as capital assets, and the findings of the Ld. CIT(A) and the Local Committee, the deletion of the addition under section 69C of the Act is justified.
12. Regarding ground no.5 raised by the Revenue with reference to findings of the Ld. CIT(A) that the assessment order suffers from non-application of mind and is violative of the principles of natural justice, we find during the course of assessment proceedings, the assessee furnished detailed explanations, reconciliations, Bills of Entry, export invoices, party-wise ledgers, and supporting documentary evidences explaining the nature of imports, re-imports, and the differences between the Insight Portal data and Form GSTR-2A. We find the assessment order does not demonstrate any analysis of the Bills of Entry or a statutory documents placed on record and the Ld. CIT(A) correctly concluded that the assessment order is mechanical, non-speaking, and passed without proper application of mind vide para 6.3 of the impugned order.
13. Further, we note that in the assessee’s own case for the subsequent year i.e.. Assessment Year 2023-24, an identical issue relating to reconciliation of imports as per system-generated data vis-à-vis books of account was examined during assessment proceedings. After considering the reconciliation statements and documentary evidence furnished by the assessee, the Assessing Officer accepted the explanation and no addition was made in the assessment order for the said subsequent Assessment Year. The acceptance of the reconciliation in the subsequent year demonstrates that the difference arises only on account of system-generated data variations and does not represent unexplained expenditure. The grounds raised by the Revenue are devoid of merit and do not warrant any interference. Thus, order of the ld.CIT(A) is justified in deleting the addition made by the AO and grounds raised by the appellant/Revenue are dismissed.
14. In the result, appeal filed by the Revenue is dismissed.
Order pronounced on 15th May, 2026 at Chennai.
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