Vayam Technologies Ltd Vs DCIT (ITAT Delhi)
Summary: ITAT Delhi allowed Vayam Technologies Ltd.’s appeal for AY 2013-14 and deleted the addition arising from alleged bogus purchases of ₹7,44,50,000. The assessee had purchased ₹5,08,50,000 from Macro IT System Pvt. Ltd. and ₹2,36,00,000 from Sai Info Web Pvt. Ltd. The Assessing Officer, acting on investigation material concerning alleged accommodation entries provided by Jain brothers, treated the purchases as non-genuine and invoked Section 69C. The assessee maintained that the purchases were supported by invoices and VAT returns, payments were made through account-payee cheques, and corresponding sales were also evidenced. NFAC accepted that corresponding sales had been made but, relying on CIT v. Simit P. Sheth, estimated the taxable profit element at 12.5%. The Tribunal held that Section 69C itself was inapplicable. The purchases were already recorded in the assessee’s regular books, the books and book results had not been rejected, and payments emanated from the disclosed bank account. Section 69C concerns expenditure whose source is unexplained; it could not be invoked where the source of payment was duly explained while the Revenue’s objection concerned genuineness of the expenditure itself. The Tribunal also rejected the Revenue’s contention that citation of a wrong statutory provision was immaterial, observing that the nature of the transaction and burden of proof vary between provisions. Following PCIT v. Vaman International Pvt. Ltd., (2020) 422 ITR 520 (Bom.), it held that no addition for the alleged bogus purchases could be made under Section 69C and allowed the appeal.
Cases Discussed
- CIT v. Simit P. Sheth, (2013) 356 ITR 451 (Gujarat High Court) — Relied upon by NFAC. NFAC accepted that the disputed purchases had corresponding sales and, relying on this decision, restricted the addition to the profit element estimated at 12.5%. The Tribunal ultimately held that Section 69C itself could not be invoked on the facts of the present case.
- PCIT v. Vaman International Pvt. Ltd., (2020) 422 ITR 520 (Bom.) — Followed. The Bombay High Court precedent was relied upon by the Tribunal to fortify its conclusion that Section 69C could not sustain the impugned bogus-purchase addition where the purchase expenditure stood recorded and its source of payment was explained.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The appeal in ITA No.1447/Del/2023 for AY 2013-14, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2022-23/1050848081(1) dated 16.03.2023 against the order of assessment passed u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 22.12.2018 by the Assessing Officer, JCIT, Special Range-9, New Delhi (hereinafter referred to as ‘ld. AO’).
2. The only effective issue to be decided in this appeal of the assessee is as to whether the ld CIT(A) was justified in taxing only the profit element estimated @12.5% on the value of alleged ingenuine purchase in the facts and circumstances of the case.
3. None appeared on behalf of the assessee despite issuance of notice on several occasions. Hence, we proceed to dispose of the appeal on hearing the ld DR and based on the materials available on record.
4. The assessee is a company and filed its return of income for AY 2013-14 on 27.09.2013 declaring loss of Rs. 2,67,20,368/- and book profit of Rs. 22,00,89,560/- u/s 115JB of the Act. The assessment was completed u/s 143(3) of the Act determining the total income at Rs. 69,93,70,430/-. Later this assessment was sought to be reopened vide issuance of notice u/s 148 of the Act on the ground that assessee had made ingenuine purchase from certain parties to the tune of Rs. 7,44,50,000/-. The validity of reopening is not in challenge before us. The assessee has emerged as a leading IT Company providing Information Technology and IT enabled services to corporate and Govt clients worldwide. The assessee is operational since 2001 and evolved into organization with experience of 250 successful engagements over a decade. With a large fleet of qualified resources at the Noida Development Center, which is its nerve center, and spread at its various projects sites. The assessee’s range of technical activities currently comprise IT enabled services, system integration, software development and sale and purchase of hardware. The industry verticals covered are telecom, intelligent transportation, e-governance, power & utilities, healthcare and education.
5. The ld AO vide notice u/s 142(1) of the Act dated 26.10.2018 specifically asked the assessee about the information received from Director of Investigation, Delhi that assessee company has received accommodation entries from Shri Anand Kumar Jain and Shri Naresh Kumar Jain which got unearthed pursuant to search and seizure action conducted by the department on 17.12.2015 in the hands of the 2 Jain brothers. It revealed during that search that Jain Brothers are involved in providing accommodation entries to various beneficiaries through cheque/ DD/ RTGS/ NEFT in lieu of cash through various paper and dummy companies floated and controlled by them. The ld AO confronted the assessee with the fact that it had made purchases of Rs. 7,44,50,000/- from entities controlled by Jain Brothers and show caused as to why the same should not be added as bogus purchase in terms of Section 69C of the Act.
6. The assessee submitted that payment for purchase made from the concerned parties against supply of goods were made by the assessee through account payee cheques. The assessee also enclosed the purchase invoices partwise before the ld AO together with the VAT returns filed thereon. The assessee also submitted that it had duly made the sales made out of disputed purchases. The assessee had categorically denied having any connection with Jain Brothers. The assessee submitted that it had made purchase of Rs. 5,08,50,000/- from Macro IT System Pvt. Ltd and Rs. 2,36,00,000/- from M/s. Sai Info Web Pvt. Ltd, totaling to Rs 7,44,50,000/- from these two parties.
7. The aforesaid facts with regard to filing of documents are not disputed by the ld AO as the ld AO had reproduced the letters filed by the assessee before him in the assessment order vide pages 11 to 14 thereon. The assessee also enclosed the sale invoices made out of the disputed purchases before the ld AO. It was pleaded that payments for purchase and sales were made through proper banking channels; that there is no question of routing of any of the unaccounted money of the assessee in the said transaction. The ld AO however did not heed to the aforesaid contentions of the assessee simply proceeded to make an addition u/s 69C of the Act by treating the purchase made from the aforesaid 2 parties as ingenuine in the sum of Rs. 7,44,50,000/-.
8. The ld NFAC duly appreciated the fact that the purchases made by the assessee have been subjected to corresponding sales by the assessee. Hence, only the profit element embedded in the value of such disputed purchase could be brought to tax and such profit element was estimated by the NFAC to be @12.5% by placing reliance on the decision of the Hon’ble Gujarat High Court in the case of CIT Vs. Simit P Seth reported in 356 ITR 451 (Gujarat). Aggrieved by this order, the assessee is in appeal before us.
9. It is not in dispute that the additions on account of bogus purchase have been made in the instant case by applying Section 69C of the Act. First of all, in our considered opinion, the provisions of Section 69C of the Act per se could not be made applicable in the instant case in view of the fact that the purchase made by the assessee in the sum of Rs. 7,44,50,000/- from the aforesaid 2 parties have already been accounted and reflected in the books of account maintained by the assessee. Admittedly, the books of accounts of the assessee and book results of the assessee are not rejected by the revenue. The payments for purchase have been made by account payee cheques through regular banking channels from the disclosed bank account by the assessee. The source for such payment have emanated from the books of account regularly maintained by the assessee. It is not the case of the revenue that the assessee did not have the source for making payment to the suppliers for effecting the purchase in the sum of Rs. 7,44,50,000/-. Once, the source for incurrence of expenditure is explained the provisions of Section 69C of the Act cannot be pressed into service. Moreover, the provisions of Section 69C of the Act pre-supposes the incurrence of expenditure and the genuineness of the such expenditure is also not to be doubted for applying by this provisions of Section 69C of the Act. Only the source for making payment of such expenditure could be found to be unsatisfactorily explained. In other words, if the assessee is not able to explain the source of making payment of a particular expenditure, then such expenditure becomes unexplained expenditure so as to apply the provisions of section 69C of the Act. In the instant case before us, the revenue had doubted the incurrence of expenditure per se by stating that purchase made from the aforesaid two parties are ingenuine. Hence, genuinity of expenditure itself is doubted by the revenue.
10. The ld DR before us filed written submission before us stating that wrong mentioning of particular Section would not be fatal to the addition made in the instant case. In support of such proposition, he placed reliance on various decisions. We are unable to persuade ourselves to accept to the said submission of the ld DR in as much as the entire gamut of transaction and the entire onus on the part of the assessee completely changes with regard to each and every section. For some sections, the onus would be on the assessee to discharge to the satisfaction of the ld AO. For some sections, the onus need to be discharged by the revenue to the assessee. The assessee can always be expected to reply only to the queries raised by the revenue during the course of assessment and appellate proceedings. If a particular query is raised only with regard to applicability of provisions of Section 69C of the Act, then assessee could be expected to give a reply filed in respect of such query with specific reference to applicability of provisions of Section 69C of the Act. In the instant case, the assessee had categorically replied before the lower authorities that the purchase made from the aforesaid parties have already been accounted and reflected in the books of account of the assessee and payment for the same have been made through account payee cheques. As stated earlier, the provisions of Section 69C of the Act could be applied only if the source of incurrence of genuine expenditure is not satisfactorily explained. In the instant case, as stated earlier, the source for making payment of purchase has been duly explained from the books of account regularly maintained by the assessee and from disclosed bank account. Hence, the provisions of Section 69C of the Act could not be applied at all in the instant case. Our view is further fortified by the decision of the Hon’ble Bombay High Court in the case of PCIT v. Vaman International Pvt. Ltd reported in (2020) 422 ITR 520 wherein, the question before the Hon’ble Bombay High Court was as under:-
a. Whether on the facts and in the circumstances of the case and in law, Tribunal was justified in holding that provision of Section 69C of the Income Tax Act, 1961 are not applicable in the case of bogus purchase or sales where the genuineness of the transactions is not explained or explanation offered by the assessee is not satisfactory and the same is to be treated as income of the assessee?
11. This question was answered in favour of the assessee by the Hon’ble Bombay High Court.
12. In view of the aforesaid observations and respectfully following the judicial precedent herein above, we hold that no addition on account of bogus purchase could be made u/s 69C of the Act in the hands of the assessee. Accordingly, grounds raised by the assessee are allowed.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 08/01/2025. Pasted text
