ITO Vs Karsan Nandu (ITAT Mumbai)
The appeal by the Revenue and the cross-objection by the assessee arose from the order of the CIT(A) for Assessment Year 2011-12 concerning an addition of ₹37,45,965 made by the Assessing Officer under Section 69C of the Income-tax Act, 1961 as unexplained expenditure.
The assessee, engaged in the wholesale trading of readymade garments through a proprietorship concern, had filed a return declaring total income of ₹11,81,130. During scrutiny assessment, the Assessing Officer received information from the DGIT (Investigation), Mumbai alleging that the assessee had obtained accommodation entries from seven purchase parties. Notices issued under Section 133(6) to these parties were returned unserved with remarks such as “not known,” “left,” and “unclaimed.” Based on this information and the returned notices, the Assessing Officer concluded that the purchases were not genuine and that the assessee had made actual purchases from undisclosed sources in cash while obtaining accommodation entries from the seven parties to regularise the books. Although payments had been made through account payee cheques, the Assessing Officer held that this alone did not establish the genuineness of the purchases and treated the entire purchase amount as unexplained expenditure under Section 69C.
Before the CIT(A), the assessee submitted purchase invoices, copies of accounts of the suppliers, bank statements evidencing payments through account payee cheques, and details of subsequent sales of the purchased goods. The assessee also contended that the Assessing Officer relied primarily on information from the Maharashtra Sales Tax Department and did not provide an opportunity to cross-examine the concerned parties. The CIT(A) upheld the Assessing Officer’s findings regarding the non-genuine nature of the transactions and rejected the arguments relating to the absence of rejection of books under Section 145(3) and denial of cross-examination. However, considering that the sales had not been disturbed and that sales could not have been effected without purchases, the CIT(A) held that only the profit element embedded in the alleged bogus purchases should be added. Accordingly, the addition was restricted to 12.5% of the disputed purchases, and the balance was deleted. The Revenue challenged this relief, while the assessee sought deletion of the entire addition.
