Income Tax Officer vs Jai Prakash Gupta

“...5.1 I have considered the facts of the case, assessment order, submission made by the appellant and case laws relied upon.The case of the appellant was selected for ‘complete scrutiny’ under CASS to verify the ‘low income from TCS receipts - Scrap’. The appellant had filed his return of income for AY 2022-23 disclosed total income of Rs.1,39,65,860/- on 31/10/2022. During the assessment proceedings, in response to various notices issued by the AO the appellant has furnished copy of computation of income, acknowledgement of return of income, financial audit report, freight details, purchase invoices, sales invoices, TDS & TCS applicability, ledger extract of the commission, discount, wages, copies of the bank accounts statement, month-wise sales details, month-wise purchase details and certificate of GST registration. During the course of assessment proceedings, the AO has issued notices u/s.133(6) to the banks, purchase parties and seller parties. The banks and purchaser/seller parties had furnished responses. Where there is no response from purchase parties and seller parties, physical verification made by the concerned Verification Unit. The Verification Unit recorded statement of Shri Karamsingh S/o. Shri Chanderpal, age 45 years resident of Randhwa Farm, Manimajra, Chandigarh u/s.131(1)(b) of the IT Act during the course of Faceless Assessment proceedings for the AY 2022-23 of the IT Act, 1961. In the statement, Shri Karamsingh denied to have entered into any business activity with the appellant and also denied to have made any transactions with him. Based on the statement AO has issued show cause notice to the appellant to submit reply with respect to purchase of material from Shri Karamsingh Prop of Patiala Metals (seller party) stating that why not the purchases amounting to Rs.6,71,02,655/- should not be treated as bogus purchases and be added as unexplained expenditure u/s.69C of the IT Act. In response to the show cause notice, appellant refuted the submission made by Shri Karamsingh in his statement stating that Shri Karamsingh was filing return of income since last 5 years and suddenly stopped with effect from AY 2022-23 and the current account through which transactions were made were opened and operated on his PAN and Aadhar number. The appellant further asked the AO to collect the confirmation from the branch of Indian Overseas Bank for the sake of justice. He further claimed how it is possible for anybody to open a business current account with branch of a nationalized bank and make transactions of crores of rupee in this said account. It is done by Mr. Karam singh intentionally and no other than him able to do so. The appellant further stated before the AO that it may be possible to obtain two PANs from IT Department but getting 02 Aadhar numbers are not possible. The appellant further submitted that GST number of M/s. Patiala Metals is registered under PAN of Mr. Karam singh and the Aadhar number of Mr. Karamsing is used for authentication of GST registration. How it is possible to Mr. Karam singh was not aware of M/s. Patiala Metals. The appellant further submitted that the appellant purchased goods from M/s. Patiala Metals during the FY 2021-22 i.e. 1/4/2021 to 31/3/2022 and GST registration of M/s. Patiala Metals suo moto cancelled by GST authorities on 1/6/2022. At the time of purchase of the appellant, the status of M/s. Patiala Metals was active. The appellant described the business modus operandi in the scrap market, document and information for the movement of material and purchase bills, transport bilty and real time kantaparchi of two different dharamkanta for verification by AO. The AO has granted cross-examination request of the third party i.e. Shri Karamsingh and accordingly video conference was conducted on the request of the appellant and the appellant appeared and duly described the issues. Following the SOP new reference was made to the Verification Unit for cross examination of Shri Karamsingh. However, in response to the same Verification Unit again recorded the statement of Shri Karamsingh where he reiterated the facts stated earlier. Shri Karamsingh further stated that his documents were misused by certain persons and he filed complaint against this with the Indian Overseas Bank, GST authority and also filed FIR with the Police Department for opening bank accounts in Indian Overseas Bank with false signature, taking GST number in the name of Patiala Metals and filing of GST returns if any by misusing his documents. He also denied knowing Shri Madhur Goyal who supposed to have mediated the transactions between Jaiprakash Gupta and himself and he also denied of knowing any contact number of Madhur Goyal which was mentioned by the Verification Unit’s question. Based on these facts and the statement of Shri Karamsingh denying the knowledge of the appellant and the transactions thereon, AO made addition of Rs.6,71,02,655/- as bogus purchases u/s.69C of the IT Act and passed the assessment order determining the total income of the appellant at Rs.8,10,68,515/-.

Aggrieved with the above addition made by the AO, the appellant has filed the present appeal with 6 grounds of appeal. Later, along with the submission made, the appellant revised his grounds of appeal and filed 4 effective grounds of appeal. All the grounds raised by the appellant are inter-related and mainly against addition made by the AO of Rs.6,71,02,655/- u/s.69C of the IT Act. Therefore, all the grounds of appeal of the appellant are hereby adjudicated combinedly as under:

5.2

The AO made addition of Rs.6,71,02,655/-u/s.69C of the IT Act concluding that purchases from M/s. Patiala Metals were bogus. Shri Karamsingh, Prop. of Patiala Metals denied knowing the appellant or conducting any transactions stating alleged misuse of his documents. However, during the appellate proceedings appellant submitted that the appellant duly provided supporting documentation for these purchases including invoices, delivery challans, gate inward registers, transport bills and real time kantaparchi. The appellant also stated that he has pleaded before the AO that he has been making purchases from the party through Mr. Madhur Goyal and all the payments were also made to the party through bank accounts. The appellant further submitted that bill-wise details of vehicle through which the scrap was transported along with fastag payments from NHAI proving the movement of the vehicle also submitted before AO. The appellant further contended that gate-inward register maintained by the appellant to record the inward movement of the goods where entries related to M/s. Patiala Metals duly appearing in the register and purchase bills showing complete details such as quantity, rate and amount of the bill and receipt of stamp on the bills were submitted before AO. The appellant also submitted that the bills are also appearing in the GSTR 2A available in the GST portal where all purchases appear and the amount appears only if the party has shown the sale made to us in its GST return. The appellant further submitted that he has filed before AO the real time stamp dharamkanta parchi which is showing the weight of the scrap received from the party on the date of receipt of the goods. The vehicle number is also mentioned on the dharamkantaparchi which shows that the vehicle with the goods had been weighed at the time of its receipt by him. The appellant also stated they are getting the goods weighed from two dharamkantas so that there is no discrepancy in the weight of goods. The appellant also submitted that all the payments were made into the bank account of Patiala Metals held with Indian Overseas Bank and however, AO has not conducted any enquiry from the banker to verify the documents and other details available with the bank. The appellant also stated that they had submitted fastag statements, production chart, debit/credit note ledger, GSTR 2A showing sales made to Karamsingh before the AO and however, AO has not brought any finding against the appellant. The appellant also stated that without commenting on the submission of plethora of evidences submitted by the appellant and without providing opportunity to cross-examine the party, just relying on the statement of Mr. Karamsingh concluded that purchases were bogus. The appellant submitted that supplier had verified the GST number through his Aadhar authentication which is not possible without his concern. AO never tried to verify the same from the GST department nor any question regarding the same was asked from Mr. Karamsingh. The appellant further quoted the decisions of Hon’ble Supreme Court of India 99 taxman 288 (SC) in the case of CIT vs Jagdishprasad Mohanlal Joshi, where Hon’ble Supreme Court held that AO made addition to assessee’s income on the basis of confessional statement made by one ‘R’ under Maharashtra Central Organized Crime Act, 1999 to effect that he made certain unaccounted payments to assessee. No corroborative evidences have been produced or brought on record to substantiate the fact of alleged payment. Similarly, the appellant also quoted the decision of Hon’ble High Court of Bombay in the case of PCIT vs Bairagra Builders Pvt Ltd 164 taxman.com 162 (2024)where on the basis of statement of one PKJ recorded during search and seizure operation that had provided accommodation entries to assessee, AO treated said loans as fake. Since assessee had submitted all evidences to substantiate the loans were taken and repaid through banking channels, AO was not justified in treating the said unsecured loans as fake. The appellant also relied upon the decision of Hon’ble High Court of Gujarat in the case of PCIT vs Naresh Nemchand Shah 156 taxman.com 346 (2023) and 143 taxmann.com 435 (Cal)(2022). Keeping the above decisions in mind, the addition made solely relying on the statement of Shri Karamsingh ignoring the evidences furnished by the appellant which proves beyond doubt that the goods were received by him and same are not bogus purchases. Even if someone has forged the documents of Mr. Karamsingh, then he should not be held responsible for the same and the purchases made by him should not be treated as bogus. Shri Karamsingh had never mentioned in the statement that the purchases made by us are bogus nor he has mentioned that the cash was returned to him in lieu of payments made in the bank account. If the contents in the statement of Shri Karamsinghis assumed to be true, then the true nature of the transactions would have been in the knowledge of Shri Madhur Goyal and he was not questioned by the department. In absence of any information from Madhur Goyal, the assumption that the purchases made by him are not genuine does not hold good. The appellant further submitted that the AO has not rejected his books and the entire books of accounts have been accepted by the AO as correct. Sales and purchases are inherently inter-connected and one cannot exist without the other. The appellant further contended that AO has not granted opportunity for cross-examination of Shri Karamsingh and rather proceeded to make addition specially the only basis of addition was the statement recorded of the person. In this regard, the appellant relied upon judgements of Hon’ble Supreme Court of India in the case of PCIT vs Kishore Kumar Mahapatra 162 taxman.com 5 (2024), PCIT vs Anand Kumar Jain (SC) 133 taxmann.com 289 (2021), Andaman Timber Industries vs CCE (2015) 62 taxmann.com 3 (SC). The appellant stated that since the appellant was denied to exercise cross-examination of the person whose statement is relied upon in the case of the appellant, so the order passed by AO is bad in law and deserves to be quashed.

The contention of the appellant has been considered. From the above submission of the appellant and facts enumerated in the assessment order, the following points emerge:

i)

The AO has relied on the statement of Shri Karamsingh, prop. of Patiala Metals who has denied making any sales to the appellant but failed to afford opportunity of cross-examination to the appellant.

ii) The appellant has submitted all the evidences substantiating his transactions with M/s. Patiala Metals and AO has not brought any adverse findings with respect to the said evidences furnished by the appellant.

iii) The GSTR Number of the Patiala Metals was verified with Aadhar credentials and the GSTR 2A of the appellant reflects the purchases made from Patiala Metals.

iv) The appellant submitted complete details of transporter along with the data showing fastag payments to prove the actual movement of goods.

v)

The books of accounts have not been rejected and no discrepancy has been pointed out in the production chart and sales of the appellant.

vi) The AO also failed to enquire the mediator by name Shri Madhur Goyal who coordinated the transactions between the parties inspite of having his mobile number and address inspite of specific request by the appellant.

vii) The AO has relied only the statement of Shri Karamsingh and has not brought on record any corroborative evidence and discrepancy in the submissions or documents furnished by the appellant or through any special investigation or enquiry made by the AO.

viii) The appellant has submitted an affidavit dated 13/8/2025 during the appellate proceedings stating that as per his knowledge no FIR has been filed by Shri Karamsingh, Prop. of Patiala Metals against him or his firm in respect of his transactions. The appellant reiterated that all the payments were genuine and purchases were genuine and evidences furnished by him before AO were genuine.

In view of that most of the evidences and interpretations of the case laws submitted by the appellant, the addition made by the AO solely relying upon the statement of Shri Karamsingh without bringing any corroborative findings in respect of the bank transactions, purchase bills, transport bills and GST registration does not survive. Therefore, the addition made by the AO of Rs.6,71,02,655/- as unexplained expenditure u/s.69C of the IT Act holding the purchases made by the appellant as bogus is hereby deleted. The grounds of appeal nos. 1 to 4 of the appellant are hereby allowed....”

“5.

Insofar as the first aspect of the matter is concerned, we find that section 69C clearly stipulates that where, in any financial year, the assessee has incurred an expenditure and he offers no explanation about 'the source of such expenditure or part thereof' or the explanation, if it is offered by him, is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Thus, the focus of section 69C is on the "source" of such expenditure and not on the authenticity of the expenditure itself. It is an admitted position that the expenditure was shown by the assessee in its regular books of account and it is because of this reason that the Income-tax Appellate Tribunal had observed :—

"As the expenditure was accounted in the regular books, the source is obviously explained. The provisions of section 69C are not applicable as there was no unaccounted expenditure." [Emphasis supplied]"

6.

What the Assessing Officer attempted to do was to go into the authenticity of the expenditure and he returned a finding that the expenditure was not authenticated by vouchers and, consequently, he added the said expenditure as unexplained expenditure under section 69C. We are in agreement with the observations and findings of the Commissioner of Income-tax (Appeals) as well as that of the Income-tax Appellate Tribunal that this is not a case which falls under section 69C. Clearly, section 69C refers to the 'source of the expenditure' and not to the expenditure itself. Consequently, the Assessing Officer was clearly wrong in treating the said expenditure as unexplained expenditure under section 69C of the said Act and the lower appellate authorities were right in their conclusions in deleting the said addition.

“8.4.

Ground Nos. 2, 4 and 5 raised by the assessee are challenging the addition made on account of bogus purchase of Rs. 1,14,72,216/-.

8.5.

We have heard the rival submissions and perused the material available on record. In response to the notice issued u/s 153A of the Act dated 05.10.2018, the assessee filed its return of income on 26.10.2018 declaring total income of Rs. 7,02,33,391/-. The ld AO observed that the assessee had made purchases from the following parties:-

M/s. Bahubali Iron & Steel Company	Rs. 53,94,190/-
M/s. Hariom Steel	Rs. 16,20,519/-
M/s. V. N. Enterprises	Rs. 44,57,507/-
Total	Rs. 1,14,72,216/-

8.6

The ld AO based on discreet investigation made on this suppliers observed as under :-

Name of the concern	Address	Findings of the investigation
M/s. Bahubali Iron & Steel Co.	Shop No. 113, Loha Mandi, Ghaziabad	Its small Shop found to be closed. Further, enquiries have been made from local people and found that before 4-5 years there was small shop in the premises but it was categorically denied by person of nearby shops that iron bar trading was ever made from this shop. Therefore, it is clear that the

premises were used by the group to take accommodation entry of bogus purchases iron bar.

M/s. V. N.39/C, JainNo such Concern in the name of V.N. Enterprises could be enterprises nagar, meerut located there. From the Local enquiry, no trace of V.N. Enterprises could be found at the given address.

Hari Om 1021, Behind No such concern in the name of Hari Om Steel could be Steel Ind. Area, located there. From the local enquiry, no trace of Hari Om Bijoli, Jhansi Steel Could be found at the given address.

8.7

The ld AO observed that in response to the various documents called for by him from the assessee, only ledger account of the suppliers and some bill copies were enclosed for verification by the ld AO. Further, notice u/s 133(6) of the Act dated 10.12.2018 was issued to the concerned suppliers seeking to examine the identity of the parties and genuineness of the transactions. Out of this, part replies were received from Hari Om Steel. Remaining parties did not respond before the ld AO by furnishing the requisite details. The assessee was also asked to produce the Principal Officer of these suppliers together with the requisite documents for which summons were also issued to them. None of these parties responded to the summons. Accordingly, the ld AO proceeded to treat the concerned suppliers as non-existent suppliers and the purchase made from them by the assessee to be bogus and made addition to the extent of 100% of the value of purchases made from them in the sum of Rs. 1,14,72,216/- and completed the assessment. The ld CIT(A) upheld the action of the ld AO. However, the ld CIT(A) had confirmed the addition by clearly stating that the said addition is made u/s 69C of the Act.

8.8.

Without going into the merits of the addition, let us see whether an addition on account of bogus purchase per se could be made by applying the provisions of section 69C of the Act. For this purpose, it would be relevant to reproduce the provisions of section 69C of the Act which reads as under:-

"69C. [Unexplained expenditure, etc. [Inserted by Act 41 of1975, Section 14 (w.e.f 1.4.1976).]

- Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the][Assessing Officer] [Substituted by Act 4 of 1988, Section 2, for " Income-tax Officer" (w.e.f. 1.4.1988).], satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year;

Provided that notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income."

8.9.

Admittedly, purchases made by the assessee from the aforesaid 3 parties have already been accounted by the assessee in its regular books of account. This books of account were not rejected by the ld AO or by the ld CIT(A). Payments for this purchase have already been made by the assessee out of the monies available in the disclosed bank account. Hence, the source of incurrence of such expenditure together with the payments made thereon are duly explained from the books of account of the assessee itself. It is not the case of the revenue that the purchase made from aforesaid 3 parties were made out of books and for which assessee is not able to explain the source of making payment. Hence, the provisions of section 69C of the Act per se cannot be applied to the facts of the instant case. In our considered opinion, when the provisions of section 69C of the Act are sought to be invoked, the revenue does not doubt the genuineness of incurrence of such expenditure. Only the source of such expenditure is being doubted by the revenue. Here the source is drawn from the regular books of accounts of the assessee which were not rejected by the lower authorities. Hence on this ground itself, the addition deserves to be deleted. Reliance in this regard has been rightly placed by the ld AR before us on the decision of the Hon'ble Bombay High Court in the case of Pr. CIT v. Sanjay Dhokad [2023] 150 taxmann.com 362/293 Taxman 482/456 ITR 77 (Bombay)/Income Tax Appeal No. 795/2018 dated 09.11.2023, wherein, the Hon'ble Bombay High Court adjudicated the identical issue of addition made on account of in genuine purchases u/s 69C of the Act on the ground that the suppliers did not supply any material and had merely provided accommodation entry bills. The Hon'ble High Court held as under:-

"15.

Section 69C of the Income Tax Act, reads as under:

"69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year."

The provisions would be attracted to a case where the assessee offers no explanation on the source of such expenditure or part of thereof, or by the explanation that is offered is not, in the opinion of the Assessing Officer satisfactory. The Assessment Officer, is therefore, called upon by the provisions of Section 69C to record his satisfaction based upon the material produced by the assessee and cannot advert to material such as unproved statements recorded by some other Authority such as the Sales Tax Department, which in any event were not put to assessee during the course of the assessment proceedings.

16.

Principal Commissioner of Income-Tax (Central)- 1.V/s. NRA Iron and Steel (P.) Ltd., (supra), was the case in which, the Hon'ble Supreme Court considered a situation, where Share Capital/premium was credited in the books of accounts of the assessee company, and such Share Capital/premium was considered as transaction, which was not genuine, and therefore, treated as income of the assessee under Section 69C. It is in that context, that the Assessing Officer in that case, conducted an extensive investigation by holding an independent field enquiry to ascertain the genuineness of the investors in the assessee company. On the assessee being given an opportunity for meeting of the evidence collected by the Assessing Officer to demonstrate the non-existence such investors, that the Assessing Officer concluded that the assessee had not discharged the initial onus of establishing by cogent evidence with the genuineness of the transactions and creditworthiness of the investors under Section 68 of the Act.

It is in this context that the Hon'ble Supreme Court concluded that the Lower Appellate Authorities had ignored the detailed findings of the Assessing Officer from the field enquiry and investigations carried out by him and the assessee had not discharged his legal obligation to prove the receipt of the Share Capital/premium to the satisfaction of the Assessing Officer. The ratio laid down in Principal Commissioner of Income-Tax (Central)-1.V/s. NRA Iron and Steel (P.) Ltd., (supra), was in the facts of that case and would have no application to the present case.

17.

The Bombay High Court in case of The Commissioner of Income Tax-1, Mumbai.V/s. M/s. Nikunj Eximp Enterprises Pvt. Ltd., (supra), has in a similar case, where the assessee produced his books of accounts, copies of invoices for purchases, and copies of bank statements indicating that purchases were made, has held as under:

"We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30.04.2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as CIT(A) have disallowed the deduction of Rs.1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs.1.33 crores was not bogus. No fault can be found with the order dated 30.04.2010 of the Tribunal." 18. The Appellate Tribunal was right in applying the ratio of the judgment in The Commissioner of Income Tax-1, Mumbai.V/s. M/s. Nikunj Eximp Enterprises Pvt. Ltd. (supra), to the facts of the present case. There are concurrent findings arrived at by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, on the fact that the Respondent had satisfactorily discharged the initial burden of proving the genuineness of the transactions. 19. In that view, we are of the considered opinion that this is not a fit case for consideration in appeal as the substantial questions of law proposed by the revenue would not arise. Therefore, the appeal is dismissed with no order as to costs. "

8.10.

In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we have no hesitation to delete the addition made on account of bogus purchase u/s 69C of the Act in the sum of Rs. 1,14,72,216/- on this preliminary ground. Since, relief is granted on this preliminary ground, the various arguments advanced by the assessee and by the revenue on merits by referring to various documentary evidences from the paper book need not be gone into as it would be academic in nature. Accordingly, ground Nos. 2, 4 and 5 raised by the assessee are allowed.

8.11

In the result, the appeal of the assessee in ITA No. 1167/Del/2021 is partly allowed…”

“51.

On careful consideration of impugned order in the light of contention and submissions of both the parties, we observe that since from the earlier part of this order, we have upheld the deletion of additions made by the AO on account of rejection of purchases made by the assessee during the year, therefore, when a major part of the sales was made against the opening stock and the purchases made during the year, then the sales is nothing but the conversion of stock into liquidity and that too when the profit earned from these purchases and sales activities has been already offered to tax, then it cannot be inferred that the sale proceeds represent income from undisclosed sales of the assessee. In this situation, we can easily infer that the AO made additions on the basis of conjectures and surmises which was rightly deleted by the CIT(A). We have no reason to interfere with the findings of the CIT(A) in the impugned order in this regard. Accordingly, ground No. 2 of the Revenue being devoid of merits is dismissed.

Ground No. 3

52.

From the impugned order, we observe that the CIT(A) granted relief for assessee by deleting addition made by the AO by way of 100 per cent disallowance of expenditure and depreciation claimed by the assessee with following observations and findings :

"31.

I have considered the assessment order, written submissions, remand report and rejoinder to the remand report filed by the Authorised Representative as well as the facts of the case and the position of law. It is observed that during the search proceedings no material has been found which justifies the disallowance of the expenses. Moreover, books of account are duly audited under the Companies Act. There is no negative observation in the auditor's report. Books of account were produced before the AO and the same were examined by him. No deficiency has been pointed out in the books of account. It is further submitted that the assessment of the assessee company for the asst. yr. 2002-03 has already been completed, wherein no disallowance of expenses was made. In view of the above, in my considered opinion, there is no substance in lump sum disallowance of the expenses in each of the respective assessment years details as under :

S. No. Asst. yr. Amount

1.

2003-04 3,64,548

2.

2004-05 4,12,658

3.

2005-06 4,56,968

4.

2006-07 4,48,230

5.

2007-08 4,72,934

6.

2008-09 5,05,706 Accordingly, the AO is directed to delete the addition for the asst. yrs. 2003-04 to 2008-09, details hereinabove made on this account. Regarding allowance of depreciation the AO is directed to allow the same as per IT Act/Rules. This ground is therefore allowed in favour of the appellant company"

53.

Learned Departmental Representative submitted that when the expenses claimed by the assessee company in the P&L a/c were unverifiable from the records and bills and vouchers, then the AO had no option but to disallow entire amount of claimed expenses and depreciation. Learned Departmental Representative submitted that the impugned order may be set aside by restoring that of the AO.

54.

Replying to the above contention of the learned Departmental Representative, learned counsel of the assessee submitted that when the books of account of the assessee company are duly audited under the provisions of the Companies Act and there is no negative observation in the auditor's report, then the claim of expenses and depreciation cannot be doubted. Learned counsel for the assessee also pointed out that the entire books of account were produced before the AO and the same were examined by him and no deficiency or defect has been pointed out by the AO in the audited books of account of the assessee, then no disallowance of expenses claimed could be made. Learned Authorised Representative supporting the impugned order submitted that the CIT(A) was not justified in granting relief for the assessee.

55.

From bare reading of the impugned order, we observe that the CIT(A) granted relief for the assessee by relying on the books of account which were duly audited and there was no negative comment in the audit report. The Departmental Representative has not disputed the fact that the audited books of account were examined by the AO and no defect or deficiency was found by the AO. In this situation, we are in agreement with the findings of the CIT(A) that lump sum disallowance of expenses is not sustainable and we hold that the CIT(A), rightly deleted the addition and the CIT(A) was also justified in directing the AO to allow the depreciation for the assessee as per provisions of the Act and IT Rules, 1962. Accordingly, we uphold the conclusion and findings recorded by the CIT(A) and consequently ground No. 3 of the Revenue is also dismissed.

Ground No. 4

56.

Apropos ground No. 4 of the Revenue, learned Departmental Representative submitted that the CIT(A) has erred in law and on facts in holding that the statements of the various persons without having been confronted to the assessee have no evidentiary value. Learned counsel for the assessee submitted that if the authorities below are considering and accepting the statements or evidence against the assessee for making any disallowance or addition on the back of the assessee, then the same is not sustainable as same statement or evidence cannot be used against assessee without having been confronted to the assessee.

57.

On consideration of above contentions and submissions and perusal of the impugned order of the CIT(A), we note that the CIT(A) has decided the issue as under :

"It has also been observed that Shri Darshan Singh and Shri D. Bhattacharya, whose statements are being relied upon do not appear to have any connection with the appellant-company which has been established by the AO. Keeping in view the facts of the case and keeping in view the rulings of the jurisdictional High Court of Delhi in the cases of SMC Share Broker Ltd. and Shri Ashwani Gupta and that of Supreme Court, in case of Kishan Chand Chella Ram v. CIT [1980] 19 CTR (SC) 360 : [1980] 125 ITR 713 (SC), I hold that the statements of various persons without being confronted to the appellant-company have no evidenciary value. Further, they don't have any connection with the appellant-company. Therefore, the AO is precluded from relying on the same while framing assessment in the case of the appellant-company. Thus, the appellant company succeeds on these grounds also."

58.

In view of above and under peculiar factum of the instant case, we note that the CIT(A) has rightly held that the statements of various persons recorded on the back of the assessee cannot be used against the assessee without having been confronted to the assessee and the impugned statements recorded on the back of the assessee have no evidentiary value. Hence, ground No. 4 of the Revenue is also dismissed...”

10.

Once the quantity of opening stock and purchases on the debit side; and sales and closing stock in the credit side in the books of account has been accepted, then to hold that the some quantity of purchases recorded in the books are unexplained or outside books of account, is very difficult proposition to accept. Because, the quantitative details of stock, purchases, sales have not been discarded or any defect has been found, then purchases as debited in the books of accounts cannot be added u/s 69C. Here in this case, even balancing figure of the gross profit shown by the assessee has not disturbed. Even if it is to be accepted that the purchases made from the three parties were in the nature of accommodation entries, then it has to be seen, firstly, whether these purchases have been made outside books or does not matches with the quantitative tally; or secondly, whether such bills have been obtained merely to suppress the gross profit. Ostensibly, the first reason is lacking here in this case as discussed above; and in so far as the second reasoning is concerned, one has to examine, if purchases have been made through cheques, the source of which are from the books of account and if later on, cash has been received in lieu of such cheque but no purchases have been made, then clearly there would be a difference in quantitative tally of purchases as well as in the stock and such a discrepancy has been found then purchases can be held to be bogus. But here in this case no such difference in the quantitative tally has been found. Further, if assessee after receiving the cash in lieu of the cheque has made purchases from the grey market for getting the same quantity of material in cash from some different vender, then at the most it could be a case of the suppressing of gross profit. In other words, assessee has debited higher amount for the purchase which in fact has purchased the same material and quantity at a lesser amount, thereby suppressing the gross profit. Under these circumstances any addition at all which could be made, is by enhancing the Gross Profit on such purchases. Nowhere there is a finding or whisper either by the AO or CIT (A) that the gross profit shown by the assessee during the year was less as compared to earlier or subsequent years or there is any material to show that gross profit has been low during the year. If all the entries in the trading account including the quantitative tally of purchases, opening stock, sales and closing stock are found to be correct and no discrepancy has been found, then no addition on account of unexplained purchases can be made, because nowhere it has been found that assessee has made purchases outside the books. The entire finding of the Ld. CIT (A) hinges upon the fact that there was material indicating purchase under consideration are bogus without even appreciating that if the source of purchases are from the books and through account payee cheque, then how such purchases can be treated as un accounted. Since gross profit rate and gross profit has been accepted including the trading account then no such addition can be made. In the result on merits addition made by the AO is deleted and consequently assessee's appeal is allowed...”

5.

At the outset, we find that the addition on account of profit element embedded in the value of purchase had been sought to be added by the revenue in the instant case by invoking the provisions of section 69C of the Act. In our considered opinion, the provisions of section 69C of the Act, per se cannot be applied at all as the purchase had been accounted already in the books of account of the assessee. The assessee on his part has furnished the complete details of purchase party-wise and commodity-wise, corresponding sales made out of purchase together with the purchase register, sales register and stock register, among other books of account. Admitted the books of account and other registers submitted by the assessee had not been rejected by the ld AO by invoking the provisions of section 145(3) of the Act. 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 assessee was not able to prove the source of such expenditure. In the instant case, the purchase recorded and reflected in the books of account of the assessee had been properly met out of various sources emanating from the books of account itself. The assessee had also furnished the bank statement before the revenue authority wherein the sufficient balance to make payment to its suppliers stood established. Hence, the source of incurrence of such expenditure on account of purchase is not doubted at all by the revenue in the instant case. Hence, the provision of Section 69C of the Act per se cannot be applied and addition made by the lower authorities deserves to be deleted on this limited count itself. Reliance in this regard is made on the decision of the coordinate bench of Delhi tribunal in the case of Garg Acrylics Ltd in ITA No. 2562/Del/2021 for AY 2011-12 dated 30.09.2024 wherein, it was held as under:-

“7.

First of all, we find that the entire purchases made from these two concerns had been duly recorded in the books of accounts of the assessee company and payments made to them were through regular banking channels out of disclosed bank accounts of the assessee. The sources for making such payments are duly drawn from the books of accounts of the assessee and available bank balances. Once the purchase transactions are disclosed by the assessee and payments made thereon are out of disclosed sources , nothing there could be treated as unexplained to warrant an addition u/s 69C of the Act. It is not the case of the revenue that the assessee had made bogus purchases and hence the same would be liable for disallowance u/s 37 of the Act as not incurred for the purpose of business of the assessee company. Hence the addition made u/s 69C of the Act deserves to be deleted. 8. Since the entire addition made u/s 69C of the Act cannot be sustained in the eyes of law, the other arguments advanced by the ld. AR on the validity of reopening and also on merits need not be gone into and they are left open.”