Every provision invoked casts a different onus, quoting wrong section prejudice the assessee

Every provision invoked casts a different sort of onus on the assessee – ITAT deleted addition u/s 69 towards bogus purchases – ITAT

In a recent judgment, ITAT Delhi has held that every provision invoked casts a different sort of onus on the assessee and assertion that merely quoting wrong section does not prejudice the assessee does not help the department.

ABCAUS Case Law Citation:
4930 (2025) (12) abcaus.in ITAT

On the basis of information received in respect of bogus purchases/expenses from the investigation wing, the case of the assessee was reopened u/s 147 r.w.s 148 of the Act and assessment was completed by impugned order after making a large addition on account of bogus purchase u/s 69 of the Act.

The addition was confirmed by CIT(A).

Before the Tribunal, the appellant assessee primarily questioned the assumption of jurisdiction alleging that the addition made u/s 69 of the Act is not sustainable for the reason that without rejecting the books of the assessee the bogus purchases for which payments were made from the books addition u/s 69 could not have been made.

The assessee placed reliance on the decision of Hon’ble Allahabad High Court and other decisions supported the case. It was also contended even about provision of section 69C of the Act would not be maintainable.

On the contrary, the Revenue countered the same by submitting that merely quoting on wrong section is not fatal and otherwise the transactions of purchases were found to be bogus. 

However, the Tribunal observed that the proforma for obtaining approval u/s 151 of the Act showed that approval was granted for reopening by reliance the reasons for believe that the assessee has been made bogus purchases/expenses.

The Tribunal further noted that at the time of recording of the reasons itself the AO was aware the issue involves alleged bogus purchases for which payment were made by banking transaction and accordingly when the assessment was completed the AO observed that the assessee was required to submit confirmation of transaction made with creditor along with supporting evidences and no documentary evidences were submitted. The AO went on to conclude that since no business activity had ever been done by the creditor proving it be an entry provider and then the AO proceeded to  treat the transaction as bogus and disallowed as expenditure us/ 69 of the Act.

The Tribunal further noted that the impugned order of CIT(A) showed that primarily the investigation wing report of the said creditor, bank account transactions and failure of the proprietor to respond was basis to consider the purchases to be bogus. Nothing independently was examined and found from books of account of the assessee to allege that purchases were bogus.

The Tribunal observed that when AO specifically invokes unexplained deemed income provision forming part of Section 68 to Section 69C of the Act then for every provision so invoked casts a different sort of onus on the assessee and for the purpose of Section 69 of the Act what is material is that explanation sought rests on the fact that in the preceding financial year the assessee had made ‘investments’ which ware not recorded in the books of accounts, however, in the case of alleged bogus purchases there is no case of investments being found held by the assessee but not recorded in books of account. If inventory is considered to be an ‘investment’ then for that there should be some examination of stock to allege and establish discrepancy in stock or inventory, which was not the case here.

The Tribunal stated that onus u/s 69 of the Act on the assessee would be to explain nature and source of investment which in the case in hand admittedly are in the form of purchases made from the books itself. However, there was no allegation of the source of purchases being outside the books or that books maintained by the assessee lacked veracity to show that the purchases could not have been made out of the known sources reflected in the books.

The Tribunal opined that section 69 of the Act if invoked needed specific rebuttal and on basis of assertion that merely quoting wrong section does not prejudice the assessee would not help the department. Then AO at some stage should come forward to claim as to how other deeming income provision was attracted. Same was also not the case here. 

Accordingly, the Tribunal allowed the appeal and directed that impugned addition be deleted.

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