The Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that the addition for unexplained expenditure under section 69C of the Income Tax Act, 1961 cannot be made merely on the assumptions without documents.
The assessee, M/s Seven Jewels, is a firm engaged in the business of manufacturing of jewellery. AO, doubting the existence of the said entity, noted that despite being untraceable at Surat, the entity filed the required details in the office of the AO at Mumbai. The AO further noted that the purchase bills regarding sale of cut and polished diamonds did not have any description about – (i) caratage along with the size of diamonds; (ii) clarity and (iii) colour of diamond; necessary to arrive at the price of the diamonds. Further, these factors were also not mentioned in the stock register maintained by the assessee to verify the fact of purchase of cut and polished diamonds from M/s. Artview Gems Pvt. Ltd. Thus, having regard to the untraceability of the address of M/s. Artview Gems Pvt. Ltd., the A.O. concluded that the assessee was indulged in reducing its taxable profit by inflating the quantum of purchases on the basis of bogus purchase bills and made addition under section 69C of the Income Tax Act, 1961.
As per the provisions of section 69C of the Act, in case the assessee fails to explain the source of expenditure or part thereof to the satisfaction of the AO, such expenditure shall be considered as unexplained expenditure and be deemed to be income of the assessee.
The Tribunal bench consists of Shri G.S. Pannu, President and Shri Sandeep Singh Karhail, Judicial Member held that the apprehension / allegation of the AO that M/s. Artview Gems Pvt. Ltd., is not a genuine entity, the AO neither discussed nor denied the submission dated 24th November 2017, filed by the entity before the AO at Mumbai, wherein the return of income for the assessment year 2015–16 of the said entity, copy of ledger account of the assessee as well as PAN details of the entity were furnished.
“It is pertinent to note that the AO on one hand doubted the existence of M/s. Artview Gems Pvt. Ltd. while on the other hand in its show cause notice dated 20th December 2017, which is extracted in the assessment order, notes that “the said party has left the place some 2–3 years back”. Thus, from the above, it is evident that the AO also has not denied the existence of said entity during the assessment year under consideration. Another basis of the AO to disallow the expenditure that caratage, clarity and colour were not mentioned in the invoice raised by M/s. Artview Gems Pvt. Ltd. also appears to be mere presumption, as the AO has not referred to any document of third-party having mention of such factors in transaction of purchase of diamonds. In view of the above findings, we find no reason to sustain the addition of Rs. 87,26,922, made by the AO and confirmed by the CIT(A), and least under section 69C of the Act. Accordingly, the grounds raised by the assessee are allowed.”
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