Purchases Attributed to Other Entities: ITAT Deletes ₹2.27 Crore Addition Citing AO's Acceptance of Facts in Remand Report [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) deleted an addition of ₹2,27,76,680 towards alleged unaccounted purchases made under Section 69C of the Income Tax Act, 1961 and affirmed that the transactions belonged to two separate recreation clubs and not the individual assessee.

Shri Ganesan Anbuselvam (assessee) an individual engaged in the business of selling alcoholic beverages under the name Anbu Wines Bar. For the Assessment Year 2017-18, the AO observed a discrepancy between the total purchase demand drafts (DDs) made to TASMAC (₹3,79,18,870) and the assessee's reported purchases (₹1,51,42,190).

The AO treated the difference of ₹2,27,76,680 as unexplained purchases in the hands of the assessee. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

The assessee argued that the bank account used for DD payments to TASMAC was a common account into which sales proceeds from his own business, as well as two associated entities which were Elanthalir Recreation Club and Vennila Recreation Club were deposited. The DDs represented the purchases for all three entities.

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The assessee furnished additional evidence, including affidavits from the two clubs confirming the arrangement, as well as their respective Form 26AS statements, which clearly reflected the club's purchases of ₹1,24,49,830 and ₹1,51,45,930, respectively. The CIT(A) admitted these additional evidences and called for a remand report from the AO.

In the remand report, the AO verified evidences submitted by the assessee and accepted these facts and confirmed that the total liquor purchase amount of ₹3,79,18,810 was for the above said three concerns.

The AO acknowledged that the disputed amount of ₹2,27,76,680 represented the purchases made for the two recreation clubs. Aggrieved by the CIT(A)’s order, the Revenue filed an appeal before the ITAT.

The two-member bench, comprising Manu Kumar Giri (Judicial Member) and S. R. Raghunatha (Accountant Member), noted that the AO’s own findings in the remand report supported the assessee’s contention that the additions were based on a "mistaken identity of transactions belonging to separate legal entities."

The Tribunal held that since the purchases to the extent of ₹2.27 Crore were correctly shown as purchases by the two separate entities in their own Form 26AS, they could not be taxed in the assessee's hands. The appeal filed by the Revenue was accordingly dismissed.

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