ITAT Mumbai: Assessee Not Required To Prove Negative Once Documentary Evidence Is Produced; Deletes Addition Under Section 69C
Pranav B Prem
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench “A”, comprising Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member), held that once an assessee furnishes corroborative documentary evidence supporting its claim, it cannot be compelled to prove a negative fact — i.e., the non-occurrence of a transaction. The Tribunal observed that the burden of proof lies upon the Revenue to establish the existence of a taxable transaction and not on the assessee to disprove it once sufficient evidence is presented.
Background
The case arose from an appeal filed by Ankit Gems Private Limited, the successor to the partnership firm M/s. Ankit Gems, against the order of the Commissioner of Income Tax (Appeals)-51, Mumbai [CIT(A)], which had upheld an addition under Section 69C of the Income Tax Act, 1961, for alleged bogus purchases amounting to ₹38,68,049 from a concern named Millennium Concern. The assessee, engaged in the business of import, manufacturing, and trading of cut and polished diamonds, had filed its return of income for the Assessment Year 2012–13, reporting a total income of ₹2,40,31,330. The firm was converted into a private limited company on April 26, 2011, and documents such as the certificate of incorporation issued by the Registrar of Companies and the deed of dissolution of the partnership were placed on record.
Based on information received during a search conducted in 2013 in the case of Bhanwarlal Jain Group, the Assessing Officer (AO) alleged that the assessee had taken accommodation entries from Millennium Concern and reopened the assessment under Section 147 of the Act. The AO, without any direct evidence, concluded that the assessee had indulged in bogus purchases and added ₹38.68 lakh as unexplained expenditure under Section 69C.
Proceedings Before the CIT(A)
The assessee categorically denied having entered into any transaction with Millennium Concern during the relevant period and produced its purchase registers and tax audit report to substantiate its stand. The CIT(A), despite acknowledging that the purchase register showed no transactions with Millennium Concern, speculated that the assessee was one of the real importers on whose behalf the Bhanwarlal Jain group had imported diamonds and supplied them “out of books.” On this assumption, the CIT(A) upheld the addition made by the AO, holding that the assessee failed to prove that it had not engaged in such transactions.
Tribunal’s Findings
The Tribunal noted that the assessee had consistently denied making any purchases from Millennium Concern throughout the proceedings and had produced all relevant documentary evidence. It observed that no tangible or cogent evidence was brought on record by the AO or CIT(A) to establish that any such purchases were made. The Bench held that the Revenue authorities merely relied on general findings and statements recorded in the Bhanwarlal Jain Group investigation, without demonstrating any direct nexus between the assessee and the alleged bogus supplier. Referring to the Supreme Court’s ruling in K.P. Varghese v. ITO [(1981) 131 ITR 597 (SC)], the ITAT reiterated that: “The onus of establishing the conditions of taxability lies on the Revenue. To throw the burden on the assessee to prove that there was no understatement or falsity is to cast an almost impossible burden upon him to establish a negative.”
Applying this principle, the Tribunal emphasized that the assessee cannot be asked to prove a negative when it has already submitted corroborative records such as its purchase register, tax audit report, and other financial statements showing no transactions with the alleged party. The Bench observed: “Assessee cannot be made to prove the negative stance for which it has been consistent from the very first hearing, having brought on record all corroborative documentary evidence in respect of its actual and real purchases forming part of the books of accounts.” It further noted that both the AO and CIT(A) failed to bring any cogent material evidence to negate the assessee’s claim or substantiate the alleged bogus purchase transaction from Millennium Concern.
Holding that the addition under Section 69C was unsustainable, the Tribunal deleted the same and allowed the assessee’s appeal.The order concluded: “The assessee cannot be made to prove a negative when it has already furnished all necessary evidence to support its claim. The authorities below have failed to bring any material to demonstrate that the assessee had, in fact, made any purchase from the alleged concern. The addition made under Section 69C is, therefore, deleted.” Accordingly, the appeal filed by Ankit Gems Pvt. Ltd. was allowed, setting aside the orders of the lower authorities.
Appearance
Assessee: Shri Rahul Sarda, Advocate
Revenue: Shri Aditya M. Rai, Sr. DR
Cause Title: Ankit Gems Private Limited v. Circle 5(1)(1), Mumbai
Case No: ITA No. 3097/MUM/2025
Coram: Amit Shukla (Judicial Member), Girish Agrawal (Accountant Member)
