S M INDUSTRIES,NEW DELHI vs. DCIT CENTRAL CIRCLE-19, NEW DELHI

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ITA 1417/DEL/2026Status: DisposedITAT Delhi03 July 2026AY 2020-2111 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the addition under Section 69A was unsustainable as it was based solely on third-party material without independent corroboration or a cash trail linking the assessee.

What were the facts?

A search and seizure operation uncovered documents suggesting inflated purchases and cash collection. The assessee, a vendor, was subject to reassessment based on this third-party material.

What were the issues?

Whether additions under Section 69A are valid when based solely on third-party documents without independent corroboration, and whether reassessment proceedings were validly initiated.

Which sections of the Income-tax Act were involved?

Section 69A,Section 147,Section 143(3),Section 144,Section 132,Section 148,Section 250(6),Section 151,Section 271AAC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCHES, ‘G’ NEW DELHI

Before: SHRI ANUBHAV SHARMA

For Respondent: Shri Mahesh Kumar, CIT(DR)
Pronounced: 03.07.2026

आदेश / ORDER

PER AMITABH SHUKLA, AM: These two appeals filed by the Assessee against the separate orders of Learned Commissioner of Income Tax (Appeals)-27, New Delhi, both dated 23.01.2026 arising out of assessment orders passed by the DCIT/ACIT, Central Circle-19, New Delhi, both dated 18.03.2025 under section 147 r.w.s. 144 and 143(3) of the Income Tax Act, 1961, pertaining to the Assessment Year 2020-21 and 2023-24. The word ‘Act’ herein this order would mean Income Tax Act, 1961

2.

Both appeals are of the same assessee containing common grounds of appeal and therefore the same were heard together and for the purposes of convenience are being adjudicated by this common order. The decision taken upon common grounds in ITA No.1417/Del/2026 shall apply mutatis mutandis to ITA NO.1418/Del/2026 also. ITA No.1417/Del/2026 AY 2020-21

3.

The Assessee has raised the following grounds of appeal:

1.

On the facts and in the circumstances of the case, the Ld.AO has erred, both on facts and in law, in assessing the income of the appellant at Rs. 1,55,23,466/- as against the returned income of Rs. 23,89,710/- as filed under section 139(1) of the Act. 2. (i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the addition of Rs. 1,31,33,756/- made under section 69A of the Act, treating the same as unexplained money, which is bad in law, arbitrary and unsustainable on facts. (ii) The Ld. CIT(A) has erred in sustaining the addition without establishing any actual receipt, possession or control of unexplained money by the appellant, and solely on the basis of third-party material and statements. (iii) The Ld. CIT(A) has erred in law in confirming the addition on the basis of undated, unsigned and unauthenticated third-party diaries/excel sheets, without any independent corroborative evidence or financial trail linking the appellant to the alleged cash. (iv) The Ld. CIT(A) has erred in law in wrongly shifting the burden of proof upon the appellant, without first discharging the onus cast upon the Revenue to establish the existence and ownership of unexplained money in the hands of the appellant. 3. (i) On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in sustaining the addition by extrapolating an alleged rate of 33.33% to Page 2 of 11 the entire sales of the appellant, without examining transaction-wise or invoice- wise evidence for the year under consideration. (ii) That the Ld. CIT(A) has further erred in law in sustaining the said extrapolation despite the fact that the alleged rate of 33.33% has been mechanically computed by Ld.AO on the basis of a third-party excel working by applying the formula of credit note amount × 100 / purchase order value, without any independent verification, corroboration that such rate was applicable to the appellant’s transactions for the relevant assessment year. 4. On the facts and in law, the Ld. CIT(A) has erred in sustaining the addition, ignoring the binding persuasive decision of the Hon’ble ITAT, Delhi Bench in Indo Plastic Co. vs. ACIT (ITA No. 5481/Del/2025), arising from the same search and on identical facts, wherein a similar addition under section 69A was deleted. 5 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in disposing of the appeal ex-parte without providing the appellant a reasonable and effective opportunity of being heard, thereby violating the principles of natural justice. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deciding the appeal without adjudicating the grounds of appeal on merits and without passing a speaking order as mandated under section 250(6) of the Income tax Act, 1961 (“Act”). 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in presuming non-prosecution of the appeal and proceeding to decide the same exparte. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the reassessment order passed under section 147 r.w.s. 144 of the Act is bad in law, void ab initio, without jurisdiction and liable to be quashed. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in failing to appreciate that the assumption of jurisdiction under section 147 is invalid, as the reopening has been initiated without any independent application of mind by the Ld. AO and is based merely on borrowed satisfaction arising out of thirdparty search material, without establishing any live link or nexus with the income. 10. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the reassessment proceedings despite the fact that no tangible and credible “information suggesting escapement of income” as per Section 147, was brought on record by the Ld.AO rendering the entire reopening invalid in law.

11.

(i) On the facts and in law, the Ld. CIT(A) has erred in upholding the approval granted under section 151 of the Act by the Principal Commissioner of Income-tax, which was accorded in a mechanical manner without independent application of mind. (ii)That The appellant submits that the proposal for reopening, which was forwarded by the JCIT and the approval by the PCIT-20 was granted on the very same day, without recording any reasons or independent satisfaction. 12. On the facts and in law, the Ld. CIT(A) has erred in sustaining the addition under section 69A in the absence of any cash trail, bank withdrawals, deposits, or financial movement evidencing alleged receipt or payment of cash by the appellant. 13. On the facts and in law, the Ld. CIT(A) has erred in confirming the addition based on statements of third parties recorded during search proceedings, without affording the appellant an effective opportunity of cross- examination which lacks the principles of natural justice. 14. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the addition under section 69A without rejecting the books of account nor made any adverse finding for correctness or completeness of the regularly maintained books. 15. On the facts and in law, the Ld. CIT(A) has erred in confirming the addition by ignoring that the sales transactions in question were examined and accepted by the CGST/SGST authorities, thereby negating the allegation of bogus or inflated sales. 16. On the facts and in law, the Ld. CIT(A) has erred in not appreciating that initiation of penalty proceedings under section 271AAC is premature and unsustainable when the very foundation of the addition under section 69A is under challenge. 4. The only issue raised by the assessee in its appeal through the above grounds of appeal is regarding an addition of Rs.1,31,33,756/- made by the ld. AO under section 69A of the Act through his order u/s 147 r.w.s. 144 of the Act dated 18.03.2025.

5.

Heard both the parties. Case filed perused.

6.

The ld. Counsel for the assessee took us through a brief factual matrix of the case conveying that a search and seizure operation u/s 132 of the Act was conducted on 19.05.2023 on business and residential premises M/s Bharat Seats Limited, Sharda Motors Industries Limited and others, wherein some documents in the form of diaries, loose papers and digital data was found and seized from the premises. The allegation against the searched parties was that it was involved in taking inflated purchases from its vendors and collect the inflated amount of invoice in cash. The assessee was among one of the vendors to M/s Bharat Seats Limited and had made sale of goods to M/s Bharat Seats Limited during AY 2020-21 and AY 2023-24. The case of the assessee was reopened under section 148 of the Act to examine the same. The ld. Counsel argued that the ld. AO has alleged that the assessee has made inflated sales to M/s Bharat Seats Limited and return the inflated amount in cash on the basis of a credit note relevant to FY 2021-22 and has therefore erroneously made addition by applying 33.33% rate (credit note*100/PO Price) to the sales made by the assessee to M/s Bharat Seats Limited (BSL) during the AY 2020-21 and AY 2023-24. It was submitted that while doing so the Ld. AO has heavily relied upon the Diary of Shri Sanjeev Kumar (CFO), Excel sheets found from his Laptop and statements recorded during the search proceedings.

7.

The ld. Counsel vehemently argued that the said diary of Shri Sanjeev Kumar (CFO) mentions various names of vendors with details of over invoicing, however, assessee’s name was not included in the list of vendors and that the CFO never admitted that assessee was indulging in over invoicing. Same was the case in the statement of Shri Rohit Relan, Chairman and Shri Gulshan Bharti, Dy. General Manager of BSL. It was argued that as far as Excel Sheet is concerned, no information was given in the columns concerning details of cash received and cash pending. Thus, no linkage was established between the assessee and BSL. The ld. Counsel argued that the ld. CIT(A) has passed order dismissing assessee’s appeal without proper appreciation of facts of the case. The ld. Counsel further submitted that an order vide ITA NO.5481/Del/2025 has been passed by Hon’ble Vice President of this Tribunal in the case of Indo Plastic Co., dated 31.10.2025. It was stated that additions in respect of Indo Plastic Co. was also made by the Revenue on the same and identical facts of having transacted with BSL. After hearing the rival parties, the addition was directed to be deleted. It was prayed that accordingly relief may be accorded to assessee as facts are same.

8.

The Ld. DR placed reliance upon order of lower authorities.

9.

We have noted that in the case of of Indo Plastic Co.(supra) an SMC headed by Hon’ble Vice President has held as under:-

“…….3. Brief facts of the case are that the assessee is a partnership Firm engaged in the business of manufacturing of Automobiles Components. The assessee had filed its return of income for A.Y. 2020- 21 on 31/01/2021, declaring total income at Rs. 15,34,910/-. In this case the information was received that during the search conducted u/s 132 in the case of M/s. Bharat Seats Ltd., M/s. Sharda Motor Industries Ltd. & Other on 19/05/2023. During the search operation, on the basis of material impounded it was seen that the above company is engaged in profit suppression through inflation of purchases wherein inflated invoices were raised and difference between the actual value and invoice value was returned in cash in BSL. The assessee was one who made inflated purchases amounting to Rs.31,35,185/- out of total purchases of Rs.10,45,06,180/-. Therefore, the notice u/s 148 of the Act dated 28/03/2024 was issued and served upon the assessee. In response to that the assessee filed its return of income for A.Y. 2020-21 on 07/06/2024. Further, multiple notices were issued and served upon the appellant for furnished various details. In response to that the assessee its submission. During the course of assessment proceedings, the appellant was asked to explain the transaction with M/s. Bharat Seats Ltd., but the assessee failed to explain. On perusal of the information received, it was seen that the appellant had involved in inflation of purchase of Rs. 31,35,185/- (3% of total invoices of Rs.10,45,06,180/-) on cash and the assessee had failed to furnish. In view of the above, the AO passed an order by making addition of Rs.31,35,185/- on account of unexplained money u/s 69A of the Act and the same is added back to the total income of the assessee. Against the same, assessee preferred the appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. Being aggrieved the order of the Ld.CIT(A)/ NFAC the assessee is in appeal before the Tribunal. 4. Ld. AR for the assessee has submitted that CIT(A) erred in holding that the principle of natural justice were not violated by denial of access of the records and information received by the AO form the JCIT(OSD), Central Circle, New Delhi and relied upon him during assessment proceedings. It was further submitted that Ld. CIT(A) erred in holding that the assessee had made inflated purchases based on third party nothings in the premises of searched party without there being any acknowledgement of the same by the assessee. It was further submitted that the transactions were duly recorded in the books of accounts and that no independent enquiry was conducted by the AO and the addition was based on presumptions and conjectures, which needs to be deleted. 5. Ld. DR relied upon the orders of the authorities below. 6. After hearing rival contentions and perusing the records. I find that AO noted that a search and seizure was conducted on 19.05.2023 at M/s Bharat Seats Ltd. (BSL), M/s Sharda Motor Industries Ltd. (SMIL), and others, resulting in the seizure of incriminating documents, including two diaries. Subsequent investigations revealed that BSL suppressed profits by inflating purchase, raising inflated invoices, and receiving the difference in cash. As per the information received from JCIT(OSD), Central Circle, New Delhi, M/s Indo Plastic Co. was found to be involved in profit suppression through the inflation of purchases, Page 7 of 11 wherein inflated invoices were raised, and the difference between the actual value and the invoice value was returned in cash to BSL, amounting to Rs. 31,35,185/-, which was unexplained. AO observed that on the basis of above, the assessee, being one of the parties, made inflated purchase amounting to Rs. 31,35,185/- out of total purchases of Rs.10,45,06,180/-. However, it was undisputed which the AO has admitted that the entire proceedings were initiated solely on the basis of information received from the High Risk CRIU/VRU data and communication from the JCIT (OSD), Central Circle, New Delhi and no independent enquiry or verification has been conducted regarding the alleged suppression of profits by the assessee. It is settled law that proceedings based on third party information, without any independent examination or corroboration, are not sustainable. However, AO failed to provide the documents purportedly relied upon to substantiate the allegations of profit suppression. No enquiry has been conducted regarding the assessee’s purchases from its own vendors, thus the basis for linking the alleged cash generation to the assessee remains unclear. Assessee time and again asked the AO to provide the evidence of incriminating material on the basis of inflated purchases, but nothing has been provided to the assessee. In appeal, CIT(A) rejected the submissions of the Assessee and upheld the action of the AO. In view of the aforesaid discussions, I am of the considered view that addition was based on conjectures and surmises, as the department has failed to establish that any incriminating material is related to the assessee for the inflated purchases. Therefore, the addition in dispute is hereby deleted. 7. In the result the appeal of the assessee is allowed….” 10. We have noted that the facts of the present case are identical to those considered in the case of Indo Plastic Co. (supra). We have also noted that no distinguishment of facts has been pointed out by the respondent revenue. Accordingly, in respectful compliance to the order of this Tribunal in Indo Plastic Co.(supra) and also for the purposes of consistency, we set-aside the order of the lower authorities and direct the ld. AO to delete the impugned addition of Rs.1,31,33,756/-. The appeal of the assessee is allowed.

11.

As the assessee has succeeded on merits, all other pleadings raised by the assessee stands rendered academic.

ITA No.1418/Del/2026 Assessment Year 2023-24

12.

The assessee has raised following grounds of appeal in ITA No.1418/Del/2026 for Assessment Year 2023-24:-

1.

On the facts and in the circumstances of the case, the Ld.AO has erred, both on facts and in law, in assessing the income of the appellant at Rs. 1,45,77,617/- as against the returned income of Rs. 33,54,640/- as filed under section 139(1) of the Act. 2. (i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the addition of Rs. 1,12,22,157/- made under section 69A of the Act, treating the same as unexplained money, which is bad in law, arbitrary and unsustainable on facts. (ii) The Ld. CIT(A) has erred in sustaining the addition without establishing any actual receipt, possession or control of unexplained money by the appellant, and solely on the basis of third-party material and statements. (iii) The Ld. CIT(A) has erred in law in confirming the addition on the basis of undated, unsigned and unauthenticated third-party diaries/excel sheets, without any independent corroborative evidence or financial trail linking the appellant to the alleged cash. (iv) The Ld. CIT(A) has erred in law in wrongly shifting the burden of proof upon the appellant, without first discharging the onus cast upon the Revenue to establish the existence and ownership of unexplained money in the hands of the appellant. 3. (i) On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in sustaining the addition by extrapolating an alleged rate of 33.33% to the entire sales of the appellant, without examining transaction-wise or invoice- wise evidence for the year under consideration. (ii) That the Ld. CIT(A) has further erred in law in sustaining the said extrapolation despite the fact that the alleged rate of 33.33% has been mechanically computed by Ld.AO on the basis of a third-party excel working by applying the formula of credit note amount × 100 / purchase order value for AY 2022-23, without any independent verification, corroboration that such rate was applicable to the appellant’s transactions for the relevant assessment year. 4. On the facts and in law, the Ld. CIT(A) has erred in sustaining the addition, ignoring the binding persuasive decision of the Hon’ble ITAT, Delhi Bench in Indo Plastic Co. vs. ACIT (ITA No. 5481/Del/2025), arising from the same search and on identical facts, wherein a similar addition under section 69A was deleted. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in disposing of the appeal ex-parte without providing the appellant a reasonable and effective opportunity of being heard, thereby violating the principles of natural justice. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deciding the appeal without adjudicating the grounds of appeal on merits and without passing a speaking order as mandated under section 250(6) of the Income tax Act, 1961 (“Act”). 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in presuming non-prosecution of the appeal and proceeding to decide the same exparte. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the reassessment order passed under section 143(3) of the Act is bad in law, void ab initio, without jurisdiction and liable to be quashed. 9. On the facts and in law, the Ld. CIT(A) has erred in sustaining the addition under section 69A in the absence of any cash trail, bank withdrawals, deposits, or financial movement evidencing alleged receipt or payment of cash by the appellant. 10. On the facts and in law, the Ld. CIT(A) has erred in confirming the addition based on statements of third parties recorded during search proceedings, without affording the appellant an effective opportunity of cross- examination which lacks the principles of natural justice. 11. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the addition under section 69A without rejecting the books of account nor made any adverse finding for correctness or completeness of the regularly maintained books. 12. On the facts and in law, the Ld. CIT(A) has erred in not appreciating that initiation of penalty proceedings under section 271AAC is premature and unsustainable when the very foundation of the addition under section 69A is under challenge.

As the facts of the case in assessee’s appeal in ITA No.1417/Del/2026 for 13. AY 2020-21 are identical to those in ITA No.1418/DEL/2026 for Assessment Year 2023-24, the decision taken therein shall apply mutatis mutandis to this appeal also.

14.

In the result, assessee’s appeal in ITA No.1417/Del/2026 for AY 2020-21 and in ITA No.1418/DEL/2026 for Assessment Year 2023-24 are allowed.

Order pronounced in the open court on 03rd July, 2026.

Sd/- Sd/- (ANUBHAV SHARMA) (AMITABH SHUKLA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 03.07.2026 Shekhar Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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