MITESH SHAH,AHMEDABAD vs. ITO, WARD 1(2)(3), AHMEDABAD, AHMEDABAD

In the present case, it is undisputed fact that the A.O. examined the issue of alleged bogus purchase to the tune of Rs. 40,80,71,780/- during the reopened assessment proceedings and disallowed the entire amount of bogus purchase. The PCIT has not disputed the quantum of disallowance made by A.O. The only basis for invoking section 263 is that, according to PCIT, the disallowance should have been made u/s. 69C r.w.s. 115BBE of the Act instead of section 37 of the Act.

At this stage, it is necessary to examine the scope and applicability of section 69C of the Act. Section 69C applies to cases where an expenditure is actually incurred from unexplained sources. On the other hand, bogus expenses represent no real expenditure at all and therefore fall outside scope of section 69C. The provision is a deeming fiction meant to bring to tax expenditure incurred from unexplained sources. Section 37(1) deals with allowability of business expenditure and empowers Assessing Officer to disallow expenditure which is found to be not genuine or not incurred wholly and exclusively for the purposes of business.

Even though assessee could not submit certain details called for by A.O., as the said documents were seized by CGST Department during raid conducted by it on 09-01-2019, yet, assessee submitted bank account statement, summary of cash book, details of ledger of purchase of Ferrous and Non-Ferrous metal from M/s. Bright Corporation. AO after due examination of details submitted, held that assessee as a beneficiary of such bogus purchase transaction and the impugned amount was

In Arvind Kumar v. PCIT [2025] 178 taxmann.com 351 (Delhi- Trib.), the Tribunal addressed the limited but important controversy whether disallowance of allegedly non-genuine purchases should fall under section 37(1) or be re-characterised as unexplained expenditure under section 69C so as to attract section 115BBE. The assessee's case was reopened on the allegation of purchases from a non-genuine entity, during which the Assessing Officer carried out detailed enquiries including examination of audited books, bank statements, purchase bills, physical verification of the supplier and recording of statements, and thereafter disallowed 100% of the expenditure holding it to be not genuine under section 37(1). The Principal Commissioner sought to revise the assessment under section 263 on the ground that the addition ought to have been made under section 69C and taxed at the higher rate prescribed under section 115BBE. The Tribunal rejected this approach, holding that section 37 is the appropriate provision where the nature of expense (purchases) and the source of expense (bank payments) are not in dispute and the only doubt relates to the genuineness of the claim, whereas section 69C applies only where the source of expenditure itself remains unexplained. It was further held that the Assessing Officer had taken a plausible and legally sustainable view after conducting adequate enquiry, and the PCIT could not substitute his own view merely because he preferred a different charging provision.

The matter of impugned addition is in appeal before the CIT(A). As per clause (c) of explanation 1 to section 263, if an appeal is pending before CIT(A) on a particular issue, the PCIT cannot validly exercise 4

It is well settled that where two views are possible and the Assessing Officer has adopted one of the plausible views, the order cannot be branded as erroneous merely because Principal Commissioner prefers another view. This principle has been reiterated by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. (supra) and CIT vs. Kwality Steel Suppliers Complex v. CIT (2017) 395 ITR 1 (SC).

In view of the foregoing discussion, we hold that the Assessing Officer, after examining the issue of alleged bogus purchases during the reassessment proceedings, has taken a legally permissible and plausible view by disallowing the entire amount of 40,80,71,780/- under section 37 of the Act. The purchases had been recorded in the regular books of account and the payments had been made through banking channels, thereby explaining the source of expenditure, and that the mere fact that the learned Principal Commissioner was of the opinion that section 69C read with section 115BBE ought to have been invoked does not render the assessment order erroneous or prejudicial to the interests of the revenue within the meaning of section 263 of the Act. Rather, the impugned revisionary action represents an impermissible substitution of the Principal Commissioner's view for that of the Assessing Officer on a debatable issue of law, which is not sanctioned under section 263.

Accordingly, the impugned order passed by the learned Principal Commissioner under section 263 of the Act is set aside and the assessment order dated 26.03.2024 is restored.