Loading judgment…

INCOME TAX OFFICER-2(1), MORADABAD, MORADABAD vs RITU BHANDULA, MORADABAD | BharatTax

INCOME TAX OFFICER-2(1), MORADABAD, MORADABAD vs. RITU BHANDULA, MORADABAD

ITA 2750/DEL/2025Status: DisposedITAT Delhi11 February 2026AY 2020-2113 pages

AI SummaryAllowed

Facts

The Revenue appealed against an order of the NFAC, and the assessee filed a cross-objection. The Assessing Officer (AO) made an addition of Rs. 2,97,66,224/- under Section 69C as unexplained expenditure, disallowing 12.5% of purchases. The assessee contended that these purchases were recorded in their books and supported by documentary evidence.

Held

The Tribunal held that Section 69C is applicable only to unexplained expenditure where the source is not explained. Since the purchases were recorded in the assessee's books of account, the source was explained. Therefore, the addition made by the AO was unsustainable and deleted.

Key Issues

Applicability of Section 69C when purchases are recorded in the books of accounts and supported by documentary evidence, and whether non-response to Section 133(6) notices can be the sole basis for addition.

Sections Cited

69C, 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘B, NEW DELHI

Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL

For Appellant: Shri Amit Goel, CA, Shri Pranav Yadav, Adv

For Respondent: Shri Rajesh Kumar Dhanesta, Sr. DR, Shri Amit Goel, CA, Shri Pranav Yadav, Adv

Hearing: 04/2/2026Pronounced: 11/2/2026

ORDER PER SUDHIR KUMAR, JM:

This appeal by the Revenue is preferred against the order dated 10.3.2025 of the National Faceless Appeal Centre (NFAC) Delhi (in short “the Ld. NFAC)) relevant to assessment year 2020-21. The assessee also filed the cross objection for the Assessment Year 2020-21. 2. The Revenue has raised the following grounds in appeal:

1. Law and facts of the case by deleting the addition of Rs. 2,97,66,224/- made by the AO u/s 69A of the Act after conducting proper enquiry who has made the addition after recording the detailed reasons for doing so in length in the order itself and blamed the AO for not conducting enquiry and failed to ensure that effective inquiry and logical conclusions have been drawn having co terminus power with the AO.

2. Law and facts of the case by not proving the sundry creditors of the assesssee anywhere from whom purchases were made and doubted by the AO in the absence of supporting documents regarding purchases during assessment proceedings.

3. Law and on facts of the case by merely relying on the submission of the assessee without conducting effective inquiry during appellate proceedings and ignoring the remand report of AO which clearly sates that transport details of only one supplier namely M/s Ink Enterprises from whom purchases of only Rs. 2 5,27,05,801/- have been made. The assessee provided only transfer details related to the return of goods in the case of M/s Global Ink form whom purchases of Rs. 4,70,58,751/- were made and failed to produce transport details i.e. lorry no. payment details of transporter to justify the actual delivery of goods in case of other suppliers. Therefore, in absence of documentary evidences, the genuineness of transactions and creditworthiness of purchaser/ suppliers, from whom the assessee has purchased goods, is still not proved during appellate proceedings.

5. Brief facts of the case are that the assessee filed its return of income on 15.2.2021 declaring income of Rs. 7,97,270/- and the assessment was completed on 26.9.2022 at income of Rs. 3,15,05,634/- after making addition of Rs. 2,97,66,224/- on account of adhoc 12.5% disallowance of 3 purchases as unexplained expenditure u/s. 69C of the Act. In appeal, Ld. CIT(A) allowed the appeal of the assessee by observing as under:- “6.1 In the assessment order, the assessing officer has made a detailed academic discussion on the legal aspects governing Section 69C, Burden of Proof, definition of Sham, Fictitious and Artificial Transactions, fiscal nullity, tax avoidance etc. However the order is silent on the basic facts of the case on which the addition was made. Assessment order does not mention the name of suppliers who are either Non Filers or have filed non-business ITR and amount of purchases from each one of them. The assessing officer stated that none of the parties to whom notice u/s 133(6) were served furnished any details which were requested, but there is nothing on record about the name and addresses of such parties to whom notices were issued. During appeal proceedings the assessee submitted purchase invoices and Bank Statements highlighting payments made to the suppliers. 6.2 On remand to the A.O for verification, the A.O has rejected the appellant's submissions on the ground that transport details are not furnished except in the case of one supplier namely M/s INK Enterprises from, whom she had purchased goods of Rs. 5,27,05,801/- in A.Y. 2020-21 and returned the entire purchased goods to the party in A.Y. 2021- 22. In case of M/s Global INC, for which she had claimed the 4 purchased goods of Rs. 4,70,58,751/- in A.Y. 2020-21 and further claimed that she returned the entire purchased goods to the party in A.Y. 2021-22, it was observed that appellant had provided only transport, details related to return of goods in A.Y. 2021-22 not relevant to supply of goods in A,Y, 2020- 21. This raises the question of how the appellant could return the goods unless the same had been received /purchased in the first place? 6.3 Further, on examination of the appellant's submissions and evidence furnished it is seen that as the appellant is an exporter and her unit operates within an SEZ, there is third party authentication for all transactions by Customs authorities. The invoices bear the seal of Authorised Officer (Customs) and the Bills of export of goods for claim of duty drawback have been duly inspected by Customs authorities. As pointed out by the appellant, there is Customs verification at every stage from entry to exit, and the Customs department verifies supplier's details, invoice details, nature and quantity of goods, GST and other compliance requirements. The appellant has also provided evidence of shipping bills, export invoices, and bank payments received from foreign buyers. In view of the above the A.O's insistence on transport details appears misplaced. If indeed the entire purchases are bogus, then it begs the question, what did the appellant export from the SEZ? 6.4 In the case of Bausch And Lomb India Private Limited (W.P.(C) 5768/2024 CM APPL. 23894/2024), Delhi High Court held that, If any addition was proposed to be made on the basis that the purchases as reflected in the assessee's books is not correct and it has made imports that had not been recorded in the books of accounts, the least that the Assessing Officer was required to do was to identity the entries that ought to have been made in the Books of Accounts of the assessee an which it had failed to do. Merely proceeding on the basis that CBIC is an apex body and therefore, information provided by it cannot be doubted, without even identifying or meaningful analyzing such information, is wholly insufficient to proceed to make an addition. If the relevant details of the alleged imports were not available with the Assessing Officer, and it was not possible to identify the expenditure made by the assessee, it was impermissible for the Assessing Officer to make an addition on account under Section 69C of the Act. Plainly, if the Assessing Officer could not identify the expenditure made, it could not make an addition on account of unexplained expenditure. In view of the above, we find merit in the contention that the impugned order is unsustainable and has been passed in violations of 6 principles of natural justice. It is obvious that the Assessing Officer must have some material to indicate that an expenditure has been made to make such an addition. 6.5 In the present case, the appellant running a leather business which is operating in an SEZ has submitted documentary evidence in support of purchases made which includes bank statements, invoices, shipping bills etc which are independently authenticated by a Government authority i.e Customs. The evidence credibly supports the genuineness of purchase made during the relevant year. The A.O has not brought on record any defect or discrepancy nor questioned the authenticity of the said evidence. In view of the above, the treatment of entire purchases of Rs.23,81,29,812/- as bogus and the addition of Rs.2,97,66,224 on account of unexplained expenditure u/s 69C as unexplained expenditure under section 69C is found to be unwarranted and is deleted. The appellant's grounds are allowed.

7.

Ld. DR relied upon the order of the Assessing Officer and stated that AO u/s 69A of the Act after conducting proper enquiry has made the addition after recording the detailed reasons for doing so in length in the order itself and blamed the AO for not conducting enquiry and failed to ensure that effective inquiry and logical conclusions have been drawn having co terminus power with the AO. He further submitted that by not proving the sundry creditors of the assesssee anywhere from whom purchases were made and doubted by the AO in the absence of supporting documents regarding purchases during assessment proceedings. It was further submitted that by merely relying on the submission of the assessee without conducting effective inquiry during appellate proceedings and ignoring the remand report of AO which clearly states that transport details of only one supplier namely M/s Ink Enterprises from whom purchases of only Rs. 5,27,05,801/- have been made. The assessee provided only transfer details related to the return of goods in the case of M/s Global Ink form whom purchases of Rs. 4,70,58,751/- were made and failed to produce transport details i.e. lorry no. payment details of transporter to justify the actual delivery of goods in case of other suppliers. Therefore, in absence of documentary evidences, the genuineness of transactions and creditworthiness of purchaser/ suppliers, from whom the assessee has purchased goods, is still not proved during appellate proceedings. Besides, above, he submitted a paper book containing pages 1-21 and relied upon the pages 01 to 05 and Page no. 9 of the paper book, which is the copy of Central Scrutiny Report and Discussions by the CIT(Admn.) on the merits 8 of the case and reasons recorded against the CIT(A) order while authorizing the case for appeal in ITAT. He further submitted that CIT(A) this crucial facts mentioned in the remand report that assessee failed to produce transportation details i.e. lorry no. payment details of transporter to justify the actual delivery of goods. Also, CIT(A) ignored that AO conducted 133(6) inquiry which were not answered. He also submitted that CIT(A) similarly rely on SEZ custom verification without looking into AO inquiries made u/s. 133(6) which were not responded during assessment or even appellate proceedings.

5.

Insofar as the first aspect of the matter is concerned, we find that Section 69C clearly stipulates that where, in any financial year, the assessee has incurred an expenditure and he offers no explanation about "the source of such expenditure or part thereof", or the explanation, if it is offered by him, is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Thus, the 10 focus of Section 69C is on the 'source' of such expenditure and not on the authenticity of the expenditure itself. It is an admitted position that the expenditure was shown by the assessee in its regular books of accounts and it is because of this reason that the Income-tax Appellate Tribunal had observed:- "As the expenditure was accounted in the regular books, the source is obviously explained. The provisions of Section 69C are not applicable as there was no unaccounted expenditure." (underlining added) 5. What the Assessing officer attempted to do was to go into the authenticity of the expenditure and he returned a finding that the expenditure was not authenticated by vouchers and consequently, he added the said expenditure as unexplained expenditure under Section 69C. We are in agreement with the observations and findings of the Commissioner of Income-tax (Appeals) as well as that of the Income-tax Appellate Tribunal that this is not a case which falls under Section 69C. Clearly, Section 69C refers to the "source of the expenditure" and not to the expenditure itself. Consequently, the Assessing Officer was clearly wrong in treating the said expenditure as unexplained expenditure under Section 69C of the said Act and the lower appellate authorities were right in their conclusions in deleting the said addition.” 8.3 We further find that Coordinate Bench of Delhi Tribunal in the case of ACIT vs. SK Integrated Consultants (ITA No. 4862/Del/2024 11 AY 2015-16 and CO 24/Del/2025 decided on 9.7.2025) wherein, it was held that where the expenses are recorded in the books of accounts, section 69C cannot be applied. Applying the ratio of the aforesaid case laws to the case of the assessee, since the purchases of Rs 2,97,66,224/- are duly recorded in the books of accounts, the source is fully explained. Also the Hon’ble Delhi High Court in the case of CIT vs. Poonam Rani (2010) 5 Taxmann.com 76 held that in the absence of any material pointing towards falsehood of account books, addition of gross profit and rejection of books of accounts cannot be made. In the present case it is noted that the books of accounts of the assessee are audited and have not been rejected by the AO and even the AO has not pointed out any discrepancy in the books of accounts. It is further noted that AO had issued notices u/s. 133(6) and no replies were received and this non compliance to the notices issued u/s. 133(6) by the AO cannot be a ground for drawing adverse inference against the assessee, in view of the various decision including jurisdictional High Court decision in the case of PCIT v Wel Intertrade Pvt. Ltd. ITA 135/2023 wherein, it has been held that creditor not responding to the notice u/s. 133(6) cannot be a ground / reason by the AO to make an addition and also the Mumbai Tribunal in the case of Prabhat Gupta Vs. ITO 2017 (12) TMI 1667 held that disallowance of purchase could not be made on the ground that notice u/s. 133(6) issued to parties were not served or no replies were received. In view of above discussions and respectfully following the aforesaid precedents, the addition made by the AO is not sustainable 12 and deserve to be deleted. We hold and direct accordingly. Consequently, the cross objection of the assessee is allowed and the corresponding appeal filed by the Revenue becomes infructuous and dismissed as such.