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Facts
The assessee's case was reopened under Section 147 of the Income Tax Act, 1961, due to allegations of accepting accommodation entries for bogus purchases. The Assessing Officer (AO) made an addition based on these bogus purchases. Subsequently, the Principal Commissioner (PCIT) initiated revision proceedings under Section 263, directing the AO to re-assess the purchases under Section 69C and Section 115BBE.
Held
The Tribunal held that Section 69C of the Act is applicable when an assessee fails to explain the source of expenditure. In this case, the AO had disallowed the purchases as bogus under Section 37(1) of the Act, not on the grounds of unexplained source of expenditure. The Tribunal found that the PCIT erred in invoking Section 69C and Section 115BBE as the AO's action of disallowance under Section 37(1) was a plausible view.
Key Issues
Whether the PCIT was justified in invoking Section 69C and 115BBE of the Income Tax Act, 1961, for disallowing purchases when the AO had already disallowed them under Section 37(1) as bogus.
Sections Cited
263, 147, 144B, 148, 148A, 37(1), 69C, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “A” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR U.S & SHRI MANISH AGARWAL
Year : 2018-19] Manoj Kumar vs ITO Prop. Avitex India, Barsat Ward-1 Road, Opp.Kirpal Ashram, Panipat Panipat, Haryana-132103. PAN-AAEPO2553J APPELLANT RESPONDENT Assessee by Shri Suresh Kumar Gupta, CA Revenue by Ms. Amisha S.Gutpa, CIT DR Date of Hearing 27.11.2025 Date of Pronouncement 29.01.2026 ORDER
PER MANISH AGARWAL, AM :
The captioned appeal is filed by assessee against the order dated 27.03.2025 passed by Ld. Pr. Commissioner of Income Tax, Rohtak [“Ld. Pr. CIT”] u/s 263 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 24.02.2023 passed u/s 147 r.w.s. 144B of the Act pertaining to Assessment Year 2018-19.
Brief facts of the case are that the assessee filed his return of income on 18.10.2018, declaring total income of INR 5,12,820/-. Based on the available that the assessee had accepted accommodation entries in the form of bogus purchases from M/s. Soni Textiles of INR 11,47,500/-, case was re-opened by issue of notice u/s 148 on 29.03.2022. In response to the notice, assessee filed return of income on 25.11.2022, declaring total income of INR 5,12,820/-. Thereafter, various notices were issued from time to time however, were remained uncompiled with. Thereafter, AO vide order dated 24.02.2023 passed u/s 147 r.w.s. 144B of the Act assessed the income of the assessee at INR 16,60,320/- by making addition of alleged bogus purchases.
Thereafter, ld. PCIT has initiated the revision proceedings u/s 263 of the Act vide issue of show cause notice on 18.03.2025 and when no reply was filed by the assessee, the ld. PCIT pass the impugned order u/s 263 of the Act setting aside the assessment order and directed the AO to pass a fresh order and invoked the provisions of section 15BBE by making addition u/s 69C of the Act towards the bogus purchases.
Aggrieved by the order of Ld. PCIT, assessee is in appeal before the Tribunal by taking following grounds of appeal:-
1. On the facts and circumstances of the case, the revision order is bad in law as the Ld. Pr. CIT had no power to assume jurisdiction u/s 263 of IT Act to set aside the reassessment order passed u/s 147/148/148A of IT Act ignoring the fact that the such reassessment order itself in invalid and not sustainable in law.
2. On the facts and circumstances of the case and in law, the Ld. Pr. CIT has erred in invoking the powers u/s 263 of IT Act on the addition of Rs. 11,47,500/- made in the assessment order ignoring the fact that the above addition is subject matter of appeal before CIT(A) in view of Explanation 1(c) to sec 263 of IT Act, the Ld. Pr. CIT was not entitled to assume revisionary jurisdiction.
3. On the facts and circumstances of the case, the order of Ld. Pr. CIT is without jurisdiction considering the fact that the addition made in the assessment order by making addition to the business profit was a plausible action under the Act and that the action suggested by the Ld Pr CIT in the impugned order for invoking provision of see 69C on facts of the case is not tenable in law.
4. The appellant craves leave to add, delete, modify / amend the above grounds of appeal with the permission of the Hon'ble appellate authority.”
As all grounds of appeal taken with respect to the action of the PCIT in holding the reassessment order as erroneous and prejudicial to the interest of the Revenue therefore, they are taken together for consideration.
6. Before us, Ld. AR submits that the AO has made the addition by holding the purchases as bogus accommodation entries against which first appeal is pending before the ld. CIT(A). As per ld. AR, the AO has taken a plausible view by disallowing the purchases u/s 37(1) of the Act. He submits that the purchases alleged as bogus are duly recorded in the books of accounts maintained in regular course thus, the immediate source of such purchases cannot be doubted more particularly, when the payments made were through payees account cheque. He submits that the provisions of section 69C of the Act can be invoked where the assessee failed to substantiate the source of the expenditure. He thus, submits that the provisions of section 69C cannot be invoked on the facts of the present case and, therefore, the assessment order is neither erroneous nor prejudicial to the interest of the Revenue. Regarding the directions of the ld. PCIT for making fresh enquiries and investigation, ld. AR submits that from the perusal of the revisionary order, it could be seen that nowhere in the order it is stated by ld. PCIT that what enquires were left to be undertaken by the AO who treated the purchases made from the alleged non-existent party as bogus which fact is not doubted by the ld. PCIT.
7. Ld. AR also placed reliance on the judgment of the Co-ordinate Bench of ITAT, Rajkot Bench in the case of Shashikant Bhavajjibhai Rajpara vs. PCIT in vide order dated 22.03.2023 and also in the case of the Coordinate Bench of the ITAT Rajkot in the Vijubha Jitubha Jadeja vs. PCIT in vide order dated 02.08.2023 wherein the Co- ordinate Bench has held that once the AO has disallowed the bogus expenditure u/s 37(1), ld. PCIT cannot direct to invoke the provisions of section 69C and further u/s 115BBE of the Act in the order passed u/s 263 of the Act. He thus, prayed for quashing of the order of the ld. PCIT.
8. On the other hand, the Ld. CIT DR for the Revenue vehemently supported the orders of Ld. PCIT and submit that in the instant case, assessee has failed to justify the purchases made thus the same is unexplained expenditure for which the source was not established to the satisfaction of the AO and therefore, Ld. Pr. CIT has rightly directed the AO to invoke the provisions of section 69C r.w.s. 115BBE of the Act. He thus requested that the order of Ld. PCIT deserves to be uphold.
9. Heard both the parties and perused the material available on record. The case of the assessee was reopened u/s 147 of the Act by alleging that the purchases claimed to have been made from M/s. Soni Textiles of INR 11,47,500/-, is bogus and thereafter, the AO referred the statements of the persons managing and controlling various firms including M/s. Soni Textiles and disallowed the purchase of INR 11,47,500/- u/s 37(1) of eh Act by holding the same as bogus purchases. The Ld. PCIT in terms of the show cause notice dated 18.03.2025, observed that though the purchases of INR 11,47,500/- made form M/s Soni Textiles was held as bogus however, the purchases should be disallowed u/s 69C of the Act and not u/s 37(1) of the Act. The provisions of section 69C are as under:
“69C Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not , in the opinion of the Assessing Offertory the amount covered by such expenditure or part thereof at the case may be may se deemed to be the income of the assessee by such for such financial year. Provided that notwithstanding anything standing contained in any other provision of this Act such unexplained expenditure which deemed to be he income of the assessee shut not be allowed as a deduction under any head of income.
The provisions of section 1158BE of Act are reproduced as under:- “115BBE (1) Where the total income of the assessee- (a) Includes any income referred to in section 68, section 19, section 64 section 698. section 6PC, section 690 and reflected in the return of income furnished under section 139 or (b) Determined by the Assessing Officer includes any income referred to in section 68 section 69, section 69A, section 69B, section 69C, Section 69D if such income is not covered under clause (a) the income tax payable shall be the aggregate of (i) the amount of income tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty percent, and (ii) the amount of income tax with which the assessee would been chargeable had his total income been reduced by the amount of income referred to in clause (i).”
From the perusal of section 69C, it is observed by us that provisions of section 69C are applicable where assessee incurred any expenditure for which he has failed to offer any Explanation or the Explanation given was not found satisfactory by the AO.
However, in the instant case, it is not the case of the revenue that the assessee has failed to explain the source of purchases made from M/s Soni Textiles but it was the allegation of the AO that the purchases made from the said party was bogus and nowhere in the assessment order, AO raised any doubts about the source of payment made for such purchases. Therefore, he invoked the provisions of section 37(1) of the Act and disallowed the purchases made by the assessee. This being so, the provisions of section 69C of the Act are not applicable on the facts of the instant case.
The Co-ordinate Bench of ITAT, Rajkot in the case of Shashikant Bhavajjibhai Rajpara vs. PCIT (supra) has made following observations: “7. We have considered the above contentions made by the ld counsel for the assessee, we find merit in the same. As per the ld Pr. CIT the disallowance of Rs. 29 30,229/- made by the AO came within the purview of section 69C of the Act. We have gone through the provision of section 69C of the Act and also disallowance made by the AO in his assessment order which is reproduced above. As is evident from bare perusal of the order of the AO, disallowance related to expenses incurred by the assessee in relation to subcontractor which were not found to be genuine. Section 69C on the other hand, brings to tax the disallowance related to expenses incurred by the assessee, source of which remain unexplained. Therefore, purview and scope of section 69C is totally different from the disallowance of expenses found to be not genuine. The basic premise with the Id. Pr. CIT therefore for finding error in the order of the AO, that the disallowance made by him of contractors' expense came under the purview of section 69C of the Act is found to be untenable in law. This finding of error, as a consequence whereof, that the same not being subjected to tax at a special rate provided under section 1158BE of the Act also as a result does not survive.”
Further this view is followed by the Co-ordinate Bench of ITAT, Rajkot in the case of Vijuba Jutubha Jadeja vs. PCIT reported in [2023] (9TMI 206).
In view of the above discussion, in our considered opinion view for disallowance of purchases claimed in the Profit & Loss account held as bogus, provisions of section 69C of the Act could not be invoked and, therefore, the reassessment order is neither erroneous nor prejudicial to the interest of revenue for not invoking the provisions of section 69C r.w.s. 115BBE of the Act. Accordingly, we quash the revision order passed by ld. PCIT u/s 263 of the Act. Thus, all the grounds of appeal taken by the assessee are allowed.