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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI VIMAL KUMAR & SMT. RENU JAUHRI
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by the assessee is against order dated 10.03.2025 of Learned Principal Commissioner of Income Tax, Rohtak (hereinafter referred to as “Ld. AO") under Section 263 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of assessment order dated 13.03.2023 of the Learned Assessing Officer/Assessment Unit (hereinafter referred to as "Ld. AO") under Section 147 of the Act for assessment year 2018-19.
Brief facts of the case are that the assessee filed Income Tax Return declaring total income of Rs.7,85,160/- on 29.10.2018. Information was available that assessee has taken accommodation entry through bogus bill/invoices of Rs.3,02,25,247/- during the financial year 2017-18 from M/s Shree Balaji Wooltex, M/s Soni Textiles and M/s Maakarni Yarns of Sh Rajesh Mittal group concerns. Shri Rajesh Mittal along with Shri Vipul Jindal and Shri Satyanarayan Rohilla @ Vijay Rohilla, Advocate has floated 19 fake firms by using documents of different persons. They have issued fake bills without actual movements of goods. Rajesh Mittal in his statement has admitted that they have sold invoices to various firms and received payment of whole amount in the bank accounts of the firm and then returned the amount in cash after deducting 2% commission. M/s. Shree Balaji Wooltex, M/s Soni Textiles and M/s. Maakarni Yarns from whom assessee has made purchases amounting to Rs.3,02,25,247/- are the fake firms who has issued fake bills. On information, reassessment proceedings under Section 147 of the Act were initiated. The assessment in this case was completed under Section 147 r.w.s. 1448 of the Income Tax Act, 1961 on 13.03.2023 by Assessing Officer at an assessed Income of Rs. 3,34,73,817/- by making the following addition:- (i) Addition amounting to Rs. 3,26,88,657/- on account of bogus purchases including commission expenses.
2.1 In pursuant to order dated 13.03.2023 of Ld. Assessing Officer, Ld. PCIT issued notice on 06.02.2024 and 25.02.2025. Show-cause-notice as to why order under Section 147 dated 13.03.2024 should not be revised by invoking the provisions of Section 263 of the Act. Assessee did not file any reply. Ld. PCIT vide order dated 10.03.2025 set aside order dated 13.03.2023 and directed Ld. AO to pass fresh order after inquiry and verification in accordance with law keeping in view the observations made in the order.
Being aggrieved, appellant/assessee preferred present appeal with following grounds: “
1. That on the facts and circumstances of the case and in law, the order dated 10.03.2025 by the Principal Commissioner of Income Tax ['PCIT'], under section 263 of the Income Tax Act, 1961 ('the Act') setting aside the assessment order dated 13.03.2023 passed by the the Assessing Officer as erroneous and prejudicial to the interest of the Revenue is without jurisdiction, bad in law and void-ab-initio.
2. That the PCIT has passed the impugned order in violation of principles of natural justice.
3. That the PCIT erred on facts and in law, so much so that, the assessment order passed by the Assessing officer do not satisfy the statutory twin conditions prescribed down under section 263 of the Act, viz., (a) the order is erroneous; and (b) the order is prejudicial to the interest of Revenue.
4. That the PCIT erred on facts and in law in not appreciating the applicability of provisions of section 115BBE per-se will not make the order of the assessing officer erroneous.
6. That the PCIT erred on facts and in law in not appreciating that Explanation 2 to section 263 of the Act is not applicable in the present facts.
7. The appellant craves leave to add to alter, amend or vary the aforesaid grounds.”
4. Learned authorized Representative for the appellant/assessee submitted that the appellant is an individual engaged in the business of manufacturing and wholesale trading of goods. Assessee filed return of income for AY 2018-19 on 29.10.2018 declaring a total income of Rs 7,85,160. Thereafter, on 29.03.2022. the assessing officer ("Ld. AO") issued a notice under s. 148 of the Income-tax Act, 1961 ("Act") on the basis of information that the Appellant had taken accommodation entries through bogus invoices amounting to Rs 3,02,25,247 from M/s Shree Balaji Wooltex (Rs. 97,09,662), M/s Soni Textiles (Rs. 1,40,24,245) and M/s Maa Karni Yarns (Rs. 64,91,340) of the Rajesh Mittal Group. During the reassessment proceedings, the Ld. AO made detailed inquiries, issued notices u/s 133(6) and utilized the Verification Unit to verify the existence of the parties. The Ld. AO came to the conclusion that the genuineness of the transactions made with the three aforementioned entities could not be established with supporting evidences and thus, the said transactions were bogus. The Ld. AO passed the final assessment order on 13.03.2023 disallowing the entire purchase amount of Rs. 3,26,40,355 and Appellant under s. 37(1) of the Act as bogus purchases. The Ld. AO also made a separate addition of Rs 48,302 for commission, charging it as unexplained expenditure under Section 69C of the Act. 4.1 Ld. PCIT, issued show cause notice under Section 263 dated 06.02.2024. The Ld. PCIT alleged that the assessment order was erroneous and prejudicial to the interest of the Revenue (refer Page 9 of Appeal Set) because the Ld. AO had failed to invoke section 69C read with Section 115BBE of the Act (taxing the income at 60%) with respect to the entire purchase amount of Rs.3,26,40,355. The Ld. PCIT passed the impugned order u/s. 263 on 10.03.2025, setting aside the final assessment order and directed the Ld. AO to pass a fresh order. The Ld. PCIT has alleged that the Ld. AO had passed the final assessment order without proper enquiry or verification without mentioning or remotely discussing what verification or enquiry was not carried out by the Ld. AO. 4.2 During the course of reassessment, the Appellant furnished copy of ledger account, invoices and bank statement disclosing the nature and source of payments.. 4.3 Same issue in respect of one of the abovementioned entities (M/s Maa Karni Yarns) has been adjudicated by the Hon'ble ITAT Delhi in Sandeep Kumar v. ITO (ITA No. 4348/Del/2025).
4.4 In another decision, namely Arvind Kumar v. PCIT (ITA No. 2178/Del/2025), the Hon'ble ITAT Delhi held that section 69C of the Act applies only where the explanation regarding the nature and source is not satisfactory. Reliance is also placed upon the decision of the Hon’ble ITAT Rajkot in Shashikant Bhavajjibhai Rajpara vs. Pr. CIT, Rajkot (ITA No.59/RJT/2020) wherein it was held that the scope of section 69C of the Act is totally different from the disallowance of expenses found to be not genuine. of the assessee are allowed in above terms. 4.5 Ld. PCIT's allegation of "lack of inquiry" in the instant case is baseless as the assessment order itself shows that the Ld. AO: Issued notices u/s 133(6) to the supplier parties (refer Page 19 to 21 of Appeal Set) Referred the matter to the Verification Unit for physical verification (refer Pages 19 to 21 of Appeal Set) Relied on the statement of third party (refer Pages 17, 19, 23 and 26 of Appeal Set) Passed a speaking order discussing the non-existence of parties. (refer Pages 20, 21 and 24 of Appeal Set) Made the addition on this very issue (refer Pages 23, 25 and 26 of Appeal Set) The Ld. PCIT is merely substituting his opinion for that of the AO, which is impermissible u/s. 263.
4.6 The detailed inquiry from the assessment order and multiple evidences placed before the Ld. AO shows that the Revenue cannot not claim that no inquiry was conducted as understood under Explanation 2 to s. 263 of the Act.
Learned Authorized Representative for the Department of Revenue submitted that assessee had not explained expenses for the business and relied on impugned order.
From examination of record in light of aforesaid rival contentions, it is crystal clear that the case of assessee was reopened under Section 147 of the Act by alleging that the purchases claimed should have been made from M/s. Maa Karni Yarns for Rs.3,26,40,355/- as bogus. Ld. PCIT in show-cause-notice under Section 263 of the Act referred to the bogus transactions. Assessee has entered into the transaction amounting to Rs. 3,26,40,355/- with M/s Shree Balaji Wooltex, M/s Soni Textiles and M/s Maakarni Yarns. The assessee has failed to prove physical movement/transportation of the goods from the said parties to his business premises before the Assessing Officer during the assessment proceedings as well as during the revision proceedings. Therefore, the transactions made with M/s. Shree Balaji Wooltex, M/s Soni Textiles and M/s Maakarni Yarns were in the nature of accommodation, entry and are not in nature of business transaction. Ld. PCIT held that Ld. AO has not passed the assessment order in accordance with the decision rendered in the case of N.K. Protiens Ltd. vs. DCIT and the bogus purchases were in the nature of Section 69C of the Act. 6.1 A Co-ordinate Bench of ITAT, Delhi in in the case of Sandeep Kumar Vs. ITO in para nos. 14 to 19 held as under: “14. 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 Maa Karni Yarn but it was the allegation of the AO the purchases made from the said party was bogus and nowhere in the assessment order, the AO raised any doubts about the source of 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 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 assessment 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 revisionary order passed by ld. PCIT u/s 263 of the Act. Thus, all the grounds of appeal
taken by the assessee are allowed.
19. In the result, appeal of the assessee is allowed.”
6.2 In view of above material facts by following judicial precedents, it is held that Ld. PCIT has erred in exercising revisionary powers under Section 263 of the Act. Therefore, impugned order of Ld. PCIT is set aside. Ground no. 1 to 7 are allowed. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 24th December, 2025. Sd/- Sd/- (SMT. RENU JAUHRI) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 24th December, 2025. Mohan Lal