Section 69A Addition Cannot Be Based on Loan or Purchase Advance Discrepancy

Siddhartha Bronze Products Pvt. Ltd. Vs DCIT (ITAT Ahmedabad)

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, allowed the assessee’s appeal and quashed the revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income-tax Act, 1961, for Assessment Year 2017-18. The case arose after the Assessing Officer (AO) reopened the assessment based on information that the assessee had allegedly received accommodation entries of ₹59.70 lakh from M/s Kasturi Commodities Pvt. Ltd.

During the assessment proceedings, it was found that the assessee had actually paid ₹59.70 lakh to M/s Kasturi Commodities Pvt. Ltd. The assessee explained that the amount represented advances for purchase of goods, but since the goods did not meet the required standards, no purchases were made and the amount was refunded. In response to a notice under Section 133(6), M/s Kasturi Commodities Pvt. Ltd. stated that it had received the amount as a short-term loan and subsequently repaid it. Although the AO did not make any addition on the principal amount, he made an addition of 2% as alleged commission income.

The PCIT invoked revisionary jurisdiction under Section 263, observing that the assessee described the transaction as a purchase advance while the other party treated it as a short-term loan. According to the PCIT, this inconsistency rendered the transaction unexplained and the AO should have added the entire amount under Section 69A instead of only making an addition towards commission. Holding the assessment order to be erroneous and prejudicial to the interests of the Revenue, the PCIT set aside the assessment and directed the AO to pass a fresh order.

The Tribunal found that the AO had thoroughly examined the ledger accounts, bank records, and other relevant documents before completing the assessment. It observed that the undisputed facts showed that the assessee had paid the amount through banking channels and the same was refunded within two to three days. The Tribunal held that there was no allegation that the funds originated from undisclosed sources or that the source of the payment remained unexplained. It further observed that whether the transaction was described as a purchase advance or a short-term loan made no difference in the absence of any allegation regarding unexplained money.

The Tribunal also held that the facts did not support the allegation of accommodation entries or bogus purchases because no goods were ultimately purchased and the amount was promptly refunded. It concluded that the exercise of revisionary powers under Section 263 was wholly unjustified, that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue, and accordingly quashed the revision order. The appeal of the assessee was allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The present appeal has been filed by the assessee against the revision order of the Ld. Principal Commissioner of Income Tax, Ahmedabad-1, (hereinafter referred to as “PCIT”), dated 31.12.2025 passed under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18.

2. The brief facts of the case are that the AO received information that the assessee was one of the beneficiaries and availed accommodation entries amounting to Rs.59,70,000/- from M/s. Kasturi Commodities Pvt. Ltd., which entity was allegedly involved in providing accommodation entries to various beneficiaries. The assessment in the case of the assessee was, therefore, reopened u/s 147 of the Act. During assessment proceedings, it was found that the said amount of Rs.59,70,000/-was given by the assessee to M/s. Kasturi Commodities Pvt. Ltd., about which, the assessee explained that the same was given as advance for purchases. However, no purchases were made and the said advance was returned back to the assessee. However, in response to the notice issued u/s 133(6) of the Act, M/s. Kasturi Commodities Pvt. Ltd. responded that the said amount was short term loan availed by it and was repaid to the assessee. The AO, though, did not find any reason to make any addition in respect of the said transaction, however, made addition @2% of the said amount alleging the same to be commission income on the said transaction. Thereafter, the Ld.PCIT exercised his revision jurisdiction u/s 263 of the Act and observed that there was no uniformity in the replies of both the parties i.e. the assessee and M/s. Kasturi Commodities Pvt. Ltd. The assessee had stated that he had given advance of Rs.59,70,000/- to the said party, which was returned back, whereas, M/s. Kasturi Commodities Pvt. Ltd. had replied that it had availed short term loan, which was repaid to the assessee. The Ld.PCIT observed that since, there was no uniformity in the replies of both the parties and, hence, the transactions remained unexplained. He observed that the AO added only commission income and failed to include the full transaction amount u/s 69A of the Act as the assessee was the beneficiary of the said transaction. He, therefore, held that the assessment order was erroneous and prejudicial to the interest of the Revenue. He, therefore, set aside the assessment order dated 22.05.2023 passed u/s 147 of the Act with a direction to the AO to pass a fresh assessment order in accordance with law in the light of observations made by him.

3. Being aggrieved by the said order of the Ld.PCIT, the assessee is in appeal before us.

4. We have heard rival contentions and gone through the records. A perusal of the assessment order reveals that the AO had thoroughly examined the ledger / bank accounts of the assessee. He has given a categorical finding that the assessee has given advances three times to M/s. Kasturi Commodities Pvt. Ltd., however, the same were returned back by M/s. Kasturi Commodities Pvt. Ltd. to the assessee within a short span of time.

The assessee explained that since the goods ordered (propeller) was not up to the mark, hence, the same were not purchased. M/s. Kasturi Commodities Pvt. Ltd., however, had replied that it had availed short term loan from the assessee, which was repaid. Whatever the nature of the said transaction was, the fact on record is that the assessee had paid the amount in question to M/s. Kasturi Commodities Pvt. Ltd. and there is no allegation that the said amount paid by the assessee was from any undisclosed sources or that the assessee could not explain the source of the same. Whether the assessee had given the amount as a short term loan or as advances for purchases, it makes no difference when there is no allegation that the said amount was advanced by the assessee from any undisclosed sources. It is also an admitted fact that the said amount was returned back by M/s. Kasturi Commodities Pvt. Ltd. to the assessee in a short span of time of 2­3 days, therefore, it is apparently not a case of any accommodation entry received by the assessee. We fail to understand as to how even the AO can conclude that the assessee might have earned some commission on the payment of this amount through banking channel to M/s. Kasturi Commodities Pvt. Ltd. and especially when, the same was refunded, as such, to the assessee by the said party. Neither apparently it is a case of accommodation entry received by the assessee nor of any bogus purchases as the assessee admittedly did not purchase goods rather the amount was refunded to the assessee. The exercise of revision u/s 263 of the Act by the PCIT in this case is wholly unjustified. The revision order passed by the Ld.PCIT is, therefore, without jurisdiction as assessment order passed in no case can be said to be prejudicial to the interest of the Revenue. The impugned revision order of the PCIT passed u/s 263 of the Act, is hereby, quashed.

5. In the result, the appeal of the assessee stands allowed.

This Order pronounced on 19/06/2026