Susheel Vs ITO (ITAT Delhi)
Bogus Purchase Cannot Become “Unexplained Expenditure” Merely by Changing the Label – Delhi ITAT Deletes ₹34.35 Lakh Addition u/s 69C &; Consequential Tax u/s 115BBE
Summary:
The Delhi ITAT has held that where the alleged purchase expenditure is duly recorded in the books, supported by documentary evidence & its source is explained, the AO cannot invoke section 69C merely because the supplier is alleged to be an accommodation-entry provider. Once section 69C itself fails, the consequential application of the higher tax rate u/s 115BBE also cannot survive.
51-Day Delay – Consultant’s Lapse Should Not Cost the Assessee His Appeal
There was a delay of 51 days in filing the appeal before the ITAT. The assessee, a small civil contractor, explained that he was not conversant with income-tax technicalities & had entrusted the matter to his tax consultant/accountant. Due to an inadvertent lapse on the consultant’s part, the appeal was not filed within time.
Relying upon the principle that a litigant should not suffer because of the mistake of his counsel, the Tribunal found reasonable cause & condoned the delay.
The Trigger – Search on Somebody Else & ₹34.35 Lakh Purchases
The assessee was engaged in civil contracting, mainly executing Government infrastructure works such as roads, streets & other civil works. Reassessment proceedings u/s 147 were initiated on information alleging that the assessee had obtained an accommodation entry relating to purchases of ₹34.35 lakh from M/s R.K. & Company.
The information originated from a search in the case of Shri Sanjay Jain & related entities. In a statement u/s 132(4), Sanjay Jain allegedly admitted providing bogus bills/accommodation entries without actual movement of goods & R.K. & Company was alleged to be one of his controlled concerns.
The assessee, however, maintained that the purchases were genuine & produced tax invoices, ledger account, bank statements & e-way bills, besides explaining that the materials were actually utilised for execution of Government contracts. Of the ₹34.35 lakh, ₹26,83,594 represented taxable value & ₹7,51,406 represented GST.
Nevertheless, the AO treated the entire ₹34.35 lakh as bogus purchases/accommodation entries & made an addition u/s 69C taxable u/s 115BBE. The CIT(A) upheld the addition.
The Core Question – Can a Recorded Purchase Be Hit by Section 69C?
The assessee’s principal argument was simple but fundamental: section 69C deals with unexplained expenditure, not allegedly bogus expenditure whose source is already recorded & explained.
The purchases were reflected in the regular books & supported by invoices, ledger accounts, bank statements, GSTR-2A, e-way bills & Government contract records. The AO had nowhere established that the source of the expenditure was unexplained. The allegation was essentially that the supplier was an accommodation-entry provider based upon a third-party statement.
Importantly, the AO had neither invoked section 145(3) nor rejected the books of account, nor pointed out any defect in the purchase records, banking transactions, GST records or Government contract execution. There was also no finding that the payments made through banking channels had somehow travelled back to the assessee.
ITAT – Books Accepted, Section 69C Cannot Be Invoked
The Tribunal accepted the assessee’s contention. It specifically recorded that the assessee’s books had neither been rejected nor found incorrect or incomplete. Consequently, the addition u/s 69C was held to be wholly unsustainable.
The ITAT relied upon DCIT v. Vidarbha Infotech Pvt. Ltd., ITA No.76/Nag/2024, order dated 10.02.2025, wherein it had been held that section 69C applies where expenditure is incurred but its source is unexplained. Where expenditure is recorded in the books, the fundamental condition for invoking section 69C is absent.
The Tribunal also noted the principle that presumption, however strong, cannot substitute evidence. An AO cannot disregard invoices, contracts, books & other supporting material merely on assumptions, presumptions, surmises & conjectures without bringing credible evidence on record demonstrating that the expenditure was not genuine.
The relied-upon precedent further emphasised that where the expenditure is duly debited in the books, section 69C has no application merely because the AO doubts its genuineness.
An Additional Twist – Turnover Was Only ₹90 Lakh
The ITAT noticed another significant aspect. The assessee’s turnover was only ₹90 lakh, falling within section 44AD. The Tribunal observed that there was therefore no requirement to maintain books of account. More importantly, the Revenue had accepted the sales while doubting only the purchases.
Accordingly, following the judicial precedents & considering the facts, the Tribunal deleted the entire addition of ₹34.35 lakh. Grounds relating to section 69C & section 115BBE were allowed, while the remaining grounds were left open. The assessee’s appeal was consequently allowed.
Author’s Comments
The decision draws an important distinction between “bogus expenditure” & “unexplained expenditure.” Section 69C is not a universal provision available to the AO whenever he doubts a purchase. Its jurisdictional foundation is that expenditure has been incurred & the assessee is unable to satisfactorily explain its source.
If purchases are recorded, payments are through disclosed banking channels & supporting material such as invoices, GST records & e-way bills exists, merely branding the supplier as an accommodation-entry provider does not automatically convert the expenditure into unexplained expenditure u/s 69C.
The decision is particularly useful in search-derived bogus-purchase cases where additions are mechanically made on the strength of third-party statements despite the assessee possessing contemporaneous documentary evidence. Equally important is the consequence for section 115BBE: if the foundational addition u/s 69C itself is legally impermissible, the Revenue cannot rescue the assessment by imposing the penal rate of taxation u/s 115BBE.
In short, suspicion may justify investigation – but it cannot turn an accounted purchase into unexplained expenditure merely by putting a section 69C sticker on it.
Cases Discussed
- Concord of India Insurance Co. Ltd. vs. Smt. Nirmala Devi and Others, 118 ITR 507 (SC)
- DCIT vs. Vidarbha Infotech Private Limited, ITA No. 76/Nag/2024, order dated 10.02.2025
- CIT vs. Nangalia Fabrics Pvt. Ltd., 220 Taxman 17 (Guj.)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH
1. This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 01.12.2025 for the Assessment Year 2019-20.
2. At the time of filing of appeal, the Registry has pointed out a defect that appeal is time barred by 51 days. In response thereof, the Assessee has filed an application seeking condonation of delay in filing of the appeal on the ground that the assessee, being a small contractor, was not well-versed with the technicalities of income-tax law and the limitation period prescribed for filing appeal before the ITAT. He submitted that the assessee was under a bona fide belief that the necessary compliance and further course of action would be taken care of by his tax consultant. He submitted that the assessee had entrusted the matter to his tax consultant/accountant, who had been handling the assessment proceedings. However, due to inadvertent lapse and oversight on the part of the said consultant, the appeal could not be filed within the prescribed time limit. In this regard, ld. AR of the assessee submitted that it is a settled position of law that a litigant should not suffer for the mistake of his counsel, as held by Hon’ble Supreme Court in Concord of India Insurance Co. Ltd. vs. Nirmala Devi. Accordingly, he pleaded that assessee has a strong case on merits, inter alia, involving addition based solely on their party statement without cross-examination and, therefore, non-condonation of delay would result in grave injustice to the assessee and pleaded to condone the delay in filing the present appeal.
3. We have heard both the counsels on the issue of condonation of delay. In our considered opinion, there was a reasonable cause for the delay in filing the appeal. Therefore, we condone the delay in filing the appeal before the Tribunal.
4. At the time of hearing, ld. AR of the assessee brought relevant facts of the case and his submissions are as under. The assessee is an individual carrying on the business of civil contracting as proprietor of M/s Susheel Contractor, primarily executing infrastructure projects such as construction of roads, streets and other civil works for Government and Government bodies. The assessee filed his return of income on 26.12.2019 declaring a total income of Rs.l3,29,490/-.Subsequently, proceedings under section 147 of the Income-tax Act, 1961 (for short ‘the Act’) were initiated on the basis of information alleging that the assessee had obtained accommodation entry relating to purchases of Rs.34,35,000/- during F.Y. 2018-19 from M/s RK & Company. Accordingly, notice under section 148 dated 12.04.2023 was issued after passing an order under section 148A(d) on the same date. As recorded in the assessment order, no return was filed in response to the said notice. Thereafter, notices under section 142(1) dated 09.09.2024 and 16.12.2024 were issued during reassessment proceedings and the assessee furnished a response on 31.12.2024. A final show cause notice was thereafter issued on 16.01.2025.
5. It is submitted that Assessing Officer heavily relied on the information found during search conducted under section 132 of Income-tax Act, 1961 (for short ‘the Act’) in the case of Shri Sanjay Jain and related entities, wherein, in a statement recorded under section 132(4), Shri Sanjay Jain allegedly admitted to providing bogus bills/accommodation entries without actual movement of goods. It was further alleged that M/s RK& Company was one of the concerns controlled by Shri Sanjay Jain. During the reassessment proceedings, the assessee denied having obtained any accommodation entry and submitted that the transactions with M/s RK & Company were genuine business purchases. In support thereof, the assessee furnished tax invoices, ledger account. bank statements and e-way bills, and explained that the materials purchased were actually utilized in execution of Government contracts. He further submitted that the total purchase amount of Rs.34,35,000/- comprised taxable value of Rs.26,83,594/- and GST of Rs.7,51,406/-. However, the Assessing Officer completed the reassessment under section 147 read with sections 144 and 144B vide order dated 13.02.2025, treating the entire purchases of Rs.34,35,000/- from M/s R K& Company as bogus purchases/accommodation entries and proceeded to make an addition under section 69C, taxable under section 115BBE. Consequently, the total income was assessed at Rs.37,64,490/- as against the returned income of Rs.3,29,490/- and a demand of Rs.44,94,413/- (including tax, interest and penalty) was raised.
6. Aggrieved by the reassessment order, the assessee preferred an appeal before the ld. CIT (A) challenging, inter alia, the addition of Rs.34,35,000/- on account of alleged bogus purchases and reiterating that the purchases were fully supported by tax invoices, ledger accounts, bank statements and e-way bills. It was further contended that, in any event, the GST component could not form part of the alleged unexplained expenditure. However, the Ld. CIT(A), vide order dated 01.12.2025 upheld the assessment order and dismissed the appeal.
7. Aggrieved by the order of the ld. CIT(A), the assessee preferred an appeal before us. However, assessee has raised various grounds but at the time of hearing, only Grounds No.5 & 8 were argued and proceeded to adjudicate only these grounds being Grounds No.5 & 8, read as under :-
“5. That on the facts and in the circumstances of the case and in law, the addition made under section 69C of the Act is wholly unsustainable as the books of accounts of the Appellant have neither been rejected nor found to be incorrect or complete.
Reliance is placed on CIT vs. Nangalia Fabrics Pvt. Ltd., wherein it was held that without rejection of books, such disallowance is not permissible.
8. That on the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in confirming taxation under section 115BBE of the Act without establishing that the impugned addition validly falls within the scope of section 69C in accordance with law.”
8. At the time of hearing, ld. AR of the assessee with regard to above grounds submitted as under :-
“Section 69C is inapplicable to the facts of the present case and consequently Section 115BBE cannot be Invoked
The addition of Rs.34,35,000/- under section 69C is legally unsustainable. Section 69C is a deeming provision which can be invoked only where the assessee has Incurred expenditure and either fails to explain the source of such expenditure or the explanation offered is found to be unsatisfactory.
In the present case, the jurisdictional conditions for invoking section 69C are absent. The alleged purchases of 34,35,000/- are duly recorded in the regular books of account and are fully supported by purchase invoices [Paper Book Pages 105-159, Volume I], ledger account of M/s R.K. & Company [Pages 103-104]. bank statements [Pages 173, 178 & 179], GSTR-2A [Pages 207- 215], e-way bills [Pages 146-159], Government contract records[Pages 216- 252]
Thus, the expenditure is not only recorded in the books but is also fully explained through documentary evidence. The Assessing Officer has nowhere recorded that the source of the expenditure was unexplained. The addition has been made solely on the allegation that M/s R.K. & Company was an accommodation entry provider based on the statement of a third party.
It is respectfully submitted that a doubt regarding the genuineness of the supplier cannot, by itself, justify an addition under section 69C. The provision deals with unexplained expenditure, whereas in the present case the expenditure is duly recorded, supported by documentary evidence and incurred in the ordinary course of the Appellant’s business.
Further, the Ld. Assessing Officer has not invoked Section 145(3). Also neither rejected the books of account nor pointed out any defect in the purchase records, bank transactions, GST records or execution of Government contracts as can be seen from order passed under section 147 of the Act [Paper book page no. 41 of Volume – I]. The Department has also not established that the payments made through banking channels were returned to the Appellant.
Reliance is placed on the following Judicial precedents:
(i) The Hon’ble ITAT, Nagpur Bench in DCIT v. Vidarbha Infotech Private Limited (ITA No. 76/Nag /2024, order dated 10.02.2025) held as under :-
(ii) The Hon’ble Gujarat High Court in CIT v. Nangalia Fabrics Pvt. Ltd.(Tax appeal No. 688 of 2010, decided on 22.04.2013) categorically held:
Accordingly, the invocation of section 69C is contrary to law and the addition of Rs.34,35,000/- deserves to be deleted. Consequently, the provisions of section 115BBE are also not applicable.”
9. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.
10. Considered the rival submissions and material placed on record. We observed that the books of accounts of the assessee have neither been rejected nor found to be incorrect or incomplete. Thus, the addition made under section 69C of the Act is wholly unsustainable. Further, we observed that this issue is squarely covered by various decisions in favour of the assessee. In this regard, we find force from the decision of ITAT, Nagpur Bench in the case of DCIT vs. Vidarbha Infotech Private Limited (supra) and the relevant findings of the same are reproached below :-
“14. We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. We are inclined to agree with the arguments made by the leaned counsel for the assessee, We find force in the argument of the learned counsel for the assessee that the payments totalling to 7.50 crore are duly supported by third-party invoices s contracts entered into between the assessee and the said companies. We further find that the said transactions are duly recorded in the books of accounts of the assessee and the assessee has during the course of assessment proceedings demonstrated and substantiated the need for entering all such expenditures coupled with the fact that during the impugned assessment year the assessee earned an amount of 2,970 lakh and for which the assessee was required to incur the impugned expenditures. It is very pertinent to mention here that during the course of investigation by the Assessing Officer, the notices were sent to the concerned companies under section 733(6) of the Act, which were duly replied to and complied with by the said companies confirming the transaction with the assessee. The Assessing Officer merely on assumptions and presumptions has proceeded to disregard all the evidence, as filed by the assessee, as well as information so received in response to notices issued under section 133(6) of the Act. The Assessing Officer has primarily proceeded to disallow the claim of expenditure firstly on the ground that the details, as provided under section 133(6) of the Act are not in the opinion of the Assessing Officer ‘satisfactory’ without elaborating as to what other details were required and which have not satisfactorily been provided to by the said companies. The Assessing Officer has further proceeded to make the addition disregarding the submissions filed by the assessee, but without any valid reason holding it to be not tenable. The Assessing Officer failed to bring on record any credible and concrete evidence or explanation to prove that the expenditure incurred by the assessee was not genuine or was not in connection with the business of the assessee and has simply on the basis of assumptions, presumptions, surmises and conjectures proceeded to hold that the expenditures so incurred were not genuine and consequently disallowed the same in the hands of the assessee. It is a trite law that presumption, however strong, cannot substitute evidence. This is a classic case where the Assessing Officer has disregarded all the evidence filed during the course of assessment proceedings and has simply on the presumption that the expenditure incurred are not genuine proceeded to disallow the same. The learned CIT(A) has rightly held at Page-14 of his order that it was incumbent upon the Assessing Officer to bring on record at least some positive evidence to show that the existing manpower employed by the companies was inadequate and not well suited for the job. The Assessing Officer has not brought out how the contracted Companies lacked administrative/technical setup or infrastructure setup to perform the work. It is further trite law that it is open for the assessee to conduct its business and affairs to the best of his capabilities and choices and it is solely the prerogative of the assessee to run the business in any manner that it deems fit and that the Assessing Officer cannot enter into the shoes of the assessee and direct how to with the business. We further find force in the argument of the assessee that the addition made by the Assessing Officer under section 69C is grossly illegal as the same is not applicable to the facts of the present case. On a bare perusal of the provisions of section 69C of the Act it is very clear that the said section can be invoked only when there has been some expenditure income by the assessee, the source of which is not disclosed and that in cases where such expenditure is recorded in the books of accounts the provision of section 69C are not applicable. The basic condition for invoking the provisions of section 69C of the Act is that the expenditure incurred by the assessee should be outside the books of accounts which are not the case here. The addition made by the Assessing Officer deserves to be deleted on this ground itself. On a conspectus of the above facts and submissions made by the learned counsel for the assessee, we find absolutely no justification on merits and in law for the Assessing Officer to disallow the expenditure incurred of 7.50 crore and that too under section 69C of the Act. We also find that the assessee had duly discharged the onus cast upon it under law and proved the genuineness of the transaction pertaining to the expenditure of 7.50 crore as well as the same being related to the business being run by the assessee and accordingly hold that the Assessing Officer was not justified in treating the said expenditure as bogus ignoring the facts and evidence submitted by the assessee during the course of assessment proceedings. We further hold that the Assessing Officer grossly erred in making the addition under section 69C of the Act ignoring the fact that the said section has absolutely no applicability to the facts and circumstance of the case especially considering that the impugned expenditure of 7.50 crore has been duly debited in the books of accounts of the assessee and considering the same provisions of section 69C has no applicability and consequently hold that the addition made of 7.50 crore by the Assessing Officer under section 69C is illegal on this ground as well.”
11. Further, we also observed that the turnover of the assessee is only Rs.90 lakhs which falls under section 44AD of the Act. Hence, there is no need to maintain any books of account and further, sales are accepted and only purchases are doubtful. In view of the above and respectfully following the aforesaid decision, we are of the considered view that the grounds of the assessee are to be allowed and we hold so and the addition of Rs.34,35,000/- is deleted. Hence, the grounds no.5 & 8 raised by the assessee are allowed.
12. Since we have allowed the legal issues, the other grounds are not adjudicated and the same are kept open.
13. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on this 3rd day of September, 2026.
