Vinay Iron Foundry Vs PCIT (ITAT Agra)
Section 115BBE Requires a Finding Under Sections 68–69D: Revision of Bogus Purchase Disallowance Quashed
Case Details
In Vinay Iron Foundry v. PCIT-1, Agra, the Agra Bench of the Income Tax Appellate Tribunal held that a direction to tax disallowed purchases under section 115BBE could not stand without determining that the income fell under one of the provisions specifically covered by that section.
The common order in ITA Nos. 427 and 428/Agr/2026, concerning Assessment Years 2019-20 and 2022-23, was pronounced on 7 October 2026 by Shri Sunil Kumar Singh, Judicial Member, and Shri Brajesh Kumar Singh, Accountant Member.
The Tribunal quashed the revision for AY 2019-20. For AY 2022-23, it restored the revision proceedings to the PCIT because the assessee’s fresh claim that disputed balances represented loans advanced, rather than loans received, required verification.
Background: Purchases Disallowed as Business Expenditure
For AY 2019-20, the Assessing Officer completed the assessment under section 147 read with sections 144 and 144B on 4 March 2024.
Departmental information alleged that the assessee had undertaken bogus purchase and sale transactions with related concerns to avail or pass on GST input tax credit without actual movement of goods.
The Assessing Officer disallowed purchases of ₹12,50,09,943, treating them as expenditure not satisfactorily explained or substantiated, and added the amount to business income. He did not separately add the allegedly bogus sales of ₹6,88,10,555, which were already reflected as receipts.
The PCIT subsequently initiated revision under section 263. His show-cause notice proposed that the disallowed purchases should have been treated as unexplained income under section 68 and taxed under section 115BBE.
Assessee’s Objection and PCIT’s Direction
The assessee argued that the disputed purchases were debit entries representing expenditure, whereas section 68 concerned sums credited in the books. According to the assessee, the Assessing Officer had already disallowed the entire expenditure, and that disallowance could not simply be converted into an unexplained cash-credit addition.
The PCIT rejected the objection. He considered the purchases to be accommodation entries unrelated to genuine business activity and directed the Assessing Officer to apply section 115BBE.
However, the final revision order did not specify the particular provision under which the purchase disallowance was being characterised as deemed income. This omission became decisive before the Tribunal.
Tribunal: The Statutory Basis Must Be Identified
The Tribunal examined section 115BBE and observed that its application requires income falling under section 68, 69, 69A, 69B, 69C or 69D.
Although the show-cause notice had referred to section 68, the PCIT’s final order merely directed taxation under section 115BBE without determining which of those underlying provisions applied.
The Tribunal emphasised that the PCIT should have recorded specific findings, particularly because the assessee had expressly objected that the purchases were expenditure debits and not unexplained credits.
In the absence of a determination bringing the amount within one of the specified provisions, the direction to apply section 115BBE was unsustainable. The Tribunal accordingly set aside and quashed the section 263 order for AY 2019-20.
The separate ground alleging that the PCIT had directed an addition under section 68 became infructuous because the final revision order had not actually determined that provision’s applicability. Other grounds became academic and were left open.
AY 2022-23: Loans Received or Loans Advanced?
The second appeal concerned balances of ₹1,74,70,476 relating to Shri Panna Lal Jain and ₹48,32,118 relating to Smt. Sarala Jain.
The assessment order described these as unsecured loans received. It recorded non-response to section 133(6) notices and absence of supporting documents, but apparently did not carry the proposed section 68 addition into the assessed income.
The PCIT revised the assessment on that basis. Before him, the assessee claimed that the amounts were opening balances carried forward from an earlier year, but the PCIT found that supporting evidence had not been furnished.
Before the Tribunal, the assessee advanced a different factual explanation: the amounts were loans and advances given to those persons, appearing on the asset side of the balance sheet. It produced Schedule J and the relevant balance sheet in support.
The Tribunal noted that this explanation had not been presented before either the Assessing Officer or the PCIT. It also found that the earlier-year balance sheet or comparative figures needed to establish the opening-balance claim were unavailable.
Consequently, the Tribunal restored the matter to the PCIT for fresh examination.
Cases Discussed
- Krishna Ratan & Co. (ITAT Lucknow; Order dated 01/06/2022): Cited by the assessee for the proposition that section 68 concerns sums credited in the books and cannot automatically be applied to purchases debited as expenditure.
- Kishan Lal Jewels (P) Ltd. v. ACIT (ITAT Delhi; ITA No. 229/Del/2011): Cited by the assessee regarding the distinction between disallowance of alleged bogus purchases and treatment of corresponding receipts as unexplained credits.
- Rajesh G. Jain v. ITO: Cited by the assessee in support of its objection to treating an expenditure disallowance as a further unexplained cash-credit addition.
- CIT v. Vishal Exports Overseas Ltd. (Gujarat High Court): Referred to in the assessee’s submissions concerning the treatment of amounts already brought to tax through disallowance of expenditure.
- CIT v. Devi Prasad Vishwanath Prasad (Supreme Court; (1969) 72 ITR 194): Cited by the assessee concerning the question whether an amount represented income from a source already brought to tax.
FULL TEXT OF THE ORDER OF ITAT AGRA
Both these appeals are directed against two separate orders both dated 27.02.2026 passed in Revision No. PCIT, Agra-1/Revision- 263/100000790783/2025 and PCIT, Agra-1/Revision- 263/100000790784/2025 by the ld. Principal Commissioner of Income Tax-1, Agra [hereinafter referred to as the “PCIT] u/s. 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2019-20 and 2022-23 respectively.
2. Since, both these appeals are inter-related to the same assessee, they were heard together and are disposed of by this consolidated order for the sake of convenience and brevity.
3. Both these appeals have been filed delayed by 15 days. The assesee has assigned the following reasons in his application for condonation of delay, which is reproduced as under:
“1. That the accompanying appeal against the order passed by the Learned Commissioner of Income Tax (Appeals)/Assessing Officer for the Assessment Year 2019-20 has been filed with a delay of 10 days.
2. That the delay in filing the present appeal was neither intentional nor deliberate but occurred due to bona fide and unavoidable circumstances beyond the control of the, appellant.
3. That the Managing Partner of the appellant firm, Mr. Viivek Beriara, was preoccupied in family marriage functions and therefore could not timely arrange and deliver the relevant documents and papers to the Chartered Accountant, Mr. Gaurav Agarwal, for preparation and filing of the appeal within the prescribed period of limitation.
4. That immediately after the completion of the aforesaid family engagements and upon handing over of the necessary documents, prompt steps were taken to prepare and file the present appeal without any further delay.
5. That the appellant has a good prima facie case on merits and substantial justice would suffer irreparable loss if the delay is not condoned.
6. That the Hon’ble Courts have consistently held that matters should ordinarily be decided on merits and a liberal approach should be adopted while considering petitions for condonation of delay where sufficient cause is shown.
7. That the delay is purely technical and unintentional in nature and no prejudice shall be caused to the Revenue if the same is condoned.
It is therefore most respectfully prayed that the Hon’ble Tribunal may kindly condone the delay 10 days in filing the accompanying appeal and admit the same in the interest of justice and equity.”
3.1 In view of the reasons stated in the delay condonation application, we hereby condone the nominal delay of 15 days caused in filing both these appeals and the appeals are admitted for adjudication.
ITA No. 427/Agr/2026 (A.Y. 2019-20):
4. The assessment in this case was completed u/s. 147 r.w.s. 144 r.w.s. 144B of the Act on 04.03.2024. The AO, inter alia, had made an addition of Rs.12,50,09,943/-. The relevant extract of the assessment order in para 4.1 in this regard is reproduced as under:
“4.1 Bogus Purchase and sales
Department has information that Assessee is involved in the bogus sales and purchase to pass on the GST-ITC. The assessee has carried out bogus purchase and sales with the sister concerns l.e. related parties. As per information available and stated above, the assessee has purchase and sale of Rs. 1,57,13,111/- and Rs. 6,88,10,555/- from M/s Benara Bearing Piston Ltd. Further, assessee has purchased the goods of Rs. 10,17,52,332/- and Rs. 75,44,500/- from M/s Benara Engine Spares Pvt. Ltd. and Benara Valves Ltd. respectively. The total purchase from related parties is Rs. Rs. 12,50,09,943/- against the sale of Rs. 6,88,10,555/-. Since the assessee failed to explain the same or provide the details, the purchase of Rs. 12,50,09,943/- is hereby disallowed as expenses and added into the business income of the assessee.
Further since the whole purchase is getting disallowed, the bogus sale of Rs. 6,88,10,555/- as already shown in the sales (as income) balance sheet, no adverse inference is drawn on the same.
Penalty proceedings u/s 270A of the Income tax Act, 1961 is initiated for concealment of income inconsequence to misreporting of income.”
(emphasis supplied by us)
4.1. Subsequently, proceeding u/s. 263 of the Act was initiated by the ld. PCIT, Agra-1 vide a notice dated 13.01.2026. In this regard, the relevant extract of the notice dated 13.01.2026 is reproduced as under:
“3. Therefore, after examining the case records, a notice u/s. 263 of the Income Tax Act. 1961 dated 13.01.2026 was issued to the assessee requiring it to show cause as to why the assessment order dated 04.03.2024 passed under section 147 read with sections 144 & 144B of the Income-tax Act, 1961, being erroneous in so far as prejudicial to the interest of revenue, should not be revised under section 263 of the Act. The text of notice u/s 263 dated 13.01.2026 is reproduced as under for the sake of clarity:
2. In your case, Return of Income for A.Y. 2019-20 was filed on 02.11.2019 declaring Nil income. Subsequently, the case was selected for scrutiny u/s 148 of the Act on the basis of information that the Assessee Firm M/s Vinay Iron Foundry has availed itself of and passed on fake Input Tax Credit of GST without actual receipt and supply of goods of Rs. 28,28,360/- and Rs. 1,23,85,900/ respectively. Therefore, ITC resulted into the Bogus purchase of Rs. 1,57,13,111/-and bogus sales of Rs. 6,88,10,555/- These financial transactions raise concerns about the accuracy and completeness of the financial information. Thereafter, the assessment was completed u/s 147 r.w.s. 144 read with section 144B of the Act on 04.03.2024 assessing the total income of Rs. 12,51,55,881/- as business income.
3. I have examined the case record in your case for A.Y. 2019-20 and on examination of the case records, following issue has emerged:
A. It is observed that the FAQ established this fact that total purchase of Rs. 12,50,09,943/- (Rs. 1,57,13,111/- from M/s Benara Bearing Piston Ltd. and Rs. 10,17,52,332/- and Rs. 75,44,500/- from M/s Benara Engine Spares Pvt. Ltd. and Benara Valve Ltd. respectively) were bogus purchases. These were nothing but only accommodation entries were received.
Since, you had actually neither purchased any goods from the above-mentioned parties nor sold and only the book value was increased by you through unaccounted money in the shape of purchase/sale through colorable devices. In the present scenario, i.e. after establishment of bogus purchases through accommodation entries, the same was required to be treated as un-explained income u/s 68 of the IT Act, 1961 and taxed accordingly u/s 115BBE of the Act, but the same was not done.
4. In view of the above observations, please explain as to why it should not be concluded that the Assessment Order u/s 147 r.w.s. 144 read with section 144B of the Income-tax Act, 1961 dated 04.03.2024 for A.Y. 2019-20 in your case is erroneous in so far as it is prejudicial to the interests of the revenue, and why it should not be revised u/s 263 of the Income Tax Act, 1961 by passing an order, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
5. You are hereby being granted an opportunity to furnish your explanation on each of the above mentioned, issue(s), alongwith supporting evidences/documents in support of your claims, which you may submit in my office on or before 21.01.2026 or you may file e-reply to the email ID [email protected] or on e-filing portal. In case you wish to be heard personally, you or your duly Authorized Representative may attend my office at Room No., 217, 2nd Floor, Aaykar Bhawan, Sanjay Place, Agra on 21.01.2026 at 11:30 A.M. Please note, in case of non-compliance, it will be presumed that you have nothing to say in the matter and the case will be decided on merits on the basis of documents available on record.”
(emphasis supplied by us)
4.2. Thereafter, the assessee submitted its reply, which is placed on page 4 to 6 of the order u/s. 263, in which the ‘conclusion’ of the submission made by the assessee is reproduced as under:
“5. Conclusion
In view of the above facts and settled legal position:
-
- The assessment order is neither erroneous nor prejudicial to the interest of revenue.
- Additions have already been made by the AO in favour of the department.
- Section 68 is wrongly proposed in a case of disallowance of expenditure, and
- The revision proceedings are therefore without jurisdiction and liable to be dropped.
The assessee humbly prays that the proposed proceedings u/s. 263 may kindly be dropped in full, in the interest of justice.”
4.3. Learned PCIT did not accept the above submission of the assessee and stated that since the addition of Rs.12,50,09,943/- was held to be bogus purchases and in the nature of accommodation entries not relating with the business activities, therefore, the same should have been taxed u/s. 115BBE of the Act, which was not done in the assessment order. Accordingly, the ld. PCIT modified (partly set aside) the assessment order by directing the AO to charge tax u/s. 115BBE of the Act in respect of the bogus purchases amounting to Rs.12,50,09,943/- and to pass orders accordingly after providing due opportunity of being heard to the assessee. In this regard, the relevant extract of ld. PCIT in para No. 8 of the order is reproduced as under:
“8. Therefore, in view of the above facts and circumstances, reply filed by the assessee and after examining the material available on record, it is held that the order dated 29.03.2022 passed under section 147 read with sections 144 & 144B of the I. T. Act, 1961 by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue as in assessment order already AO has held that there are bogus purchases to the tune of Rs. 12,50,09,943/-. Thus, it was accommodation entries and should not relate with business activity. Accordingly, it should have been taxed u/s 115BBE of the Act, this was not done in assessment order. Therefore, the said order dated 04.03.2024 passed u/s.147 r.w.s. 144/144B of the Act by the Assessing Officer is hereby modified (Partly Set Aside) on this issue of charging tax u/s 115BBE of the I.T., 1961, with the directions to the Assessing Officer to pass order accordingly, after providing due opportunity of being heard to the assessee.”
(emphasis supplied by us)
5. Aggrieved with the said order, the assessee is in appeal before us on the following grounds of appeal:
“1. That the order passed under Section 263 is bad in law and without jurisdiction. The Ld. PCIT erred in assuming jurisdiction under Section 263, as the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The assessed income stood enhanced compared to the returned income, resulting in no loss to the revenue as the twin conditions required to assume jurisdiction under section 263 are not satisfied in this case. The Assessing Officer passed the order after due application of mind and a proper appreciation of the facts of the case.
2. That the AO took a plausible view after due verification. The Ld. PCIT failed to appreciate that the AO had already examined the issue of bogus purchases during the original assessment proceedings. The revisionary powers cannot be exercised merely to substitute the PCIT opinion with that of the AO when a possible and lawful view has already been taken.
3. That Section 68 is incorrectly invoked for business expenditure. The Ld. PCIT erred in directing the addition to be taxed under Section 68 r.w.s 115BBE. Section 68 applies exclusively to unexplained cash credits (credit entries), whereas the matter relates to the disallowance of business expenditure/purchases (debit entries).
4. That Explanation 2 to Section 263 has been wrongly applied. The conditions under Explanation 2 (lack of inquiry OR verification) are not satisfied in this case. The Ld. AO had conducted inquiries and verifications before passing his order. 4 The Ld AO had specifically asked for justifications regarding purchases from sister concerns u/s 40(A)(2)(b). The AO specifically raised queries regarding the purchases during the assessment proceedings, and the purchases were supported by GSTR 2A and bank entries.
5. That the Ld. PCIT failed to properly consider the judicial 5 precedents cited by the Appellant, summarily dismissing them as Rs. 0 distinguishable on facts without providing adequate reasoning.
6. The appellant craves leave to add, amend, alter, OR DLEETE hearing. 6 any of the grounds of appeal at OR before the time of the hearing.”
6. At the time of hearing, the learned AR reiterated the submissions made before learned PCIT during the proceedings u/s. 263 of the Act. On the specific issue of not invoking the provisions of section 115BBE of the Act in respect of the disallowance of the purchases amounting to Rs.12,50,09,943/-, the learned AR submitted that the provisions of section 68 of the Act apply only to credit entries representing the receipts such as loans, deposits, share capital or similar sums credited in the books and it was not applicable to purchases, which are debit entries representing expenditure not credits. The ld. AR also submitted that in the present case, the amount in question represents disallowed purchase, i.e., an expenditure claimed by the appellant and debited in the books of account and there is no credit entry of the corresponding nature contemplated u/s. 68 of the Act. According to the ld. AR, the AO having disallowed the purchase as un-substantiated business expenditure correctly added the same to business income and re- characterizing the very same disallowance as an unexplained cash credit would amount to converting a debit side disallowance into a credit side addition, which was impermissible. In this regard, the ld. AR relied upon various case laws and the relevant extract of the submission in this regard are reproduced as under:
“Submission: Without prejudice to above Grounds, it is submitted that the entire premise of the impugned order that the disallowed amount of Rs. 12,50,09,943/- ought to have been taxed as unexplained income under section 68 read with section 115BBE is legally misconceived.
Section 68 of the Act applies only where a sum is found credited in the books of account of the assessee and the assessee fails to offer a satisfactory explanation as to the nature and source of such credit. By its very text and well-settled judicial interpretation, section 68 is attracted only to credit entries representing receipts such as loans, deposits, share capital or similar sums credited in the books it has no application to purchases, which are debit entries representing expenditure, not credits.
In the present case, the amount in question represents disallowed purchases -i.e., an expenditure claimed by the Appellant and debited in its books of account. There is no credit entry of the corresponding nature contemplated under section 68. The Assessing Officer, having disallowed the purchase as unsubstantiated business expenditure, correctly added the same to business income; recharacterizing the very same disallowance as an unexplained cash credit under section 68 would amount to converting a debit-side disallowance into a credit-side addition, which is impermissible. Reliance is respectfully placed on:
(a) Krishna Ratan & Co. (ITAT, Lucknow Bench, order dated 01.06.2022) -holding that addition under section 68 cannot be made for purchases, as purchase is an expense debited in the books and not a loan or deposit credited in the books; section 68 can only be invoked where a sum is found credited in the books, which is not the case where the amount in question represents purchases.
(b) Kishan Lal Jewels (P) Ltd. v. ACIT, ITA No. 229/Del/2011 (ITAT, Delhi) -holding that where purchases are held to be bogus, the appropriate course is disallowance of the purchase itself, and not assessment of the corresponding sale receipts under section 68; the genuineness of credit entries must be independently examined and cannot be assumed merely because purchases are doubted.
(c) Rajesh G. Jain v. ITO and the line of authority following CIT v. Vishal Exports Overseas Ltd. (Gujarat HC) holding that once an amount has already been brought to tax by way of disallowance of the corresponding expenditure/purchase, a further addition of the same amount under section 68 would amount to double taxation of the same income, which is impermissible.
(d) CIT v. Devi Prasad Vishwanath Prasad, (1969) 72 ITR 194 (SC) – holding that it is open to the assessee to demonstrate that even where a credit represents income, it is income from a source that has already been brought to tax, in which case no further addition is warranted.
It is submitted that since the AO has already disallowed and taxed the entire purchase of Rs. 12,50,09,943/- as business income, and since section 68 has no application to a disallowance of purchase/expenditure in the first place, the very foundation of the PCIT’s order that the AO ought to have invoked section 68 read with section 115BBE is unsustainable in law. An order cannot be said to be erroneous for failing to apply a provision that was not, in fact, applicable to the transaction in question.”
7. On the other hand, ld. CIT/DR supported the order of ld. PCIT.
8. We have heard both the parties and perused the material on record. As noted above the AO disallowed the purchases of Rs. 12,50,09,943/- as expenses claimed by the assessee on the ground that the assessee had carried out bogus purchases and sales with the sister concerns i.e. related parties and the assessee failed to explain the same or provide the details. The AO further noted that since the whole purchase was getting disallowed, the bogus sale of Rs. 6,88,10,555/- as already shown in the sales (as income) balance sheet, no adverse inference was drawn on the same. Thus, the AO disallowed purchases of Rs. 12,50,09,943/- as expenses and also decided not to tax the bogus sale of Rs. 6,88,10,555/- separately. Thus, the AO considered the purchases of Rs. 12,50,09,943/- as a not an allowable expenditure and also considered that since the bogus sale of Rs. 6,88,10,555/- was out of the above bogus purchases of Rs. 12,50,09,943/- no adverse inference was drawn on the same separately.
8.1 On the other hand, the Ld. PCIT agreeing with the above findings of the AO that the total purchase of Rs. 12,50,09,943/- were bogus purchases in the show cause notice dated 13.01.2026 in the proceedings u/s 263 of the Act observed that same was required to be treated as un- explained income u/s 68 of the Act, and taxed accordingly u/s 115BBE of the Act, which was not done by the AO. The Ld. PCIT came to a finding that the purchase of Rs. 12,50,09,943/- was accommodation entries and should not relate with business activity and accordingly, it should have been taxed u/s 115BBE of the Act which was not done in assessment order and modified (Partly Set Aside) the assessment order on this issue of charging tax u/s 115BBE of the Act, with the directions to the Assessing Officer to pass order accordingly, after providing due opportunity of being heard to the assessee.
8.2 Thus, we note that the Ld. PCIT in the show cause notice dated 13.01.2026 in the proceedings u/s 263 of the Act observed that purchases of Rs. 12,50,09,943/- was required to be treated as un- explained income u/s 68 of the Act and taxed accordingly u/s 115BBE of the Act but while giving his findings observed that it should have been taxed u/s 115BBE of the Act without specifying the section under which the addition of purchases amounting to Rs. 12,50,09,943/- was to be made, even though in the show cause notice he had asked the assessee to explain as to why the addition of purchases amounting to Rs. 12,50,09,943/- should not be treated as explained income u/s 68 of the Act. In this regard, the provision of section 115BBE of the Act are reproduced as under:
“115BBE. (1) Where the total income of an assessee,—
| (a) | includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D 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 or 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 per cent; and |
|---|---|
| (ii) | the amount of income- tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause ( i ). |
(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) and clause (b) of sub-section (1).”
8.3 Thus, on perusal of the above section in order to levy tax as per the provisions of section 115BBE of the Act, the income has to be assessed as an income u/s section 68, section 69, section 69A, section 69B, section 69C or section 69D of the Act which has not been determined by the Ld. PCIT in his order u/s 263 of the Act dated 27.02.2026 as discussed above in respect of the purchases amounting to Rs. 12,50,09,943/-. The Ld. PCIT should have given his specific findings when the assessee had specifically stated that section 68 was wrongly proposed in a case of disallowance of expenditure of purchases amounting to Rs. 12,50,09,943/- which are debit entries representing expenditure, not credits. Thus, in absence of the directions of the Ld. PCIT to tax purchases of Rs. 12,50,09,943/- as an income u/s section 68, section 69, section 69A, section 69B, section 69C or section 69D of the Act, the directions of the Ld. PCIT that the addition of Rs. 12,50,09,943/- was required to be taxed u/s 115BBE of the Act cannot be sustained. Here, we are conscious of the fact that the assessee in ground no. 3 of the appeal states that the Ld. PCIT erred in directing the addition to be taxed under Section 68 r.w.s 115BBE of the Act but as noted by us that the Ld. PCIT in his order u/s 263 of the Act dated 27.02.2026 as discussed above has not determined as to under which section as referred above to which this disallowance of Rs. 12,50,09,943/- would be taxed. Thus, ground no. 3 of the appeal becomes infructuous. Accordingly, the order dated 27.02.2026 of the Ld. PCIT u/s 263 of the Act is set aside and the same is quashed. Ground no. 1 of the appeal is allowed. In view of the fact, ground no. 1 of the appeal being allowed, the other grounds of appeal being ground no. 2, 4 and 5 become academic and are left open in this case.
ITA No.428/Agr/2026 (A.Y. 2022-23):
9. In this case, assessment was completed u/s. 143(3) r.w.s. 144B of the Act on 29.03.2024. In the assessment order, the AO noted about the unsecured loans taken by the assessee of Rs.1,74,70,476/- and Rs.48,32,118/- from Shri Panna Lal Jain and Smt. Sarala Jain. The AO noted that these parties did not respond to notices u/s. 133(6) of the Act and were liable for addition amounting to Rs.2,33,02,594/- u/s. 68 of the Act. In this regard, the relevant noting of the AO in para No. 5 on page No.7 and again in para No. 5 on page No. 9 of the assessment order are reproduced as under:
“ (5) Unsecured loans:
It is noted that the unsecured loan parties have not responded to the 133(6) notice. Therefore, unsecured loans received during the year from the aforementioned parties to the tune of Rs.2,33,02,594 is unexplained crdits u/s. 68.”
“(5). Unsecured loans:
The assessee has obtained the unsecured loan of Rs.1,74,70,476/- and Rs.48,32,118/- from Shri Panna Lal Jain and Smt. Sarla Jain. Both the parties are related to the assessee. Assessee has simply relied upon the judgments and stated that non receipt of reply from them does not shift the burden and cannot be added into his income. Moreover, assessee failed to give any documentary evidence such as confirmation. ITR Bank statement to justify the unsecured loan and simply stated that he has not accepted any fresh loan during the year.”
9.1. However, on perusal of the assessment order, it appears that no amount was added on account of unsecured loan u/s. 68 of the Act as referred above.
9.2 Thereafter, ld. PCIT, Agra-1 vide show cause notice dated13.01.2026 initiated proceedings u/s. 263 of the Act on the ground that the above unsecured loan was not added u/s. 68 of the Act by the AO in the assessment order. In this regard, the relevant extract of the notice u/s. 263 of the Act is reproduced as under:
“3. I have examined the case record in your case for A.Y. 2022- 23 and on examination of the case records, following issue has emerged
A. It is observed that you have shown unsecured loan of Rs. 1,74,70,476/- and Rs.48,32,118/- from Shri Panna Lal Jain and Smt. Sarla Jain. Both the parties had not responded to notice us 133(6) of the Act to verify the genuineness of amount transactions. Also you had simply relied upon the judgements and stated that non receipt of reply from them does not shift the burden and cannot be added into your income. Moreover, you have failed to give any documentary evidence such as confirmation, ITR, Bank statement to justify the unsecured loan and simply stated that you had not accepted any fresh loan during the year. Accordingly, in the absence of any corroborative evidence, the genuineness of the transaction could not be verified, and it was required to be added u/s 68 of the Act but the same was not done.
4. In view of the above observations, please explain as to why it should not be concluded that the Assessment Order u/s 143(3) read with section 1448 of the Income-tax Act, 1961 dated 29.03.2024 for A.Y. 2022-23 in your case is erroneous in so far as it is prejudicial to the interests of the revenue, and why it should not be revised u/s 263 of the Income Tax Act, 1961 by passing an order, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
5. You are hereby being granted an opportunity to furnish your explanation on each of the above-mentioned issue(s), alongwith supporting evidences/documents in support of your claims, which you may submit in my office on or before 21.01.2026 or you may file e-reply to the email ID [email protected] or on e-filing portal. In case you wish to be heard personally, you or your duly Authorized Representative may attend my office at Room No. 217, 2nd Floor, Aaykar Bhawan, Sanjay Place, Agra on 21.01.2026 at 11:30 A.M. Please note, in case of non- compliance, it will be presumed that you have nothing to say in the matter and the case will be decided on merits on the basis of documents available on record.”
9.3 In reply, the assessee submitted that the unsecured loan referred to in revision proceedings does not pertain to the relevant assessment year and represented an opening balance duly reflected in the books of account and carried forward from earlier year and hence question of treating the same as income of the current assessment year does not arise at all.
9.4 Learned PCIT noted the above claim made by the assessee, but observed that the assessee did not file any documentary evidence to prove his contention and therefore, the assessee’s explanation that the unsecured loan does not pertain to the relevant assessment year cannot be accepted. Accordingly, the ld. PCIT partly set aside the assessment order in respect of unsecured loan, as discussed in para 2, 3, & 6 of the order passed by the ld. PCIT u/s.263 of the Act with the direction to the AO to pass order accordingly after providing due opportunity of being heard to the assessee.
10. Aggrieved with the above order of ld. PCIT, the assessee filed appeal before us on the following grounds of appeal:
“1. The learned PCIT failed to appreciate that the twin conditions required to assume jurisdiction under section 263- namely, the order being both erroneous and prejudicial to the interest of the Revenue are not satisfied in this case. The Assessing Officer passed the order after due application of mind and a proper appreciation of the facts of the case.
2. The learned PCIT erred in directing the Assessing Officer to examine the addition under section 68 of the Act in respect of Loans and Advances (Assets) given by the appellant. The learned PCIT failed to appreciate that section 68 can only be invoked on credit amount and not on amounts given by the appellant.
3. The appellant craves leave to add, amend, alter, OR DLEETE any of the grounds of appeal at OR before the time of the hearing.”
11. At the time of hearing, ld. AR referring to ground No.2 of the appeal, submitted that the loan in question amounting to Rs.1,74,70,476/- and Rs.48,32,118/- received from Shri Panna Lal Jain and Smt. Sarala Jain, represent loans and advances given by the assessee company to Shri Panna Lal Jain and Smt. Sarala Jain and constitute as asset side balances and produced the Schedule-J of the balance sheet, which represented ‘sundry loans and advances’ on the asset side, in which the above loan advanced to Shri Panna Lal Jain (Rs.1,74,70,476/-) and Smt. Sarala Jain (Rs.48,32,118/-) are respectively mentioned adding to a total of Rs.5,73,24,623/-, which is duly reflected on the ‘Asset side’ of the balance sheet of the assessee placed at page No. 8 of the paper book and also supported by schedule-J on page 14 of the paper book.
11.1 Thereafter, the ld. AR has relied upon various case laws to submit that in respect of unsecured loan advanced, no addition u/s.68 could be made. Accordingly, learned AR submitted that the order u/s. 263 of the Act should be quashed.
12. On the other hand, learned CIT/DR submitted that this is a totally new fact/claim being made by the assessee during the proceedings before the Tribunal. The fact that the said amount represented loan given was never stated by the assessee either before the AO or before ld. PCIT in the proceedings u/s. 263 of the Act. Therefore, the matter may be set aside to the file of ld. PCIT to verify the above claim of the assessee.
13. We have heard both the parties and perused the material on record. As observed above, the assessee neither before the AO nor before the ld. PCIT submitted that the loan of Rs.1,74,70,476/- and Rs.48,32,118/- relating to Shri Panna Lal Jain and Smt. Sarala Jain are unsecured loans advanced to them and not unsecured loans taken by the assessee from them. Further, we also note that on perusal of page 12 of the paper book, it is seen that the amount of Rs.9,21,587/- is being shown as unsecured loan taken by the assessee from Shri Ratan Lal Jain, which is also reflected as a liability in the balance sheet placed on page No. 8 of the paper book. Further, we also note that the balance sheet of the assessee as on 31.03.2021 or the comparative figure of the said unsecured loan from Shri Panna Lal Jain and Smt. Sarala Jain in the balance sheet for the period ending 31.03.2022 as placed on page No. 8 of the paper book, furnishing the comparative position of the said loans as on 31.03.2021 in order to substantiate its claim that the same represented the opening balance of the previous year are not available on records. Therefore, in the light of these facts, we are satisfied that the new claim of the assessee requires fresh examination by the ld. PCIT.
Accordingly, we set aside the order of the ld. PCIT and restore the matter back to his file for examining and verifying the above claims made by the assessee and to pass fresh order in accordance with law after giving a reasonable opportunity of being heard to the assessee.
14. In the result, the appeal of the assessee is allowed for statistical purposes.
15. To sum up the appeal in ITA No. 427/Agr/2026 for AY. 2019-20 is allowed and the in ITA No. 428/Agr/2026 for AY. 2022-23 is allowed for statistical purposes.
Order pronounced in the open court on 07/ 10/2026.
