ITAT Kolkata Remands 69C Additions and Quashes Reopening for AY 2019-20

Nirmala Mobile Net Services Pvt. Ltd. Vs ITO (ITAT Kolkata)

Insight Portal Is a Starting Point, Not a Substitute for Insight—Reopening on a Non-Existent Return Default Quashed; Tax Components Cannot Become Undisclosed Purchases

The Kolkata ITAT has delivered an important ruling on two recurring controversies arising from data-driven assessments. First, a difference between purchases reported by a supplier & purchases recorded by the buyer cannot mechanically be treated as unexplained expenditure u/s 69C, when the difference merely represents VAT, GST, cess, trade discount and other components separately accounted for in the books. Secondly, reopening cannot survive where its very foundation—that the assessee had not filed its return—is demonstrably false from the Department’s own portal.

The assessee was engaged in the wholesale trading of cigarettes. For AY 2017-18, it filed its return declaring an income of ₹14.48 lakh. Information flagged on the Insight portal under the High-Risk CRIU/VRU category indicated that purchases reported by the assessee were ₹134.29 crore, whereas purchases reported by ITC Ltd. were ₹148.72 crore. Treating the difference of ₹14.43 crore as undisclosed purchases, the AO reopened the assessment and, in the absence of compliance, completed an ex parte assessment u/s 147/144 r.w.s. 144B, making an addition u/s 69C.

Before the CIT(A), the assessee explained that purchases were recorded net of VAT, cess, IGST, CGST and trade discount. These components were maintained in separate ledger accounts because the assessee was entitled to claim input-tax credit against its output-tax liability. A detailed reconciliation was filed demonstrating that the purchases appearing in the audited books completely matched the supplier’s figures after incorporating the separately recorded components.

The CIT(A), however, declined to examine the evidence because the assessee had not filed a formal application under Rule 46A. Curiously, after refusing to consider the reconciliation, the CIT(A) sustained the addition on the ground that the assessee had failed to reconcile the difference.

The ITAT examined the reconciliation and recorded that there was no actual difference between the purchases reflected in the assessee’s audited books and those reported by ITC Ltd. The apparent mismatch arose only because the assessee recorded net purchases, while VAT, GST, cess and trade discounts were separately accounted for.

Nevertheless, since the AO had originally proceeded ex parte and had not examined the reconciliation, the Tribunal restored the issue to the AO with a specific direction to decide it on the basis of the reconciliation and supporting evidence. Thus, the addition of ₹14.43 crore for AY 2017-18 was not finally deleted but remanded for fresh adjudication.

An identical issue arose for AY 2018-19, involving an addition of ₹39.13 crore u/s 69C. Here also, the alleged difference represented VAT, GST, trade discount and other charges recorded separately in the books. The Tribunal observed that there was apparently no undisclosed purchase but restored the matter to the AO because neither the AO nor the CIT(A) had examined the evidence on merits. The assessee was directed to be provided another opportunity of hearing.

The outcome for AY 2019-20, however, was materially different.

For that year, the assessee had duly filed its return u/s 139(1), declaring an income of ₹14.80 lakh, and had uploaded its Form 3CA, audited balance sheet, profit & loss account and accompanying schedules. Despite this, the notice issued u/s 148A(b) alleged that the assessee had not filed its return and that financial transactions aggregating to ₹61.82 crore had escaped assessment.

Because the company had become non-operational, it did not respond to the notice. The AO thereafter passed the order u/s 148A(d) and issued notice u/s 148 on the same erroneous premise. Even the approval u/s 151 was granted on the incorrect assumption that no return had been filed.

The Tribunal held that the entire reopening was founded upon a palpably incorrect fact. The assessee’s return and audited financial statements were already available on the Department’s portal. Had the AO independently examined the Department’s own records instead of mechanically relying upon Insight/TAS information, the error would have been apparent.

Relying upon Narendrakumar Mansukhbhai Patel v. ITO, Tata Sons Ltd. v. DCIT & ITO v. Arti Khatter, the Tribunal reiterated that where the reasons for reopening are based on incorrect facts or conclusions, the reopening cannot be sustained. The Revenue remains bound by the recorded foundation and cannot subsequently improve or substitute its reasons.

Accordingly, the Tribunal quashed the notice u/s 148A(b), order u/s 148A(d), notice u/s 148 and the consequential reassessment for AY 2019-20.

The ITAT also examined the additions independently. Contractual receipts had already been credited in the profit & loss account; therefore, estimating income again at 8% resulted in an impermissible double addition. Likewise, cash deposits of ₹57.81 crore in two disclosed HDFC Bank accounts arose from recorded business receipts and cash sales. The assessee’s total cash receipts of ₹119.91 crore included sales and taxes/cess collected from customers, all of which formed part of the audited accounts. The cash deposits could not again be treated as unexplained cash credits u/s 68 merely because they appeared in third-party information.

The small interest addition was also deleted because the interest had already been accounted for and disclosed in the return.

Consequently, the appeals for AYs 2017-18 & 2018-19 were allowed for statistical purposes, while the appeal for AY 2019-20 was allowed outright.

Author’s Comments

This order exposes two hazards of automated tax administration—gross-versus-net mismatches and blind reliance on portal alerts.

A supplier may report invoice value inclusive of indirect taxes and other charges, while the purchaser may debit only the net purchase value and maintain taxes, cess and discounts in separate ledgers. A numerical difference, by itself, does not establish either an unrecorded purchase or unexplained expenditure. Before invoking s.69C, the AO must examine the accounting method, tax ledgers, invoices, supplier confirmations and reconciliation.

More importantly, a notice u/s 148A(b) must emerge from the AO’s independent application of mind. Information on Insight, AIS or TAS may trigger verification, but it cannot replace verification. When the Department’s own portal contained the return and audited accounts, reopening the assessment on the allegation that no return was filed rendered the jurisdictional foundation fundamentally defective.

The distinction in relief is also important. For the first two years, the Tribunal’s observations strongly favour the assessee, but the issues were only remanded and remain open before the AO. For AY 2019-20, the reopening itself was quashed, apart from the additions being found unsustainable on merits.

The practical principle is simple: Data may raise a question, but only verified facts can sustain an addition—and jurisdiction cannot be built upon a fact that never existed.

Cases Discussed

• Narendrakumar Mansukhbhai Patel vs ITO [2018] 92 taxmann.com 259 (Gujarat)
• Tata Sons Ltd. vs. DCIT [2022] 137 taxmann.com 414 (Bombay)
• ITO vs Arti Khatter (2014) 41 CCH 0025 Del Trib
• CIT vs. Smt. Paramjit Kaur [2009] 311 ITR 38 (P&H)
• Aditya Khanna Vs. ACIT – [2012] 21 taxmann.com 102 (Delhi)

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT KOLKATA

These appeals preferred by the assessee are against the orders of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (hereinafter referred to as the “ld.CIT(A)”], dated 08.04.2026, for the Assessment Years (AY) 2017-18 to 2019-20 respectively.

ITA No.1903/Kol/2026 (A.Y. 2017-18):

2. The issue raised in Ground No.1 is against the ld. CIT(A) wrongly sustaining the addition made in the assessment order of Rs.14,43,15,208/- u/s 69C of the Income-tax Act, 1961 (In short, ‘the Act) on account of alleged undisclosed purchases made from M/s ITC Limited by ignoring the fact that there was no difference in the purchases as the duties and taxes such as VAT , input VAT on actual purchases made from M/s ITC Limited were shown separately in the books and therefore there were no undisclosed purchases Rs.14,43,15,208/- at all.

3. The facts of the case in brief are that the assessee is engaged in the business of wholesale trading in cigarettes. The assessee filed return of income u/s 139(1) of the Act, declaring total income of Rs.14,48,220/-. The Assessing Officer (In short, ‘the AO’) noted from the information flagged on Insight portal under the category of High Risk CRIU / VRU formulated by CBDT, which revealed that during the impugned assessment year, the assessee had undisclosed purchases of Rs.14,43,15,208/-. The AO noted that assessee did not disclose the true purchases in its return of income and thus, noted that there was difference in purchase reported in ITR by the assessee vis a vis reported by M/s ITC Limited. The chart showing the purchases as per the assessee and as per ITC is as under:

4. Accordingly, the case of the assessee was re-opened u/s 147 of the Act by issuing notice u/s 148A(b) of the Act on 28.03.2023. There was no compliance before the AO. Consequently, the assessment was framed as ex parte order u/s 147/144 r.w.s. 144B of the Act on 29.12.2022, wherein the AO added the said alleged undisclosed purchases of Rs.14,43,15,208/- to the income of the assessee.

5. In the appellate proceedings, before the ld. CIT(A), the assessee furnished the details of total purchases shown in the audit accounts of Rs.134,28,78,474.72/- out of which the purchases from M/s ITC Limited were shown at Rs.128,97,33,723.56/-. It was submitted before the ld. CIT(A) that there was no undisclosed purchases as alleged in the assessment order. It was submitted that purchases were recorded in the assessee’s books of account excluding of VAT, CESS, IGST, CGST and trade discount etc. It was submitted these duties were recorded in separate ledger accounts to avail the benefit of VAT input tax credit with the output tax of sales and services. The assessee also furnished a detailed reconciliation which showed that there was no difference in the purchases as per the books of account and as shown by the M/s ITC Ltd. to the assessee. The ld. CIT(A) did not consider the submissions of the assessee and documents filed on the ground that there was no prayer under Rule 46A of the Income-tax Rules, 1962. The ld. CIT(A) without taking into account the evidences filed by the assessee including the reconciliation statement held that the assessee failed to provide the reconciliation of difference of transactions as reported in M/s ITC Ltd. and accordingly, sustained the addition.

6. We have heard rival submissions and perused the materials available on record. We observe from the of reconciliation statement furnished by assessee that there was no difference between purchases recorded in audited books of account/ tax audit report by the assessee and as shown by M/s ITC Ltd. to the assessee. We note that difference is only for the reasons that assessee has shown net purchases excluding VAT, CESS, IGST, CGST and trade discount, which were shown separately in the books of accounts as assessee was to avail credit of VAT, input tax credit and GST Input tax credit against the output tax on sales. The assessee filed reconciliation before us, which is extracted as under:

7. Considering these facts, we are of the view that the purchases shown by the assessee are in complete agreement with the purchases shown, the suppliers including M/s ITC Ltd. However, we note the fact that AO has decided the issue by passing an ex parte order u/s 147/144 r.w.s. 144B of the Act, which was stated to be on account of assessee’s business being closed down after the A.Y. 2020-21 and there were no business operation and last return of income was filed in A.Y. 2020-21. Similarly, ld. CIT(A) refused to entertain the evidences filed by the assessee explaining the alleged difference in purchases in absence of the application under Rule 46A of the Rules. Under these circumstances, we are restoring the issue back to the file of AO with the specific direction to decide the issue on the basis of reconciliation and evidences as available before us and may be filed by the assessee in the set-aside proceedings and also taking into account our observations made hereinabove. Consequently, appeal of the assessee is allowed for statistical purposes.

8. In the result, the appeal of the assessee in ITA No.1903/Kol/2026 for A.Y. 2016-17 is allowed for statistical purposes.

ITA Nos.1904/Kol/2026 (A.Y. 2018-19):

9. The issue raised in this appeal is identical one as decided by us in ITA No.1903/Kol/2026 for A.Y. 2017-18, in which we have restored the issue back to the file of AO with specific direction that to decide the issue afresh after taking into account of all evidences and reconciliation as may be filed by the assessee in terms of our observation as given above. So far as the facts of the case are concerned , the ld. CIT(A) sustained the addition on the same issue of Rs.39,12,66,335/- u/s 69C of the Act on account of alleged undisclosed purchase from M/s ITC Ltd. as a matter of fact, there was no such difference as the assessee booked net purchases exclusive of Rs.39,12,66,335/- which represented the VAT, GST, trade discount and other charges, which were shown separately in the books of account and were not in fact undisclosed purchases.

10. Therefore, it is apparent that there was no difference on account of undisclosed purchases, however, since the AO has not examined the issue and ld. CIT(A) has not considered the evidences filed by the assessee for the want of application under Rule 46A, we are inclined to restore the issue back to the file of AO for de novo adjudication after taking into account of above all the facts and evidences. Needless to say, the assessee must be provided one more opportunity of being heard to decide the issue. Accordingly, the issue is allowed for statistical purposes.

11. In the result, appeal of the assessee is allowed for statistical purposes.

ITA Nos.1905/Kol/2026 (A.Y. 2019-20):

12. In Ground No.1, the assessee has assailed re-opening of assessment made by the AO u/s 147 of the Act by issuing notice u/s 148 of the Act on 12.04.2023.

13. The facts in brief are that the assessee filed return of income u/s 139(1) of the Act, declaring total income of Rs.14,79,630/- on 31.10.2019. Notice u/s 148A(b) of the Act, dated 28.03.2023 was issued wherein it was alleged that the assessee had not filed its return of income. The AO noted in the said show cause notice that on perusal of third-party information available on the Tax-payer Annual Summary (TAS) in the profile view of the assessee, the certain information related to F.Y. 2018-19 relevant to A.Y. 2019-20 were given, which are extracted below:

14. The AO noted that the assessee had entered into the transactions of Rs.61,81,64,994/- during the F.Y. 2018-19 but failed to furnish return of income for the impugned A.Y. 2019-20. The said show cause notice could not be replied as the assessee was non-operational at the time when the notice was issued. Thus, the AO without examining the income tax records of the assessee available before him passed u/s 148A(d) of the Act, dated 12.04.2023. The AO in the order passed u/s 148A(d) of the Act noted that the financial transactions of Rs.61,81,64,994/- has escaped assessment as assessee failed to furnish return of income by ignoring the fact available before him that the ITR was duly furnished u/s 139(1) of the Act on 30.10.2019. Similarly, the ld. PCIT, Siliguri also gave his approval u/s 151 of the Act on 11.04.2023 based on incorrect facts. We note that all these transactions as reported by AO in the show cause notice and order passed u/s 148A(d) of the Act were duly shown in the assessee’s books of account and also the return of income filed by the assessee. Finally, the AO made additions of Rs.2,96,528/- in respect of undisclosed contractual income, Rs.57,81,04,460/- in respect of unexplained cash credit and Rs.2,930/- in respect of undisclosed interest income, in the assessment framed u/s 147/144/144B of the Act, dated 17.02.2025.

15. In the appellate proceedings, the assessee furnished all the evidences/details in respect of additions made by the AO in the assessment order, however, the ld. CIT(A) refused to decide the issue on merit for the reason that application under Rule 46A was not moved nonetheless all the merits and facts qua the additions were discussed at the length of the appellate order.

16. We have heard rival submissions and perused the materials available on record. Undisputed facts are that the assessee’s case was re-opened u/s 147 of the Act by issuing notice u/s 148 of the Act on 12.04.2023. We note that a show cause notice u/s 148A(b) was issued on 28.03.2023, wherein the AO alleged that the assessee has not filed the return of income for the impugned assessment year, which is actually incorrect as the assessee has filed return of income u/s 139(1) of the Act on 31.10.2019, declaring total income of Rs.14,79,630/- which was available on the portal of the department. The assessee extracted in the show cause notice, the third-party information available in the Tax-payer Annual Summary (TAS) in the profile view of the assessee, which are extracted hereinabove and noted that assessee has entered into transactions of Rs.61,81,64,994/- during the year and has failed to file return of income and therefore, income chargeable to tax had escaped in respect of said financial transactions made by the assessee to the tune of Rs.61,81,64,994/-. Though, the assessee did not reply the said show cause notice, however, the undisputed fact is that the AO has all the information and details before him in the form of ITR, audited accounts comprising balance sheer and profit & loss A/C with all annexures etc. meaning thereby all the information were available before the AO at the time the show cause notice was issued. Thereafter, the AO passed order u/s 148A(d) of the Act by extracting the same information as in the show cause notice issued u/s 148A(b) of the Act and noted that income has escaped assessment to that extent and it was a fit case to issue notice u/s 148 of the Act. Accordingly, notice was issued. Considering these facts, we are of the view that the re-opening has been done by the AO on the basis of incorrect fact as the very foundation of re-opening based on the wrong and incorrect facts that assessee had not filed the return of income for the impugned assessment year which showed that the total transactions entered into the assessee, Rs.61,81,64,994/- had escaped assessment. In our considered view, the said re-opening is wrong and cannot be sustained as the very basis is wrong and is against the facts on record. We note that assessee duly filed return of income and uploaded audited accounts on the departmental portal. The copy of ITR is available at Pages 11 to 14 of the paper books. We note that the AO has completely relied on the uploaded information on the Insight portal and thus failed to independently examine the facts available on records on the website of the Department. We note that the assessee has uploaded the return of income, Form 3CA, audited balance sheet and profit & loss accounts. Therefore, we are of the considered view that the re-opening is invalid and has to be quashed.

17. So far as the amount to the tune of Rs.2,96,528/- , the same was received from PP Merchandising Services Pvt. Ltd. Similarly Rs.3,61,076/- was received from Sun Fund Management Ltd. We note that both the amounts were duly reflected in the profit and loss account. The assessee had declared gross turnover/income of Rs.52,59,85,194/- in the trading account including payment receipts of Rs.2,96,528/- and Rs.3,61,076/- as noted above on which TDS has been deducted and the details are available at Pages 13 of the paper book. So far as cash deposits of Rs.57,81,04,460/- and cash withdrawals of Rs.3,93,00,000/- in/from HDFC bank are concerned, the same were duly recorded in the books of accounts and forming part of the audited accounts and reflected in the return of income filed by the assessee. We note that assessee had two bank accounts with HDFC, namely, (i) A/c Nos.01512790000260 and 01512320003711. The assessee deposited cash of Rs.55,37,81,941/- in bank A/c No.01512790000260, which is available at Page No.92 of the paper book and Rs.2,43,22,519/- was deposited in other bank A/c No.01512320003711, which is available at Page 94 of the paper book. We also note that cash withdrawals were made from second bank account, which is available at Page 94 of the paper book. We note that both accounts were duly reflected in the audited accounts and shown in the return of income. The closing balance in the said bank accounts were duly shown in the audited balance sheet . The first bank account was ‘Nil’ and closing balance of the second bank account was Rs.23,56,597/-. The copies are attached at Pages 48 to 59 of the paper books. So far as the lottery income and interest received of Rs.2,930/- are concerned , the same were duly credited in the books of account and shown in return of income as apparent from Pages 12 of the paper book. We note that the AO himself noted in the assessment order that lottery income was shown in the return of income and therefore no addition made in this regard.

18. Considering these facts, the show cause notice u/s 148A(b) as well as all consequent proceedings including order u/s 148A(d) of the Act, notice u/s 148 of the Act and assessment framed by the AO are invalid and cannot be sustained. The case is squarely covered by the following decisions:

➤ Narendrakumar Mansukhbhai Patel vs ITO [2018] 92 taxmann.com 259 (Gujarat) wherein it was held that,

“There is nothing on the record that the said sum of Rs. 16.51 lacs was a loss claimed by the assessee. In fact, the balance sheet would show that the said figure was the assessee’s receipt through sales. If the case of the Revenue was that after showing the sale of the commodities at Rs.16.51 lacs, the assessee had claimed artificial losses. No such ground has come on record in the reasons recorded. The Revenue is bound by the reasons recorded by the Assessing Officer for reopening assessment which reasons are shown to be palpably incorrect. On the basis of the reasons recorded, it would not be possible to allow the Revenue to carry out fresh assessment. Facts are similar in all cases.

8. All petitions are therefore allowed. Respective impugned notices are set aside.”

➤ Tata Sons Ltd. vs. DCIT [2022] 137 taxmann.com 414 (Bombay) wherein it was held that,

“If we consider the table reproduced above, the sale of shares of TCS Ltd. which according to Respondent No. 1 should be treated as ‘business income and not ‘profits arising out of sale of sale of investment’, is only Rs. 19,32,34,27,592/- (12,26,61,28,794 + 7,05,72,98,798) i.e. “Long terms capital gains:- Tata Consultancy Services Limited”. Mr. Pinto though he made valiant attempt to defend the notice issued for re-opening, in fairness, as an offcer of the Court, considering the reasons as recorded agreed that the only item which could have been stated to have escaped assessment would be the Long-Term Capital gains in the sale of TCS Ltd. shares amounting to Rs. 19,32,34,27,592/- and Respondent No. 1 was incorrect in stating that he had reason to believe that the sum of Rs. 22,71,25,79,374/-has escaped assessment.

7. In our view, if the reasons for re-opening the assessment is based on incorrect facts or conclusions, certainly the notice issued for re-opening cannot be sustained. Moreover, if according to Respondent No. 1 only the sale of shares of TCS was ‘business income’ and not ‘profits arising of sale of investment’ to say that the amount of Rs. 22,71,25,79,374/- has escaped assessment, also indicates non-application of mind.”

➤ ITO vs Arti Khatter (2014) 41 CCH 0025 Del Trib wherein it was held that,

When these factual details were compared with the reasons recorded, it was found that the reasons recorded were vague and factually incorrect also. No bank instrument of Rs. 6 lakhs was received by the assessee. The CIT(A) had allowed relief to the assessee following the decision of Hon’ble Jurisdictional High Court. The facts of the assessee’s case clearly show that the Assessing Officer had not examined the information received from Investigation Wing before recording his own satisfaction of escapement of income. Though he had mentioned in the reasons recorded that he had examined the information and details so available. Because had he examined the details and information, he would have certainly known that the information was factually incorrect and incomplete. The CIT(A) rightly followed the above decision of Hon’ble Jurisdictional High Court and set aside reassessment notice. CIT vs. Smt. Paramjit Kaur [2009] 311 ITR 38 (P&H), applied; Aditya Khanna Vs. ACIT – [2012] 21 taxmann.com 102 (Delhi), not applicable.”

19. Considering these facts and by respectfully following the above decisions, we are inclined to quash the show cause notice u/s 148A(b) of the Act, order u/s 148A(d) of the Act, notice u/s 148 of the Act and assessment framed by the AO. The Ground No.1 is allowed.

20. The issue in Ground No.2 is against the confirmation of addition of Rs.52,608/-, being 8% of contractual receipts of Rs.6,57,604/- without appreciating the fact that in the submissions filed by the assessee, it was stated that said amount was duly recorded in the boos of accounts which are audited and making any addition at the rate of 8% would amount of double addition of the same income. Considering these facts, we are of the opinion that addition made by the AO, which was confirmed by the ld. CIT(A) is uncalled for as the double addition is not permitted because the AO has taken income as per the return of income filed u/s 139(1) of the Act and thereafter made the additions. Consequently, Ground No.2 is also allowed and AO is directed to delete the addition.

21. The issue in Ground No.3 is against the addition of Rs.57,81,04,460/- by the AO as unexplained cash credit u/s 68 of the Act.

22. We note that the assessee has stated before ld. CIT(A) that Rs.57,81,04,460/- represented cash deposits in the two bank accounts out of business receipt of Rs.119,90,75,992/-, which was duly accounted for in the books of accounts which were audited and also reported in the return of income filed on 30.10.2019. We also note that two bank accounts with HDFC Bank as noted above were duly recorded in the books of account and therefore, the addition made by the AO u/s 68 of the Act is uncalled for and has to be deleted as the same would result in double addition because the assessee has already offered the income qua the said sales in the return of income filed by the assessee. For the sake of ready reference, total receipt shown in the profit and loss account and books of account are as under:

23. Therefore, the cash deposits were made from explained cash sales made by the assessee which were duly recorded in the audited accounts and also reflected in the ITR filed for the year. Thus, the addition of Rs.57,81,04,460/- is unwarranted and ordered to be deleted. The ground no. 3 is allowed.

24. The issue in Ground No.4 is against the confirmation of addition of Rs.2,390/- by ld. CIT(A), being interest income without appreciating the submissions filed by the assessee stating therein that the interest income was duly accounted for in the audited accounts.

25. We note that assessee has already shown the said interest in the profit and loss account and also in the return of income which is at page 22 of the paper book. Therefore, the addition made by the AO without examining the facts available before him. Therefore we direct the AO to delete the addition. The ground no. 4 is allowed.

26. In the combined result, the two appeals of the assessee in ITA Nos. 1903, 1904/ Kol/ 2026 are allowed for statistical purposes and appeal in ITA No.1905/Kol/2026 is allowed.

The order is pronounced in the open Court on 11/09/2026.