The ITAT Delhi in KDP Infrastructure Private Limited Vs DCIT examined the legality of reassessment proceedings and an addition of ₹4.55 crore made under section 69 of the Income Tax Act on account of alleged bogus purchases. The reassessment was initiated based on Investigation Wing information alleging that the supplier was an entry provider. The Tribunal noted that the purchases were duly recorded in the books of account, payments were made through disclosed banking channels, and no investment outside the books was identified. Crucially, the Assessing Officer neither rejected the books of account under section 145(3) nor conducted any independent examination of stock, inventory, or business results. The Tribunal held that section 69 presupposes the existence of an unrecorded investment, which was absent in the present case. Reliance solely on third-party information and non-response of the supplier was found insufficient to discharge the Revenue’s onus. Consequently, the invocation of section 69 was held to be misconceived, and the addition was deleted.
1. Statutory Provisions Involved
Section 147 – Income Escaping Assessment
Empowers the Assessing Officer to reopen a completed assessment where he has reason to believe that income chargeable to tax has escaped assessment. The belief must be based on tangible material and not on mere suspicion or borrowed satisfaction.
Section 148 – Issue of Notice (Old Regime)
Prescribes the procedural requirement for issuance of notice before reopening an assessment under Section 147.
Section 151 – Sanction for Issue of Notice
Mandates prior approval of the specified authority before issuance of notice under Section 148. Such approval must reflect due application of mind to the reasons recorded by the Assessing Officer.
Section 69 – Unexplained Investments
Applies where an assessee is found to have made investments not recorded in the books of account, and the assessee fails to satisfactorily explain the nature and source thereof. The section presupposes:
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existence of an “investment”,
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such investment being outside the books, and
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failure of explanation regarding its source.
Sections 145(3), 37, 68 to 69C – Contextual Relevance
Disallowance of expenditure or estimation of income ordinarily requires rejection of books of account under Section 145(3). Deeming provisions from Sections 68 to 69C impose distinct and specific burdens of proof, depending on the nature of the addition proposed.
Key Issue:
Whether reassessment proceedings initiated under Section 147, with approval under Section 151, culminating in an addition under Section 69 on account of alleged bogus purchases, are sustainable in law when:
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the purchases are duly recorded in the books of account,
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payments are made through banking channels,
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books of account are not rejected, and
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no independent examination of stock, inventory, or business results is undertaken by the Assessing Officer.
3. Brief Facts
The assessee, a private limited company engaged in real estate development and construction, was subjected to a search and seizure operation under Section 132 on 29 September 2014 as part of the KBP/MGI Group cases. Consequent to the search, assessment was framed under Section 153A read with Section 143(3) on 30 December 2016, wherein substantial additions were made.
Subsequently, on 26 March 2019, the Assessing Officer received information from the Investigation Wing, New Delhi, alleging that the assessee had made bogus purchases/expenses from M/s Bhawani Enterprises, a proprietary concern. Based on this information, the completed assessment for Assessment Year 2012–13 was reopened under Section 147 after obtaining approval under Section 151.
The reassessment culminated in an addition of ₹4.55 crore under Section 69 of the Act, treating the purchases as unexplained investment on the ground that the supplier was an entry provider and had not carried out any genuine business activity. The addition was confirmed by the CIT(A).
Aggrieved, the assessee preferred an appeal before the ITAT.
4. ITAT Findings and Legal Analysis
(a) Validity of Reopening and Approval under Section 151
The Tribunal examined the approval proforma under Section 151 and noted that the sanction was accorded based on the reasons recorded by the Assessing Officer, which relied entirely on Investigation Wing information alleging bogus purchases routed through RTGS payments.
While the Tribunal did not invalidate reopening solely on the ground of defective approval, it observed that the reasons themselves acknowledged that payments were made through banking channels and purchases were recorded in the books, thereby shaping the nature of enquiry even at the stage of formation of belief.
(b) Nature of Addition and Incorrect Invocation of Section 69
The Tribunal found that the Assessing Officer consistently invoked Section 69, both in the assessment order and even during appellate proceedings, thereby negating the Revenue’s argument that wrong quoting of the section was a curable defect.
It was held that Section 69 can be invoked only where:
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an “investment” is found, and
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such investment is not recorded in the books of account.
In the present case, the alleged bogus purchases were:
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fully recorded in the books,
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routed through disclosed bank accounts, and
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debited to the profit and loss account.
There was no finding of any investment outside the books, nor any allegation of unexplained source of funds.
(c) Non-Rejection of Books of Account
A critical finding of the Tribunal was that the books of account were never rejected under Section 145(3). The business results, turnover, stock records, and accounting framework of the assessee remained undisputed.
The Tribunal held that where purchases are disallowed as bogus, the primary step must be examination of books, stock, and business results, and in the absence of rejection of books, wholesale disallowance of purchases as unexplained investment is legally untenable.
(d) Failure to Discharge Departmental Onus
The Tribunal emphasized that each deeming provision from Sections 68 to 69C carries a distinct burden of proof. Once the assessee demonstrates that:
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purchases are recorded in books, and
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payments are made through banking channels,
the onus shifts to the Revenue to prove that:
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the books lack veracity, or
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the transactions represent investments or expenditure outside the books.
In the present case, the Revenue relied solely on third-party investigation reports and non-response of the supplier, without any independent examination of the assessee’s records, stock position, or project execution.
(e) Reliance on Judicial Precedents
The Tribunal followed and reaffirmed settled legal principles laid down in:
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PCIT (Central)-2 v. Param Dairy Ltd. [2022] 139 taxmann.com 546 (Delhi HC)
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CIT-V v. Radhika Creation, ITA No. 692/2009
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Mandeep Singh Anand v. ACIT [2024] 161 taxmann.com 1225 (Delhi ITAT)
These decisions consistently hold that additions for bogus purchases cannot be sustained under Sections 69/69C when books are not rejected and payments are recorded.
6. ITAT Decision
The Tribunal held that the addition of ₹4.55 crore under Section 69 was unsustainable in law and on facts. The invocation of Section 69 was fundamentally misconceived, the onus under the deeming provision was not discharged by the Revenue, and the books of account remained unassailed.
Accordingly, the appeal of the assessee was allowed, and the impugned addition was directed to be deleted.
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