INCOME TAX OFFICER-2(1), MORADABAD, MORADABAD V. RITU BHANDULA, MORADABAD

ITA 2750/DEL/2025

AI Insights

The case involves an appeal by the Income Tax Officer against the order of the National Faceless Appeal Centre, which had allowed the appeal of the assessee, Ritu Bhandula, and deleted an addition of Rs. 2,97,66,224 made by the AO. The addition was initially made on account of an ad hoc disallowance of purchases deemed as unexplained expenditure under Section 69C of the Income Tax Act. The Tribunal's decision was based on the finding that the purchases were recorded in the books of accounts and the source of such expenditures was explained through various documents including bank statements, invoices, and customs verification.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835769 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Appeal Filed On: 25-04-2025
• Other Referred Cases: Commissioner Of Income Tax-V vs M/s Radhika Creation, ACIT vs. SK Integrated Consultants, CIT vs. Poonam Rani, PCIT v Wel Intertrade Pvt. Ltd., Prabhat Gupta Vs. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: AMIT GOEL
• Keywords: Unexplained expenditure; Rejection of books of accounts; Onus to prove; Principle of natural justice; Block assessment; Non compliance; Bogus
• Section: 11; 133(6); 69C

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI BEFORE SHRI SUDHIR KUMAR, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No. 2750/Del/2025 (AY 2020-21) INCOME TAX OFFICER 2(1), MORADABAD AAYAKAR BHAWAN, CIVIL LINES, MORADABAD – UP Vs RITU BHANDULA, AVAS VIKAS, CIVIL LINES, MORADABAD UTTAR PRADESH [PAN: AHKPB8116F) (APPELLANT) (RESPONDENT) & Cross Objection No.287/Del/2025 (A.Y.2020-21) RITU BHANDULA, AVAS VIKAS, CIVIL LINES, MORADABAD UTTAR PRADESH [PAN: AHKPB8116F) Vs INCOME TAX OFFICER 2(1), MORADABAD AAYAKAR BHAWAN, CIVIL LINES, MORADABAD – UP (APPELLANT) (RESPONDENT) Revenue by Shri Rajesh Kumar Dhanesta, Sr. DR Assessee by Shri Amit Goel, CA Shri Pranav Yadav, Adv. Date of hearing: 04/2/2026 Date of Pronouncement: 11/2/2026 Printed from counselvise.com 2 ORDER PER SUDHIR KUMAR, JM: This appeal by the Revenue is preferred against the order dated 10.3.2025 of the National Faceless Appeal Centre (NFAC) Delhi (in short “the Ld. NFAC)) relevant to assessment year 2020-21. The assessee also filed the cross objection for the Assessment Year 2020-21. 2. The Revenue has raised the following grounds in appeal: 1. Law and facts of the case by deleting the addition of Rs. 2,97,66,224/- made by the AO u/s 69A of the Act after conducting proper enquiry who has made the addition after recording the detailed reasons for doing so in length in the order itself and blamed the AO for not conducting enquiry and failed to ensure that effective inquiry and logical conclusions have been drawn having co terminus power with the AO. 2. Law and facts of the case by not proving the sundry creditors of the assesssee anywhere from whom purchases were made and doubted by the AO in the absence of supporting documents regarding purchases during assessment proceedings. 3. Law and on facts of the case by merely relying on the submission of the assessee without conducting effective inquiry during appellate proceedings and ignoring the remand report of AO which clearly sates that transport details of only one supplier namely M/s Ink Enterprises from whom purchases of only Rs. Printed from counselvise.com 3 5,27,05,801/- have been made. The assessee provided only transfer details related to the return of goods in the case of M/s Global Ink form whom purchases of Rs. 4,70,58,751/- were made and failed to produce transport details i.e. lorry no. payment details of transporter to justify the actual delivery of goods in case of other suppliers. Therefore, in absence of documentary evidences, the genuineness of transactions and creditworthiness of purchaser/ suppliers, from whom the assessee has purchased goods, is still not proved during appellate proceedings. 3. The assessee has raised the following grounds in her cross objection:- i) On the facts and circumstances of the case and in law, the addition of Rs. 2,97,66,224/- made by the AO is erroneous as the books of account have not even been rejected by the AO. ii) On the facts and circumstances of the case and in law, the addition of Rs. 2,97,66,224/- made by the AO u/s. 69C of the Act is totally erroneous as there is no applicability of provisions of section 69C of the Act to the facts of the case of the assessee. 4. First we deal with the Cross Objection of the assessee for which both the sides were agreed. 5. Brief facts of the case are that the assessee filed its return of income on 15.2.2021 declaring income of Rs. 7,97,270/- and the assessment was completed on 26.9.2022 at income of Rs. 3,15,05,634/- after making addition of Rs. 2,97,66,224/- on account of adhoc 12.5% disallowance of Printed from counselvise.com 4 purchases as unexplained expenditure u/s. 69C of the Act. In appeal, Ld. CIT(A) allowed the appeal of the assessee by observing as under:- “6.1 In the assessment order, the assessing officer has made a detailed academic discussion on the legal aspects governing Section 69C, Burden of Proof, definition of Sham, Fictitious and Artificial Transactions, fiscal nullity, tax avoidance etc. However the order is silent on the basic facts of the case on which the addition was made. Assessment order does not mention the name of suppliers who are either Non Filers or have filed non-business ITR and amount of purchases from each one of them. The assessing officer stated that none of the parties to whom notice u/s 133(6) were served furnished any details which were requested, but there is nothing on record about the name and addresses of such parties to whom notices were issued. During appeal proceedings the assessee submitted purchase invoices and Bank Statements highlighting payments made to the suppliers. 6.2 On remand to the A.O for verification, the A.O has rejected the appellant's submissions on the ground that transport details are not furnished except in the case of one supplier namely M/s INK Enterprises from, whom she had purchased goods of Rs. 5,27,05,801/- in A.Y. 2020-21 and returned the entire purchased goods to the party in A.Y. 2021- 22. In case of M/s Global INC, for which she had claimed the Printed from counselvise.com 5 purchased goods of Rs. 4,70,58,751/- in A.Y. 2020-21 and further claimed that she returned the entire purchased goods to the party in A.Y. 2021-22, it was observed that appellant had provided only transport, details related to return of goods in A.Y. 2021-22 not relevant to supply of goods in A,Y, 2020- 21. This raises the question of how the appellant could return the goods unless the same had been received /purchased in the first place? 6.3 Further, on examination of the appellant's submissions and evidence furnished it is seen that as the appellant is an exporter and her unit operates within an SEZ, there is third party authentication for all transactions by Customs authorities. The invoices bear the seal of Authorised Officer (Customs) and the Bills of export of goods for claim of duty drawback have been duly inspected by Customs authorities. As pointed out by the appellant, there is Customs verification at every stage from entry to exit, and the Customs department verifies supplier's details, invoice details, nature and quantity of goods, GST and other compliance requirements. The appellant has also provided evidence of shipping bills, export invoices, and bank payments received from foreign buyers. In view of the above the A.O's insistence on transport details appears misplaced. If indeed the entire purchases are bogus, Printed from counselvise.com 6 then it begs the question, what did the appellant export from the SEZ? 6.4 In the case of Bausch And Lomb India Private Limited (W.P.(C) 5768/2024 CM APPL. 23894/2024), Delhi High Court held that, If any addition was proposed to be made on the basis that the purchases as reflected in the assessee's books is not correct and it has made imports that had not been recorded in the books of accounts, the least that the Assessing Officer was required to do was to identity the entries that ought to have been made in the Books of Accounts of the assessee an which it had failed to do. Merely proceeding on the basis that CBIC is an apex body and therefore, information provided by it cannot be doubted, without even identifying or meaningful analyzing such information, is wholly insufficient to proceed to make an addition. If the relevant details of the alleged imports were not available with the Assessing Officer, and it was not possible to identify the expenditure made by the assessee, it was impermissible for the Assessing Officer to make an addition on account under Section 69C of the Act. Plainly, if the Assessing Officer could not identify the expenditure made, it could not make an addition on account of unexplained expenditure. In view of the above, we find merit in the contention that the impugned order is unsustainable and has been passed in violations of Printed from counselvise.com 7 principles of natural justice. It is obvious that the Assessing Officer must have some material to indicate that an expenditure has been made to make such an addition. 6.5 In the present case, the appellant running a leather business which is operating in an SEZ has submitted documentary evidence in support of purchases made which includes bank statements, invoices, shipping bills etc which are independently authenticated by a Government authority i.e Customs. The evidence credibly supports the genuineness of purchase made during the relevant year. The A.O has not brought on record any defect or discrepancy nor questioned the authenticity of the said evidence. In view of the above, the treatment of entire purchases of Rs.23,81,29,812/- as bogus and the addition of Rs.2,97,66,224 on account of unexplained expenditure u/s 69C as unexplained expenditure under section 69C is found to be unwarranted and is deleted. The appellant's grounds are allowed. 7. In the result, the appeal is allowed.” 6. In support of assesee’s cross objection, the Ld. AR submitted that addition of Rs. 2,97,66,224/- made by the AO is erroneous as the books of account have not even been rejected by the AO and also there is no applicability of provisions of section 69C of the Act to the facts of the case of the assessee, therefore, the addition made by the AO is liable to be deleted on this account. Printed from counselvise.com 8 7. Ld. DR relied upon the order of the Assessing Officer and stated that AO u/s 69A of the Act after conducting proper enquiry has made the addition after recording the detailed reasons for doing so in length in the order itself and blamed the AO for not conducting enquiry and failed to ensure that effective inquiry and logical conclusions have been drawn having co terminus power with the AO. He further submitted that by not proving the sundry creditors of the assesssee anywhere from whom purchases were made and doubted by the AO in the absence of supporting documents regarding purchases during assessment proceedings. It was further submitted that by merely relying on the submission of the assessee without conducting effective inquiry during appellate proceedings and ignoring the remand report of AO which clearly states that transport details of only one supplier namely M/s Ink Enterprises from whom purchases of only Rs. 5,27,05,801/- have been made. The assessee provided only transfer details related to the return of goods in the case of M/s Global Ink form whom purchases of Rs. 4,70,58,751/- were made and failed to produce transport details i.e. lorry no. payment details of transporter to justify the actual delivery of goods in case of other suppliers. Therefore, in absence of documentary evidences, the genuineness of transactions and creditworthiness of purchaser/ suppliers, from whom the assessee has purchased goods, is still not proved during appellate proceedings. Besides, above, he submitted a paper book containing pages 1-21 and relied upon the pages 01 to 05 and Page no. 9 of the paper book, which is the copy of Central Scrutiny Report and Discussions by the CIT(Admn.) on the merits Printed from counselvise.com 9 of the case and reasons recorded against the CIT(A) order while authorizing the case for appeal in ITAT. He further submitted that CIT(A) this crucial facts mentioned in the remand report that assessee failed to produce transportation details i.e. lorry no. payment details of transporter to justify the actual delivery of goods. Also, CIT(A) ignored that AO conducted 133(6) inquiry which were not answered. He also submitted that CIT(A) similarly rely on SEZ custom verification without looking into AO inquiries made u/s. 133(6) which were not responded during assessment or even appellate proceedings. 8. We have heard the rival contentions and perused the records. We find that the AO has made the addition of Rs 2,97,66,224/- /us 69C of the Act. For the sake of convenience, we are reproducing the provision of section 69C as under: - “Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is Printed from counselvise.com 10 deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.” 8.1 From a bare perusal of aforesaid provisions, it is abundantly clear that section 69C can be invoked only in a case where the assessee has incurred any expenditure and the assessee offers no explanation about the source of such expenditure. However, in the instant case of the assessee, there can be no dispute about the source of the purchases as all the purchases are duly recorded in the books of accounts of the assesseee. 8.2 We find that the Hon'ble Delhi High Court in case of Commissioner Of Income Tax-V vs M/s Radhika Creation 2010 (4) TMI 100 - DELHI HỊGH COURT held as under:- “4. The case before us has two dimensions. The first being as to whether the Assessing Officer was right in treating the said sum of Rs 44,38,997/- as unexplained expenditure under Section 69C of the said Act. The second aspect is whether the said addition could legitimately have been made in the course of a block assessment. 5. Insofar as the first aspect of the matter is concerned, we find that Section 69C clearly stipulates that where, in any financial year, the assessee has incurred an expenditure and he offers no explanation about \"the source of such expenditure or part thereof\", or the explanation, if it is offered by him, is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Thus, the Printed from counselvise.com 11 focus of Section 69C is on the 'source' of such expenditure and not on the authenticity of the expenditure itself. It is an admitted position that the expenditure was shown by the assessee in its regular books of accounts and it is because of this reason that the Income-tax Appellate Tribunal had observed:- \"As the expenditure was accounted in the regular books, the source is obviously explained. The provisions of Section 69C are not applicable as there was no unaccounted expenditure.\" (underlining added) 5. What the Assessing officer attempted to do was to go into the authenticity of the expenditure and he returned a finding that the expenditure was not authenticated by vouchers and consequently, he added the said expenditure as unexplained expenditure under Section 69C. We are in agreement with the observations and findings of the Commissioner of Income-tax (Appeals) as well as that of the Income-tax Appellate Tribunal that this is not a case which falls under Section 69C. Clearly, Section 69C refers to the \"source of the expenditure\" and not to the expenditure itself. Consequently, the Assessing Officer was clearly wrong in treating the said expenditure as unexplained expenditure under Section 69C of the said Act and the lower appellate authorities were right in their conclusions in deleting the said addition.” 8.3 We further find that Coordinate Bench of Delhi Tribunal in the case of ACIT vs. SK Integrated Consultants (ITA No. 4862/Del/2024 Printed from counselvise.com 12 AY 2015-16 and CO 24/Del/2025 decided on 9.7.2025) wherein, it was held that where the expenses are recorded in the books of accounts, section 69C cannot be applied. Applying the ratio of the aforesaid case laws to the case of the assessee, since the purchases of Rs 2,97,66,224/- are duly recorded in the books of accounts, the source is fully explained. Also the Hon’ble Delhi High Court in the case of CIT vs. Poonam Rani (2010) 5 Taxmann.com 76 held that in the absence of any material pointing towards falsehood of account books, addition of gross profit and rejection of books of accounts cannot be made. In the present case it is noted that the books of accounts of the assessee are audited and have not been rejected by the AO and even the AO has not pointed out any discrepancy in the books of accounts. It is further noted that AO had issued notices u/s. 133(6) and no replies were received and this non compliance to the notices issued u/s. 133(6) by the AO cannot be a ground for drawing adverse inference against the assessee, in view of the various decision including jurisdictional High Court decision in the case of PCIT v Wel Intertrade Pvt. Ltd. ITA 135/2023 wherein, it has been held that creditor not responding to the notice u/s. 133(6) cannot be a ground / reason by the AO to make an addition and also the Mumbai Tribunal in the case of Prabhat Gupta Vs. ITO 2017 (12) TMI 1667 held that disallowance of purchase could not be made on the ground that notice u/s. 133(6) issued to parties were not served or no replies were received. In view of above discussions and respectfully following the aforesaid precedents, the addition made by the AO is not sustainable Printed from counselvise.com 13 and deserve to be deleted. We hold and direct accordingly. Consequently, the cross objection of the assessee is allowed and the corresponding appeal filed by the Revenue becomes infructuous and dismissed as such. 9. In the result, the Revenue appeal is dismissed and assessee cross objection is allowed in the aforesaid manner. Order pronounced in the open court on 11-2-2026. Sd/- Sd/- ( MANISH AGARWAL) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER *SR BHATNAGGAR* Date:- 11.2.2026 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "