Quashes Section 263 revision, holds Section 69C inapplicable where source of payment remains undisputed

Delhi ITAT quashes revisionary proceedings under Section 263, holding that Section 69C could not be invoked in the absence of any doubt regarding the source of payments for the unexplained purchases, and Assessing Officer had rightly disallowed the unexplained expenditure under Section 37(1), thus, the assessment order could not be regarded as erroneous or prejudicial to the interests of the Revenue; Tribunal observes that Section 263 cannot be invoked to substitute Assessing Officer’s plausible view with another, the twin conditions of Section 263 i.e., ‘erroneous’ and ‘prejudicial to Revenue’ remains unsatisfied; ITAT holds that merely because Assessing Officer chose a legally sustainable route divergent from the PCIT view, the assessment order cannot be deemed to be erroneous and prejudicial to the interest of Revenue; Assessee engaged in the business of manufacturing and trading of blankets filed return of income for Assessment year 2018-19 declaring total income of Rs. 8.47 Lac; Consequently, reassessment notice under Section 148 was issued alleging accommodation entry amounting to Rs. 26.81 lac from Maa Karni Yarn; Consequently, Assessing Officer passed order under Section 147 read with Section 144B and made disallowance under Section 37(1) instead of Section 69C, and revisionary proceedings under Section 263 were initiated on the premise that Assessee failed to invoke Section 69C i.e., unexplained expenditure as well as higher rate of tax at 60% in terms of Section 115BBE and merely disallowed expenditure under Section 37(1) which is erroneous and prejudicial to the Revenue; ITAT opines that Section 69C can only be invoked when the Assessee fails to explain the source of expenditure/purchases or the explanation found to be unsatisfactory, however, in the present case, Assessing Officer never doubted the source of payments, thus, Section 69C has no application; Tribunal further opines that the sole dispute was concerned with the genuineness of the purchases, therefore, Assessing Officer action of disallowing the expenditure under Section 37(1) is legally tenable and merely because Assessing Officer chose a legally sustainable route divergent from the PCIT view, the assessment order cannot be deemed to be erroneous and prejudicial to the interest of Revenue; ITAT relies on Rajkot ITAT ruling in Shashikant Bhavajibhai Rajpara wherein it was held that bogus purchases disallowed as business expenditure under Section 37(1) do not fall within the scope of unexplained expenditure under Section 69C; Accordingly, allows Assessee’s appeal.
[In favour of assessee] (Related Assessment year : 2018-19) –
[Sandeep Kumar v. ITO, Panipat [TS-1606-ITAT-2025(DEL)] – Date of Judgement : 28.11.2025 (ITAT Delhi)]