Income Tax Appellate Tribunal - Delhi
Gargi Woollens Private ... vs The Principal Commissioner Of Income ... on 6 March, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI "B" BENCH: NEW DELHI
BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER &
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
ITA No. 2771/Del/2025
[Assessment Year : 2018-19]
Gargi Woolen Pvt. Ltd. vs The Principal
Sector-29, Part-2, Commissioner Of
Delhi Sanoli Bye Pass, Income Tax, Rohtak
Panipat, Haryana-132103
PAN-AUEPS5626A
APPELLANT RESPONDENT
Appellant by Shri Amit Kaushik, Adv.
Shri Himanshu Sharma, Adv.
Respondent by Ms. Pooja Swarup, CIT Dr
Date of Hearing 06.01.2026
Date of Pronouncement 06.03.2026
ORDER
PER MANISH AGARWAL, AM :
The captioned appeal is filed by assessee against the order dated 27.03.2025 passed by Ld. Pr. Commissioner of Income Tax, Rohtak ["Ld. Pr. CIT"] u/s 263 of the Income Tax Act, 1961 ["the Act"] revising the Assessment Order dated 20.03.2023 passed u/s 147 r.w.s. 144B of the Act pertaining to Assessment Year 2018-19.
2. Brief facts of the case are that the assessee is a company, engaged in the business of manufacturing and trading of cotton waste yarn, cotton yarn, polyester Yarn, etc. and filed its return of income declaring total income of INR 5,25,950/-. Based on the ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT information flagged in Insight portal uploaded by Investigation Wing that assessee had entered into fictious transaction of bogus purchases of INR 10,33,890/- from M/s Sri Rameshwaram International which was alleged as engaged in issuing bogus bills, case of the assessee was reopened by way of issue of notice u/s 148 of the Act and after passing the order u/s 148A(d) of the Act. After considering the replies filed by the assessee, reassessment order was passed wherein the total income of the assessee was computed at INR 13,56,350/- vide order dated 20.03.2023 passed u/s 147 r.w.s. 144B of the Act by making disallowance u/s 37(1) of the Act of INR 8,30,400/- being the total amount of purchases made from M/s Sri Rameshwaram International.
3. Thereafter, the ld. PCIT in terms of the show cause notice dt. 18.03.2025, initiated proceedings u/s 263 and asked the assessee as to why the reassessment order should not be held as erroneous and prejudicial to the interest of revenue as the AO has failed to invoke the provisions of section 69C r.w.s. 115BBE of the Act to the disallowance made on account of bogus purchases. After considering the reply filed by the assessee, the ld. PCIT vide impugned order dt. 27.03.2025 held that the reassessment order was passed by the AO in a very casual manner without due diligence and without applying correct provisions of Act and, therefore, the order is erroneous and prejudicial to the interest of revenue. The ld. PCIT thereafter, in terms of the powers conferred as per Explanation 2 of section 263 has set aside the reassessment order and direct the AO to pass the order afresh after conducting necessary enquiries and verifications.
Page | 2 ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT
4. Aggrieved by the order of Ld. PCIT, assessee is in appeal before the Tribunal by taking following grounds of appeal:-
1. That the Ld. Principal Commissioner of Income Tax, Rohtak ("Ld. PCIT") grossly erred in law and on the facts and circumstances of the case in passing the order dated 27.03.2025 ("Impugned Order") under section 263 of the Income Tax Act, 1961 ("the Act") without jurisdiction.
2. That the Ld. PCIT grossly erred in law and on the facts and circumstances of the case in passing the impugned order without considering the provisions of section 263 of the Act.
3. That the Ld. PCIT grossly erred in law and on the facts and circumstances of the case in passing the impugned order without application of mind to the reply filed by the appellant submitting that the provisions of section 69C are not applicable on the facts of the case.
4. That the Ld. PCIT grossly erred in law and on the facts and circumstances of the case in passing the impugned order on the basis of incorrect reasons.
5. That the Ld. PCIT grossly erred in law and on the facts and circumstances of the case in passing the impugned order merely on the basis of suspicion.
6. That the Ld. PCIT grossly erred in law and on the facts and circumstances of the case in passing the impugned order without application of mind to the material on record.
7. That the Ld. PCIT grossly erred in law and on the facts and circumstances of the case in passing the impugned order without following the principles of natural justice.
8. That the Ld. PCIT grossly erred in law and on the facts and circumstances of the case in passing the impugned order without considering that the Ld. Assessing Officer had not failed in conducting enquiry while passing the assessment order dated 20.03.2023 under section 147/144B of the Act.
9. The Appellant craves for leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time of hearing of appeal.
10. That all the grounds are without prejudice to each other.
5. Since all grounds of appeal raised by the assessee are against the order of ld. PCIT in holding the reassessment order as erroneous Page | 3 ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT and prejudicial to the interest of the Revenue, therefore, they are taken together for consideration.
6. Before us, Ld. AR submits that the AO has made the disallowance u/s 37(1) of the Act of purchases of INR 8,30,400/- made by holding the purchases made from M/s Sri Rameshwaram International as bogus expenditure. As per ld. AR, the AO has taken a plausible view while disallowing the purchases u/s 37(1) of the Act after making proper and adequate enquiries. He submits that the purchases alleged as bogus are duly recorded in the books of accounts maintained in regular course thus the source of such purchases cannot be doubted more particularly when the payments made were through payees account cheque, and therefore provisions of section 69C of the Act cannot be invoked which is applicable where assessee failed to substantiate the source of expenditure. Ld. AR thus, submits that observation of ld. PCIT that Ao should invoke the provisions of section 69C is contrary to the facts of the case and, therefore, the reassessment order is neither erroneous nor prejudicial to the interest of the Revenue. Regarding the directions of the ld. PCIT for making fresh enquiries and investigation, ld. AR submits that ld. PCIT has filed to bring on record any material to hold what enquires were left to be undertaken by the assessee and what is the error in the reassessment order when the AO has already treated the purchases made from M/s Sri Rameshwaram International as bogus which fact is rather confirmed by ld. PCIT.
Page | 4 ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT
7. Ld. AR also placed reliance on the following judgments of the Co-ordinate Benches of ITAT.
- Shashikant Bhavajjibhai Rajpara vs. PCIT (ITAT Rajkot) in ITA No. 59/RJT/2022 order dated 22.03.2023;
- Vijubha Jitubha Jadeja vs. PCIT (ITAT Rajkot) in ITA No. 105/RJT/2022 order dated 02.08.2023;
- Joginder Kumar & Sons Vs. PCIT (ITAT Delhi) in ITA No. 1975/Del/2025 order dt. 27.11.2025;
- Sandeep Kumar Vs ITO ((ITAT Delhi) in ITA No. 4348/Del/2025 order dt. 28.11.2025;
- Arvind Kumar Vs. PCIT (2025) 178 Taxmann.com 351 (Delhi Tribunal).
8. On the other hand, the Ld. CIT DR for the Revenue vehemently supported the orders of Ld. PCIT and submit that in the instant case, the assessee has failed to justify the purchases made thus the same is unexplained expenditure for which the source was not established to the satisfaction of the AO and therefore, Ld. Pr. CIT has rightly held that the AO should invoke the provisions of section 69C r.w.s. 115BBE of the Act. It is thus requested that the order of Ld. PCIT deserves to be uphold.
9. Heard both the parties and perused the material available on record. The case of the assessee was reopened u/s 147 of the Act for the reason that the purchases made from M/s Sri Rameshwaram International of Rs. 8,30,400/- is bogus which has been based on the information from Investigation Wing. Further independent enquiry Page | 5 ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT was made through Verification Unit wherein it was found that the supplier company M/s Sri Rameshwaram International was not existed at the given address. Based on these facts, the AO reached to the conclusion that the purchase made of Rs.8,30,400/- made from M/s Sri Rameshwaram International is bogus and disallowed u/s 37(1) of the Act. The Ld. PCIT vide show cause notice dated 18.03.2025, alleged that the purchases held as bogus should be disallowed u/s 69C of the Act.
10. At this stage, we must refer the provisions of section 69C which reads as under:
"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 Offertory the amount covered by such expenditure or part thereof at the case may be may se deemed to be the income of the assessee by such for such financial year.
Provided that notwithstanding anything standing contained in any other provision of this Act such unexplained expenditure which deemed to be he income of the assessee shut not be allowed as a deduction under any head of income.
11. The provisions of section 1158BE of Act reads as under:-
"115BBE (1) Where the total income of the assessee-
(a) Includes any income referred to in section 68, section 19, section 64 section 698. section 6PC, section 690 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, Section 69D if such income is not covered under clause (a) the income tax payable shall be the aggregate of Page | 6 ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT
(i) the amount of income tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty percent, and
(ii) the amount of income tax with which the assessee would been chargeable had his total income been reduced by the amount of income referred to in clause (i)."
12. From the perusal of section 69C, it is evident that the same is applicable where assessee incurred any expenditure and has failed to offer any Explanation or the Explanation given was not found satisfactory by the AO.
13. In the present case, the ld. PCIT has failed to establish that the assessee has not explained the source of purchases made from M/s Sri Rameshwaram International however, it is the only allegation that the purchases should be disallowed by invoking the provision of section 69A of the Act and further section 115BBE must be invoked which has not been done by the AO. Admittedly, the ld. PCIT has not disputed the action of the AO in holding the purchases from M/s Sri Rameshwaram International as bogus. Once the AO found the purchases as unverifiable, he invoked the provisions of section 37(1) of the Act and disallowed the purchases made from M/s Sri Rameshwaram International. Under these circumstances, provisions of section 69C of the Act cannot be invoked for the expenditure found recorded in the books of accounts.
14. The Co-ordinate Bench of ITAT, Rajkot in the case of Shashikant Bhavajjibhai Rajpara vs. PCIT (supra) has made following observations:
Page | 7 ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT "7. We have considered the above contentions made by the ld counsel for the assessee, we find merit in the same. As per the ld Pr. CIT the disallowance of Rs. 29 30,229/- made by the AO came within the purview of section 69C of the Act. We have gone through the provision of section 69C of the Act and also disallowance made by the AO in his assessment order which is reproduced above. As is evident from bare perusal of the order of the AO, disallowance related to expenses incurred by the assessee in relation to subcontractor which were not found to be genuine. Section 69C on the other hand, brings to tax the disallowance related to expenses incurred by the assessee, source of which remain unexplained. Therefore, purview and scope of section 69C is totally different from the disallowance of expenses found to be not genuine. The basic premise with the Id. Pr. CIT therefore for finding error in the order of the AO, that the disallowance made by him of contractors' expense came under the purview of section 69C of the Act is found to be untenable in law. This finding of error, as a consequence whereof, that the same not being subjected to tax at a special rate provided under section 1158BE of the Act also as a result does not survive."
15. Further this view is followed by the Co-ordinate Bench of ITAT, Rajkot in the case of Vijuba Jutubha Jadeja vs. PCIT reported in [2023] (9TMI 206).
16. Following the aforesaid decisions, the coordinate Delhi bench of Tribunal in the case of Joginder Kumar & Sons (supra) and in the case of Sandeep Kumar (supra) quashed the order passed u/s 263 of the Act.
17. In the light of above, in our considered view when the purchases claimed in the Profit & Loss account is doubted and disallowed, provisions of section 69C of the Act could not be invoked and, therefore, the reassessment order is neither erroneous nor prejudicial to the interest of revenue. The ld. PCIT has not brought any material Page | 8 ITA No.2771/Del/2025 Gargi Woolen Pvt. Ltd. Vs. PCIT to show that the assessee has filed to explain the source of such purchases and therefore, provisions of section 69C r.w.s. 115BBE of the Act cannot be invoked. Accordingly, we quash the revision order passed by ld. PCIT u/s 263 of the Act. All the grounds of appeal taken by the assessee are thus, allowed.
18. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 06.03.2026.
Sd/- Sd/-
(ANUBHAV SHARMA) (MANISH AGARWAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date- 06.03.2026
*Amit Kumar, Sr.P.S*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
6. Guard File
ASSISTANT REGISTRAR
ITAT, NEW DELHI
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