2026 (3) TMI 336 - AT - Income Tax

Revisional Jurisdiction cannot convert disallowance of bogus purchases into taxation as unexplained expenditure under special rate provisions.

Whether the Principal Commissioner correctly invoked revisional jurisdiction to require invocation of taxation of unexplained expenditure was considered; ... Revision u/s 263 - scope of revision u/s 263 where revisional authority alleges non-invocation of special charging provisions - as per CIT AO should have invoked section 69C read with section 115BBE when purchases recorded in the books were held to be bogus and disallowed u/s 37(1) - Distinction between bogus expenditure disallowed u/s 37(1) and unexplained expenditure u/s 69C - applicability of section 69C and section 115BBE to expenditures recorded in books - HELD THAT: - The Tribunal examined the facts that the AO, on the basis of information from the Investigation Wing and verification, found the supplier unverifiable and held the purchases as bogus, disallowing them under section 37(1). Section 69C applies where an assessee has incurred expenditure and offers no explanation about the source of such expenditure or the explanation is unsatisfactory. CIT did not demonstrate that the assessee had failed to explain the source of the recorded purchases; rather he only contended that the AO should have invoked section 69C and consequently section 115BBE. Tribunal agreed with coordinate-bench authorities that the legal scope of section 69C (taxing unexplained expenditure) is different from disallowance of non-genuine or unverifiable expenses booked in the profit and loss account. In the absence of any material showing failure to explain the source, invoking section 69C/115BBE was not legally warranted, and the revisional order u/s 263 founded on that omission was unsustainable. [Paras 9, 13, 17] The revisional order u/s 263 is not justified because section 69C/115BBE was not applicable where the AO had disallowed purchases as bogus u/s 37(1) and the Pr. CIT did not show that the source of such purchases was unexplained. Final Conclusion: The Tribunal quashed the Principal Commissioner's revision order u/s 263 and allowed the assessee's appeal, holding that the AO's disallowance of purchases as bogus u/s 37(1) did not mandate application of section 69C r.w.s. 115BBE in the absence of material showing unexplained source. Issues: Whether the Principal Commissioner of Income Tax was justified in invoking revisional jurisdiction under section 263 of the Income-tax Act, 1961 to set aside the reassessment order on the ground that the Assessing Officer should have invoked section 69C read with section 115BBE when purchases recorded in the books were held to be bogus and disallowed under section 37(1) of the Income-tax Act, 1961.Analysis: The reassessment was based on independent enquiries which led the Assessing Officer to conclude that purchases from the supplier were bogus and therefore disallow them as non-genuine expenses under section 37(1) of the Income-tax Act, 1961. Section 69C applies where an assessee has incurred expenditure and offers no explanation or an explanation not satisfactory to the Assessing Officer about the source of such expenditure; it operates to deem unexplained expenditure as income and precludes deduction. The Principal Commissioner alleged that section 69C and section 115BBE ought to have been invoked, but did not establish that the assessee had failed to explain the source of the recorded purchases. Coordinated decisions of the Tribunal distinguish disallowance of expenses found to be not genuine (disallowance under section 37(1)) from taxation of unexplained expenditure under section 69C, and have held that mere doubt about genuineness of recorded transactions does not convert them into unexplained expenditure for invoking section 69C or the special rate provisions. The revisional power under section 263 requires demonstration that the assessment order is erroneous and prejudicial to the revenue; here the Assessing Officer had applied a permissible view by disallowing purchases as bogus after enquiries, and the Principal Commissioner did not point to any deficiency showing the assessment to be erroneous for failing to invoke section 69C.Conclusion: The reassessment order is not erroneous or prejudicial to the revenue for the reasons stated by the Principal Commissioner; the revision order under section 263 is quashed and set aside. Decision in favour of the assessee.