2025 (11) TMI 36

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....n jurisdictional and substantive grounds, contending that the learned PCIT erred in directing the Assessing Officer to re-characterise the disallowance of purchases as unexplained expenditure under section 69C read with section 115BBE and to correspondingly initiate penalty under section 271AAC in respect of the sum of Rs. 39,06,42,323/-. 3. Briefly stated, the assessee is engaged in the business of construction as a sub-contractor, primarily providing labour and allied services to various reputed builders such as Larsen & Toubro Ltd., Avighna Builders and others. It filed its return of income declaring total income of Rs. 1,28,91,690/-. During the scrutiny proceedings, the Assessing Officer noticed that the assessee had shown purchases ....

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....re on the part of the Assessing Officer to apply section 69C, and directed him to reframe the assessment accordingly. 5. The appeal was filed with a delay of 37 days accompanied by an affidavit explaining that the authorised representative handling the matter was suffering from serious liver and gall-bladder ailments and therefore could not file the appeal within time. On being advised, the assessee engaged new counsel who filed the appeal on 02 July 2025. Finding the reasons bona fide and supported by medical cause, the delay is condoned and the appeal is admitted. 6. Before us, the learned counsel for the assessee submitted that the assessee is engaged in labour-intensive construction work employing more than 1,500 workers across se....

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....d them as non-genuine business expenses, a treatment clearly referable to section 37(1) and not to section 69C. 9. The deeming provision of section 69C is a narrow and exceptional one. It postulates that where an assessee has incurred any expenditure and offers no explanation about the source thereof, or the explanation offered is not satisfactory in the opinion of the Assessing Officer, the amount may be deemed to be the income of the assessee. The provision therefore presupposes that the expenditure is incurred outside the regular books or from unexplained sources; its object is to bring to tax undisclosed outgoings whose source of funding is unknown. The essential pre-condition is that the Assessing Officer must find that the expendit....

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....n under section 263 is supervisory and not appellate. For valid exercise of that power, two conditions must co-exist: the order must be both erroneous and prejudicial to the interests of the Revenue. An order cannot be termed erroneous if the Assessing Officer has taken one of the possible views after due inquiry. Here the Assessing Officer, having examined the trading results and the purchases, made a conscious disallowance of the entire expenditure treating it as non-genuine. That view, though perhaps harsh, is within the bounds of law and does not render the order erroneous. The PCIT, by merely substituting his own interpretation that section 69C should have been applied, travelled beyond the permissible confines of section 263. 13. O....