Delhi ITAT: Documented Purchases Cannot Be Recharacterised as Unexplained Expenditure Under Section 69C Merely Because Supplier Is Alleged Accommodation-Entry Provider
Background and Context
The Delhi Bench of the Income Tax Appellate Tribunal recently rendered a significant decision in Susheel Vs ITO (ITAT Delhi) concerning Assessment Year 2019-20, addressing a question that frequently arises in search-triggered reassessment proceedings: whether an Assessing Officer can invoke Section 69C of the Income Tax Act, 1961 to treat purchases as unexplained expenditure when those purchases are fully recorded in the assessee's books and supported by contemporaneous documentary evidence. The Tribunal answered this question emphatically in the negative and, as a consequence, also struck down the higher rate of taxation sought to be applied under Section 115BBE.
Preliminary Issue: Condonation of a 51-Day Filing Delay
Before addressing the substantive tax dispute, the Tribunal had to consider whether the appeal itself was maintainable, given that it had been filed 51 days beyond the prescribed limitation period.
Why the Delay Occurred
The assessee — a small civil contractor operating as proprietor of M/s Susheel Contractor and primarily engaged in executing Government infrastructure works such as construction of roads, streets, and allied civil works — was admittedly unfamiliar with the procedural requirements and limitation periods governing appeals before the ITAT. He had placed complete reliance on his tax consultant/accountant, who had been handling the assessment proceedings throughout. The delay arose entirely from an inadvertent oversight on that consultant's part.
Tribunal's Reasoning on Condonation
The assessee's authorized representative placed reliance on the settled legal principle that a litigant ought not to be made to suffer on account of the lapses of his counsel. The Supreme Court's position in Concord of India Insurance Co. Ltd. vs. Smt. Nirmala Devi and Others, 118 ITR 507 (SC) was cited in this regard. The Tribunal, upon hearing both sides, was satisfied that reasonable cause existed for the delay and accordingly condoned it, allowing the appeal to proceed on merits.
Facts Leading to the Reassessment
The Assessee's Business Profile and Original Return
The assessee filed his return of income on 26.12.2019 declaring total income of Rs. 13,29,490/-. His business — civil contracting through M/s Susheel Contractor — primarily involved the execution of infrastructure projects for Government bodies.
How Reassessment Was Triggered
Reassessment proceedings under Section 147 were set in motion on the basis of information suggesting that the assessee had availed an accommodation entry in relation to purchases of Rs. 34,35,000/- during Financial Year 2018-19 from M/s R.K. & Company. This information originated from a search conducted under Section 132 of the Income Tax Act, 1961 in the case of Shri Sanjay Jain and associated entities.
During that search, in a statement recorded under Section 132(4), Shri Sanjay Jain allegedly admitted to having furnished bogus bills and accommodation entries without actual movement of goods. M/s R.K. & Company was alleged to be one of the entities under his control. On this foundation, a notice under Section 148 dated 12.04.2023 was issued following an order under Section 148A(d) passed on the same date. No return was filed in response to this notice. Subsequent notices under Section 142(1) dated 09.09.2024 and 16.12.2024 were issued during the reassessment proceedings, and the assessee submitted a response on 31.12.2024, followed by a final show-cause notice on 16.01.2025.
The Assessee's Defense and Documentation
The assessee categorically denied having obtained any accommodation entry. To substantiate the genuineness of the transactions, the following documentation was placed before the Assessing Officer:
- Tax invoices (Paper Book Pages 105–159, Volume I)
- Ledger account of M/s R.K. & Company (Pages 103–104)
- Bank statements (Pages 173, 178 & 179)
- GSTR-2A (Pages 207–215)
- E-way bills (Pages 146–159)
- Government contract records (Pages 216–252)
The assessee also clarified that the total purchase figure of Rs. 34,35,000/- comprised a taxable value of Rs. 26,83,594/- and a GST component of Rs. 7,51,406/-, and that the materials procured had actually been consumed in the execution of Government contracts.