The Income Tax Appellate Tribunal, Delhi Bench, has delivered a nuanced ruling on the treatment of alleged bogus purchases under Section 69C of the Income Tax Act, 1961. In a case where the assessee failed to appear, the Tribunal condoned a minor delay and directed a lumpsum disallowance of 5% of the disputed purchases, emphasizing that this decision shall not set a precedent. The ruling underscores the Tribunal's discretion in balancing justice while rejecting book entries for unexplained expenditure.
Background & Facts
The Dispute
The appellant, Sh. Sanjay Kumar Gupta, a trader engaged in the export and import of readymade garments and auto/motor spare parts, was subjected to reassessment proceedings under Section 147 of the Income Tax Act, 1961 for Assessment Year (AY) 2019-20. The Income Tax Officer (ITO) treated purchases of Rs.31,00,400 sourced from Sh. Gurdeep Singh as bogus under Section 69C, which deals with unexplained expenditure. The assessee did not contest the proceedings, leading to an ex-parte order.
Key Facts
- The assessee operates in an unorganized sector, where cash transactions are common
- The disputed purchases amount to Rs.31,00,400 for AY 2019-20
- The assessee's sales were not questioned during the proceedings
- The assessee failed to appear before the Tribunal, resulting in an ex-parte hearing
- The delay of 4 days in filing the appeal was condoned based on Collector, Land & Acquisition vs. Mst. Katiji & Others
Procedural History
- 05.03.2025: Assessment order passed under Section 147, treating the purchases as bogus under Section 69C
- 27.01.2026: CIT(A)/NFAC upheld the assessment order (DIN: ITBA/NFAC/S/250/2025-26/1085175181(1))
- 01.06.2026: Appeal filed before ITAT, Delhi (ITA No.3746/Del/2026)
- 01.06.2026: Hearing conducted ex-parte; order pronounced on the same day
Relief Sought
The assessee challenged the disallowance of Rs.31,00,400 under Section 69C, seeking complete relief from the bogus purchases addition.
The Legal Issue
The primary question before the Tribunal was whether the lower authorities were justified in treating the assessee's purchases as bogus under Section 69C and, if so, what quantum of disallowance would be appropriate in the absence of the assessee's participation.
Arguments Presented
For the Department
The Senior Departmental Representative, Sh. Manoj Kumar, argued in support of the impugned order, contending that:
- The purchases lacked credibility as they were sourced from an unverified supplier
- Section 69C empowers the tax authorities to treat unexplained expenditure as income
- The assessee's failure to appear warranted upholding the lower authorities' findings
For the Assessee
No arguments were presented on behalf of the assessee, as none appeared during the hearing.
The Court's Analysis
The Tribunal acknowledged the divergent judicial views on bogus purchases, citing recent precedents such as:
- Ravjibhai Becharbhai Dhamelia vs. ACIT (2025) 173 taxmann.com 592 (Guj.)
- PCIT Vs. Hitesh Mody (HUF) (2024) 160 taxmann.com 110 (Bom)
- PCIT Vs. Forum Sales (P) Ltd. (2024) 160 taxmann.com 93 (Del)
- PCIT Vs. Kanak Impex (India) Ltd (2025) 172 taxmann.com 283 (Bom)
- DCIT Vs. Kohinoor Foods Ltd. (2025) 178 taxmann.com 424 (Del. - Trib.)
- DCIT Vs. Tirupati Matsup (P.) Ltd. (2025) 177 taxmann.com 836 (Delhi-trib.)
The Tribunal observed that:
"There is no dispute in principle that the assessee is engaged in the business of export and import of readymade garments and auto/motor spare parts all along wherein possibility of cash turnover in such an unorganized activity could not be altogether ruled out. And that his corresponding sales have nowhere been questioned in both the lower proceedings."
Given the peculiar facts of the case, including the assessee's non-participation and the unchallenged nature of sales, the Tribunal deemed it appropriate to exercise its discretion in the interest of justice. It directed a lumpsum disallowance of 5% of the disputed purchases, explicitly stating that this decision shall not be treated as a precedent.
The Verdict
The Tribunal partly allowed the assessee's appeal with the following directions:
- Disallowance of 5% of the alleged bogus purchases amounting to Rs.1,55,020 (5% of Rs.31,00,400)
- The disallowance shall not be treated as a precedent in future cases
- The assessee's book entries were rejected to the extent of the disallowance
- Necessary computation of tax liability shall follow as per law
What This Means For Similar Cases
Discretion in Ex-Parte Proceedings
- Tribunals and courts may exercise discretion in ex-parte cases, especially where the assessee's non-participation limits the scope of evidence
- A lumpsum disallowance, rather than a complete addition, may be considered where sales remain unchallenged
Section 69C: Unexplained Expenditure
- Section 69C empowers tax authorities to treat unexplained expenditure as income, but the quantum of disallowance depends on factual nuances
- Practitioners must argue the proportionality of disallowance, particularly in unorganized sectors where cash transactions are prevalent
Precedential Value of Orders
- Orders with explicit riders (e.g., "shall not be treated as a precedent") highlight the Tribunal's intent to limit their applicability
- Assessees and tax authorities should rely on such orders cautiously, as they may not bind future benches
