The Income Tax Appellate Tribunal, Guwahati Bench, has clarified that an addition under Section 69C for unexplained expenditure cannot be sustained when the assessing officer fails to establish a direct nexus between foreign remittances and unverified purchases by the assessee. The order also reinforces the principle that entities with distinct PANs, even if sharing identical names, are legally separate for tax purposes.
Background & Facts
The Dispute
The assessee, a partnership firm operating under PAN AAWFP5485G, did not file its return of income for Assessment Year 2019-20. The Assessing Officer (AO) initiated reassessment proceedings under Section 147 read with Section 144B after detecting foreign remittances totaling ₹37,35,765 to China via Union Bank of India. During the course of the reassessment, the AO discovered that the assessee operated three distinct partnership firms under the same name, P P Industries, each with separate PANs: AAWFP5485G (assessee), AALFP2626E, and AALFP3078J. The AO conflated financial transactions across these entities, leading to erroneous additions.
Key Facts
- The assessee (PAN AAWFP5485G) did not file a return for AY 2019-20.
- Foreign remittances of ₹37,35,765 were detected from Union Bank of India account linked to the assessee.
- Three partnership firms with identical name but different PANs and partner compositions were identified.
- The AO made additions under:
- Section 28: ₹3,29,706 for suppressed business income
- Section 69C read with Section 115BBE: ₹37,35,765 as unexplained foreign remittance expenditure
- Section 69C: ₹1,02,868 attributed to PAN AALFP3078J (a separate entity)
- Total assessed income: ₹40,65,470
- The assessee submitted that the foreign remittances were made from funds shown in its books and were not unexplained.
- The AO did not produce any evidence linking the remittances to specific unverified purchases of machinery or goods.
Procedural History
- 01.04.2021: Effective date of retrospective insertion of Section 147A of the Income Tax Act, 1961.
- 31.03.2022: Notice under Section 148 issued by Jurisdictional AO (not Faceless AO).
- 10.02.2023: Notice under Section 148A(b) issued.
- 23.03.2024: Assessment order passed under Section 147 read with Section 144B.
- 20.11.2025: Order of Commissioner of Income Tax (Appeals)-NFAC, Delhi, confirming the assessment.
- 13.05.2026: Hearing concluded before ITAT Guwahati.
- 05.06.2026: Judgment pronounced.
The Parties' Positions
For the Assessee
- Argued that the notice under Section 148 was issued by the jurisdictional AO and not through the Faceless Assessment mechanism, violating Section 151A and the e-Assessment Scheme, 2022.
- Contended that the foreign remittance of ₹37,35,765 was made from funds already accounted for in its books and was not unexplained.
- Stated that the addition of ₹1,02,868 pertained to PAN AALFP3078J, a separate legal entity with different partners and profit-sharing ratio.
- Emphasized that the three firms were distinct and could not be treated as one for tax purposes.
For the Department
- Relied on the CIT(A)’s order, which held that the assessee failed to produce invoices, bills of entry, or bank advices to substantiate the nature and source of the remittances.
- Argued that the absence of documentation justified the addition under Section 69C.
- Did not provide evidence linking the remittances to specific unexplained purchases.
Relief Sought
The assessee sought:
- Quashing of the notice and order issued under Section 148 and 147, on grounds of non-compliance with Faceless Assessment provisions.
- Deletion of the addition of ₹37,35,765 under Section 69C.
- Deletion of ₹1,02,868 added under Section 69C, which pertained to a different PAN.
- Clarification that the existence of multiple firms with the same name but different PANs does not constitute holding multiple PANs.
The Legal Issue
The central questions were: (1) Whether the issuance of notice under Section 148 by a jurisdictional AO, instead of a Faceless AO, invalidates the reassessment proceedings under Section 147; and (2) Whether an addition under Section 69C can be sustained when the assessing officer fails to establish a direct link between foreign remittances and unexplained purchases by the assessee, particularly when the transactions are attributed to a separate legal entity with a different PAN.
Arguments Presented
For the Appellant
The assessee relied on the retrospective insertion of Section 147A by the Finance Act, 2026, which clarified that for purposes of Sections 148 and 148A, the term "Assessing Officer" always meant the jurisdictional AO and not the Faceless Assessment Centre. The appellant argued that even if the notice was issued by the jurisdictional AO, the law now retrospectively validates such action. Regarding the additions, the appellant submitted that the foreign remittances were made from funds already recorded in its books and were not unexplained. The addition of ₹1,02,868 was clearly attributable to PAN AALFP3078J, a distinct entity with different partners and incorporation date. The appellant emphasized that the AO had not produced any evidence of purchases made using the remitted funds, nor had he examined the nature of the transactions.
For the Respondent
The Department contended that the assessee failed to discharge its burden under Section 69C by not producing invoices, bills of entry, or bank advices to explain the source and purpose of the remittances. It relied on the CIT(A)’s finding that the assessee’s submissions were unsubstantiated. The Department did not address the issue of attribution of transactions to a different PAN or the absence of any evidence linking the remittances to unexplained purchases. It offered no rebuttal to the appellant’s argument that the AO had not identified what machinery or goods were purchased.
The Court's Analysis
The Tribunal first addressed Ground No. 1 concerning the issuance of notice under Section 148 by the jurisdictional AO. It noted that Section 147A, inserted retrospectively with effect from 01.04.2021, explicitly clarifies that for the purposes of Sections 148 and 148A, the Assessing Officer shall mean the jurisdictional AO and not the Faceless Assessment Centre. The Tribunal held that this retrospective amendment validates the notice and order, rendering Ground No. 1 untenable.
"...it is hereby clarified that the Assessing Officer for the purposes of sections 148 and 148A shall mean and shall always be deemed to have meant to be an Assessing Officer other than the National Faceless Assessment Centre..."
Regarding Ground No. 2, the Tribunal observed that the AO had made an addition under Section 69C for unexplained expenditure based on foreign remittances, but had not established any connection between those remittances and unverified purchases. The AO’s order itself stated on page 9 that no adverse inference was drawn against the amount, yet the addition was made. The Tribunal noted that the Department could not explain why the same remittance pattern in other firms with identical names did not trigger similar additions. Crucially, the Department failed to produce any evidence of what machinery or goods were purchased using the remitted funds.
The Tribunal emphasized that Section 69C requires the assessing officer to establish that the expenditure was incurred and that its source was unexplained. Mere existence of foreign remittances, without a link to unverified purchases, is insufficient. The Tribunal held that the addition was arbitrary and legally unsustainable.
On Grounds 3 and 4, the Tribunal held that PAN AALFP3078J belonged to a separate partnership firm with different partners and incorporation date. The mere fact that the firms shared the same name did not make them the same legal entity. The Tribunal stated:
"...there was no justification in the absence of any evidence to hold that the same related to the assessee and not to the firm having the same name but different PAN as well as different partners and therefore, are distantly different entity..."
The addition of ₹1,02,868 was therefore clearly attributable to a different entity and could not be included in the assessee’s income.
The Verdict
The appeal was partly allowed. The Tribunal deleted the addition of ₹37,35,765 under Section 69C for unexplained expenditure and the addition of ₹1,02,868 attributed to PAN AALFP3078J. The addition under Section 28 of ₹3,29,706 was not challenged on merits and was left undisturbed. The assessment order dated 23.03.2024 was modified accordingly. The Tribunal directed the Assessing Officer to recalculate the total income of the assessee excluding the two deleted additions and issue a revised order within 4 weeks.
What This Means For Similar Cases
Unexplained Expenditure Requires Direct Nexus
- Practitioners must now insist that the assessing officer produce concrete evidence linking remittances to specific unverified purchases before invoking Section 69C.
- Mere existence of foreign transfers without proof of expenditure on unaccounted assets is insufficient for addition.
- If the AO cannot identify what was purchased, the addition under Section 69C is legally unsustainable.
Distinct PANs = Distinct Legal Entities
- Tax authorities cannot aggregate income across entities merely because they share identical names.
- Each PAN represents a separate legal identity, regardless of name similarity.
- Any addition against one PAN must be supported by evidence specific to that PAN; cross-attribution is impermissible.
Faceless Assessment Validated Retrospectively
- Notices issued by jurisdictional AOs before the Faceless regime are now validated by Section 147A.
- Challenges to reassessment notices on procedural grounds under Section 151A are no longer viable for AY 2021-22 onwards.
- Practitioners should focus arguments on substantive deficiencies, not procedural non-compliance with faceless norms for past years.
