Once AO Disallows Bogus Expenses U/s 37(1), PCIT Cannot Invoke Sections 69C and Section 115BBE
The Income Tax Appellate Tribunal (ITAT) has ruled that section 69C, which deals with the unexplained expenditure, cannot be invoked by PCIT if the source of the expenditure was not doubted by the AO.
The assessee, Manoj Kumar, filed his income tax return (ITR), reporting an income of Rs 5,12,820. It was alleged that the assessee was involved in receiving accommodation entries related to bogus purchases from M/s. Soni Textiles amounting to Rs 11,47,500. Based on this information, the AO reopened the assessee’s case and made an addition of the alleged bogus purchases in the order passed under section 147 read with section 144B of the Income Tax Act.
However, the PCIT issued a revision order under section 263 of the Income Tax Act, directing the AO to pass a fresh order by making an addition under section 69C of the Income Tax Act for the bogus purchases. Therefore, the assessee approached the ITAT Delhi, challenging the PCIT’s revision order.
Before the tribunal, the assessee submitted that section 69C of the Income Tax Act can only be invoked when the source of expenditure is unexplained. However, in the present case, the source of purchases cannot be doubted, as the payments were made through a payee account cheque. The AO also argued that the PCIT did not mention what inquiries were left to be carried out by the AO.
Further, the assessee relied on previous rulings like Shashikant Bhavajjibhai Rajpara vs. PCIT and Vijubha Jitubha Jadeja vs. PCIT, where it was held that the PCIT cannot directly invoke Section 69C and Section 115BBE once the AO had disallowed the bogus expenditure under Section 37(1).
The ITAT agreed with the assessee, observing that the AO had not doubted the source of payment made for the purchases and disallowed the purchases, invoking section 37(1). Therefore, in such a case, section 69C was not applicable.
Since section 69C was not applicable, the Tribunal quashed the PCIT’s revision order under section 263.
Case Citation: Manoj Kumar Vs ITO (ITAT Delhi); ITA No.3378/Del/2025; 29/01/2026; 2018-19
