February 24, 2026 : The Mumbai Bench of the Income Tax Appellate Tribunal has held that even if purchase transactions are found to be accommodation entries, the entire purchase amount cannot be treated as unexplained expenditure under Section 69C of the Income Tax Act where the transactions are recorded in the regular books of account and routed through banking channels.
The ruling came in cross-appeals filed by Balaji Bullions and Commodities India Private Limited and the Revenue for Assessment Year 2017–18.
According to the Tribunal’s order, the assessee had originally filed its return declaring a loss of ₹1.53 crore, which was processed under Section 143(1). Subsequently, the Assessing Officer reopened the assessment under Section 147 on the basis of specific information received from the Investigation Wing.
The information indicated that certain entities allegedly linked to the “Punamiya group” were engaged in providing accommodation entries through paper concerns, particularly during the demonetisation period. Surveys conducted under Section 133A in related cases reportedly revealed non-functional premises, dummy directors, and fund rotation through banking channels.
The assessee was found to have entered into purchase transactions with entities such as Access Diamond Pvt. Ltd., Royal India Corporation Ltd., Royal Refinery Pvt. Ltd., Shalibhadra Exports Pvt. Ltd., and Worldwide Online Services Pvt. Ltd. The total purchases during FY 2016–17 amounted to ₹417.87 crore.
During reassessment, the Assessing Officer issued a show cause notice proposing that the purchases of ₹417,87,20,218 be treated as unexplained expenditure under Section 69C. The officer concluded that the supplier entities were bogus concerns engaged in providing accommodation entries and that the assessee failed to establish identity, creditworthiness, and genuineness of transactions.
Accordingly, the entire purchase amount was added as unexplained expenditure under Section 69C and made taxable at the higher rate prescribed under Section 115BBE.
On appeal, the Commissioner of Income Tax (Appeals) upheld the validity of the reopening, observing that the Assessing Officer had “reason to believe” based on tangible material from the Investigation Wing.
However, on merits, the appellate authority drew a distinction between bogus transactions and unexplained expenditure. The CIT(A) held that Section 69C presupposes unaccounted expenditure or unexplained outgoings. In the present case, the purchases and corresponding sales were duly recorded in the books, and payments were made through banking channels. There was no allegation of cash expenditure outside the books. Accordingly, the addition of ₹417.87 crore under Section 69C was deleted.
At the same time, the CIT(A) held that the assessee was not engaged in genuine trading activity but was functioning as an accommodation entry provider. Invoking Section 145(3), the books of account were rejected and income was estimated by treating the assessee as an entry operator.
The CIT(A) concluded that in such cases, real income arises only from commission earned for facilitating accommodation entries, not from the gross value of purchases and sales. Commission income was therefore estimated at 0.5 percent of the aggregate turnover.
The Bench comprising Accountant Member Om Prakash Kant and Judicial Member Ms. Kavitha Rajagopal affirmed the approach adopted by the CIT(A).
The Tribunal observed that although investigation material indicated that the entities were engaged in providing accommodation entries, the transactions were recorded in the books and routed through banking channels. In these circumstances, the entire purchase amount could not be treated as unexplained expenditure within the meaning of Section 69C.
It agreed that Section 69C applies where expenditure is incurred out of unexplained sources. Where purchases are entered in regular books and no unaccounted cash outflow is established, the provision cannot be mechanically invoked.
The Tribunal also upheld the rejection of books under Section 145(3) and the estimation of commission income at 0.5 percent of total purchases and sales, holding that the approach was reasonable in the facts of the case.
As a result, the deletion of the ₹417.87 crore addition was confirmed, and income was restricted to commission earnings. The cross-appeals were disposed of accordingly.
Case Details
Coram: Om Prakash Kant (Accountant Member) and Ms. Kavitha Rajagopal (Judicial Member)
Case Title: Balaji Bullions and Commodities India Private Limited v. DCIT, Central Circle 7(1), Mumbai
Case Number: ITA No. 3755/MUM/2025 & ITA No. 3915/MUM/2025
Assessment Year: 2017–18
Counsel for the assessee: Shri Sharwan Kumar Jha, Advocate (appeared virtually); for the Revenue: Ms. Shabana Praveen, CIT-DR, and Shri Leyaqat Ali Aafaqui, Senior Authorised Representative.
