ITAT Deletes ₹48.95 Crore Bogus-Purchase Addition — Reassessment Held Void

Forum: ITAT Varanasi
Assessment year: 2018-19
Amount deleted: ₹48.95 crore (Section 69C)
Order date: 25 September 2026

The short version

The ITAT quashed a reassessment as void ab initio and deleted the entire ₹48.95 crore bogus-purchase addition made under Section 69C.
The reopening was built on "borrowed satisfaction" from a third-party search, with no independent verification and no "live nexus" linking that information to the taxpayer.
Multiple fatal defects: relied-on material not supplied, taxpayer's objections not considered, and the final additions differed from the show-cause notice.
A jurisdictional defect in a reopening notice is not curable — it voids the whole exercise, it can't just be sent back for a redo.

Reassessment notices built on search information about someone else have become common. A recent ITAT Varanasi order is a sharp reminder that the Assessing Officer can't simply forward third-party allegations and call it a reason to believe income escaped — and that getting the jurisdiction wrong isn't a slip that can be fixed on remand. It sinks the whole case.

What happened

The taxpayer, a wholesale trader in essential commodities (maida, atta, rice, sooji), had its assessment for AY 2018-19 reopened under Sections 147/148. The trigger was a search on a third party — alleged to be a hawala operator providing accommodation entries through dummy firms. On that basis, the Assessing Officer eventually made additions totalling ₹48,95,06,820 under Section 69C (unexplained expenditure), treating purchases from three parties as bogus. The faceless appeal centre (NFAC) upheld them. The taxpayer carried it to the Tribunal.

Why the reassessment was held void

The Tribunal struck down the reopening on several jurisdictional grounds — any one of which can be fatal:

Borrowed satisfaction, no live nexus. The notice simply reproduced generalised third-party search information without the AO independently verifying its accuracy or its connection to this taxpayer's actual transactions.
A factually wrong foundation. The alleged "unaccounted credits" didn't exist — the transactions ran through normal banking channels and recorded books — yet the errors were never corrected before notices went out.
Material not supplied. The third-party statements and digital data relied upon were never provided to the taxpayer, breaching natural justice.
Objections ignored. The taxpayer's detailed objections were brushed aside; the Section 148A(d) order was passed mechanically, without engaging a single contention.
Notice vs order mismatch. The show-cause notice alleged one thing (unaccounted credits under one set of provisions); the final order made entirely different additions under Section 69C, of a very different quantum.
Wrong provision altogether. Because the information came from a third-party search, the correct route was Section 153C, not a general Section 147 reopening.

The core principle: jurisdiction is a condition precedent

The Tribunal held that assuming jurisdiction to reopen is a condition precedent, not a mere formality. Where the AO's belief is formed mechanically, with no rational, proximate link between the information and the alleged escapement, the notice and reassessment are void ab initio — not merely irregular or curable on remand. A procedural lapse can be cured; a jurisdictional one cannot.

And on the merits too

Even setting aside the jurisdiction point, the Tribunal found the additions unsustainable — a useful roadmap for anyone defending a "bogus purchase" allegation:

You can't accept the sales but reject the purchases. The AO accepted the turnover and closing stock (which incorporated the disputed purchases) while rejecting the purchases themselves — an impermissible pick-and-choose. Sales can't happen without corresponding material inflows.
Section 69C was misapplied. It requires first showing expenditure was incurred and its source is unexplained. Here the taxpayer produced audited statements, party ledgers, bank statements, stock registers and invoices — none adversely commented upon.
Books were never rejected. The AO didn't reject the books under Section 145(3), yet treated selected purchases as bogus — logically inconsistent.

What this means for taxpayers facing reopening

The post-2021 Section 148A regime was meant to make reopening a reasoned, checked process — not a rubber stamp. This order shows tribunals are holding the Revenue to that standard. If you receive a reassessment notice based on someone else's search or generalised "information," watch for:

Is there a real, specific link between the information and your actual transactions — or just a generic allegation?
Were you given the material the AO is relying on, so you can meet it?
Were your objections actually dealt with in the Section 148A(d) order, or waved through?
Does the final addition match the notice — same basis, same provision, same ground?
Is Section 147 even the right route, or should it have been Section 153C because the trigger was a third-party search?

One important caveat

This is a Tribunal order on its own facts, and the Revenue may pursue it further. It is persuasive and instructive — not a guarantee of the same outcome in a different case. How these principles apply depends entirely on the specific notice, record and facts in front of you. Treat it as guidance on what to check, not as a template answer.

Received a reassessment or "bogus purchase" notice?

efiletax can review the validity of the reopening, build your objections on the record, and represent you through faceless assessment and appeal — on both jurisdiction and merits.

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Disclaimer: This article summarises an ITAT Varanasi order (AY 2018-19, order dated 25 September 2026) for general understanding and is current as at the date of publication. It is a tribunal decision on its own facts and may be subject to further appeal; it does not guarantee a similar outcome in any other case. This is not legal or tax advice — please consult a qualified professional about your specific notice and facts. Talk to efiletax if you need help.