ORDER

Vijay Varma, Accountant Member – This appeal filed by the assessee is directed against the order dated 22.10.2025 passed by the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as “the CIT(A)”] for the assessment year 2019–20, arising out of the assessment order dated 30.03.2024 passed by the Assessing Officer (hereinafter referred to as “the AO”) under section 147 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The Assessee has raised the following grounds of appeal:

2. The assessee filed its return of income in response to the notice issued under section 148 of the Act, declaring nil income. The reassessment proceedings emanated from a search and seizure operation conducted under section 132 of the Act on 03.03.2022 in the cases of Chandigarh Distillers and Bottlers Group and its related concerns, including the assessee. According to the AO, the material found during the search indicated that certain entities of the group had obtained bogus bills and vouchers in respect of contractual, purchase and transportation expenses, with a view to inflating expenditure and reducing their taxable income.

3. During the course of the reassessment proceedings, the AO examined contractual expenses aggregating to ₹9,03,869 claimed by the assessee in the names of Ajay Enterprises, a proprietorship concern of Shri Ajay Kumar, and B.K. Enterprises. The AO noted that Ajay Enterprises had filed its returns under the presumptive taxation scheme, whereas B.K. Enterprises was stated to be a non-filer. The AO also referred to the financial particulars of the contractors, the absence of details regarding manpower and labour deployment, the non- furnishing of replies to notices issued under section 133(6) of the Act, and certain incomplete particulars in the invoices.

4. In response to the queries raised by the AO, the assessee furnished the ledger accounts of the contractors, copies of invoices, bank statements evidencing payments through banking channels, and Form 16A in support of the deduction of tax at source under section 194C of the Act. The assessee contended that the expenditure represented genuine labour and contractual charges incurred wholly and exclusively for the purposes of its business. It was further submitted that the payments had been duly recorded in the books of account and that the non-filing of returns by the contractors could not, by itself, justify disallowance of the expenditure.

5. The AO, however, was not satisfied with the explanation furnished by the assessee. According to the AO, the fact that payments had been made through banking channels and tax had been deducted at source did not, by itself, establish that the contractual services had actually been rendered. The AO observed that the invoices issued by the contractors did not contain adequate particulars regarding the manpower deployed, working hours and rates charged. The assessee had also failed to furnish contract agreements, details of the workers engaged, wage registers, muster rolls or other contemporaneous records evidencing the actual execution of the contracts. The AO, therefore, held that the genuineness of the contractual services had not been established and disallowed the entire expenditure of ₹9,03,869 under section 37(1) of the Act.

6. The AO further observed that, according to the material found during the search and the statements of employees of the group, commission was generally paid to parties supplying bogus bills, with 6% stated to be a common rate. Proceeding on the premise that the assessee had also obtained bogus contractual bills, the AO called upon the assessee to explain the source and accounting treatment of the commission allegedly paid for obtaining such bills. The assessee denied having incurred any such expenditure and contended that the allegation was based on suspicion, without any direct evidence of payment of commission by the assessee. It was further submitted, without prejudice, that making a separate addition on account of commission after disallowing the underlying contractual expenditure would result in double taxation.

7. The AO rejected the explanation furnished by the assessee, observing that the procurement of bogus bills necessarily involved payment of commission in accordance with the modus operandi identified during the search. In the absence of any satisfactory explanation regarding the source and accounting treatment of such payment, the AO estimated the commission at 6% of the contractual expenditure of ₹9,03,869 and made a further addition of ₹54,232 under section 69C read with section 115BBE of the Act.

8. The assessee has challenged the order of the learned CIT(A) on various grounds, including the validity of the reassessment proceedings initiated under section 148 of the Act, the reliance placed on material found during the search conducted at the premises of the CDBL Group, and the alleged failure to follow the prescribed statutory procedure. The assessee has also disputed the disallowance of contractual expenditure of ₹9,03,869 under section 37(1) of the Act, contending that the genuineness of the payments was supported by ledger accounts, invoices, banking transactions and deduction of tax at source. Without prejudice, the assessee has raised an alternative ground concerning the inclusion of GST in the amount disallowed. The assessee has further challenged the addition of ₹54,232 towards alleged commission expenditure under section 69C of the Act, contending that no independent material established the incurring of such expenditure, that the statements relied upon were not confronted to it, and that the further addition resulted in double taxation. The assessee has also questioned the additions on the ground that they were made without pointing out any defects in its books of account and without adequate independent enquiry. The grounds raised are dealt with hereinafter to the extent necessary for disposal of the appeal.

9. We have heard the rival submissions and perused the material available on record. The controversy in the present appeal primarily concerns the disallowance of contractual expenditure of ₹9,03,869 and the consequential addition of ₹54,232 on account of alleged commission payment. The assessee has contended that the contractual payments were made through banking channels, that tax was deducted at source under section 194C of the Act, and that ledger accounts and invoices were furnished during the assessment proceedings. The Revenue, on the other hand, has relied upon the findings recorded by the AO regarding the financial particulars of the contractors, deficiencies in the invoices, non-response to notices issued to the contractors, and the material found during the search conducted in the CDBL Group.

10. Having considered the rival contentions, we find that the impugned additions have been made substantially on the basis of inferences drawn from the alleged modus operandi of the group and the circumstances surrounding the contractors. While material found during a search may legitimately provide a basis for further enquiry, the conclusion that a particular expenditure is fictitious must ultimately be supported by material having a reasonable nexus with the transactions claimed by the assessee. The fact that a contractor has filed a return under the presumptive taxation scheme, has not filed a return, or has failed to respond to a notice issued by the Department under section 133(6) of the Act may give rise to a question requiring verification. However, such circumstances, viewed in isolation, do not conclusively establish that the services claimed by the assessee were not rendered.

11. We are conscious of the fact that payment through banking channels, deduction of tax at source and recording of expenditure in the books of account do not, by themselves, conclusively establish the genuineness of a transaction. Equally, however, the deficiencies noticed in the supporting invoices and the failure of the contractors to respond to departmental notices must be evaluated in conjunction with the other material available on record. In the present case, the assessee furnished ledger accounts, invoices, evidence of payments through banking channels and Form 16A in support of the deduction of tax at source. The assessment order does not identify any assessee-specific material conclusively demonstrating that the contractual services were not rendered. The conclusion that the expenditure was bogus has thus been drawn principally from the surrounding circumstances and the broader allegations relating to the group.

12. In our considered view, the material referred to in the assessment order, though sufficient to warrant verification of the transactions, does not, in the facts of the present case, adequately establish that the entire contractual expenditure of ₹9,03,869 was fictitious. The burden upon an assessee to substantiate a claim for deduction cannot be dispensed with. Nevertheless, an adverse conclusion must follow from an overall evaluation of the evidence and cannot rest merely on suspicion, however strong it may appear. On the material placed before US, we are unable to sustain the disallowance in its entirety.

13. The addition of ₹54,232 towards alleged commission expenditure stands on an even weaker footing. The AO computed this amount by applying a rate of 6% to the contractual expenditure treated as bogus. The assessment order refers to the alleged payment of commission as a practice followed within the group and to statements of employees recorded during the search. However, the assessment order does not identify any independent evidence establishing the actual payment of commission by this assessee. The inference that commission must necessarily have been paid merely because the contractual expenditure was considered bogus cannot, in the absence of supporting evidence specific to the assessee, be treated as sufficient proof of unexplained expenditure under section 69C of the Act.

14. We also take note of the fact that the total amount in dispute is relatively modest, comprising contractual expenditure of ₹9,03,869 and alleged commission of ₹54,232. The quantum involved is not, by itself, a ground for deleting an otherwise sustainable addition. However, in deciding the present appeal, it reinforces the need to determine the dispute on the basis of the evidence available in the assessee’s own case and to avoid sustaining additions merely by extending a general inference arising from proceedings involving the wider group. Our conclusion is based on a cumulative consideration of the material on record, the nature of the evidence relied upon, and the absence of sufficient assessee-specific material to sustain the impugned additions.

15. In view of the foregoing discussion, we hold that, on the facts and evidence available on record, the disallowance of contractual expenditure of ₹9,03,869 under section 37(1) of the Act and the addition of ₹54,232 towards alleged commission expenditure under section 69C read with section 115BBE of the Act are not sustainable. Accordingly, the findings of the learned CIT(A) sustaining the aforesaid additions are set aside, and the AO is directed to delete the said additions.

16. Before parting, we clarify that our findings are confined to the facts, evidence and issues arising in the present assessee’s appeal for the assessment year 2019–20. The conclusions drawn herein are based on the material available on record in the assessee’s own case and shall not be construed as expressing any opinion on the genuineness or otherwise of transactions in the substantive cases of CDBL or other group entities, which are required to be examined independently in the light of the facts, evidence and circumstances applicable to those cases.

17. As regards the legal ground challenging the validity of the notice issued under section 148 of the Act, the learned Departmental Representative submitted that the omission to fill in the amount in the prescribed pro forma was merely a technical error and could not, by itself, invalidate the approval granted for issuance of the notice under section 148 of the Act. It was submitted that the specified authority had recorded its satisfaction and that the detailed proposal had accompanied the pro forma placed before the specified authority. The learned Departmental Representative further submitted that the notice under section 148 of the Act had been issued within three years from the end of the relevant assessment year.

18. Since the impugned additions have been deleted on merits, the legal ground challenging the validity of the notice issued under section 148 of the Act has become academic and does not call for separate adjudication. We, therefore, leave the said ground unadjudicated, without expressing any opinion on its merits.

19. In the result, the appeal filed by the assessee is allowed.