ITAT Delhi Ruling: Vendor's Failure to File ITR Cannot Invalidate Assessee's Genuine Business Expenditure Under Section 37

The adjudication of business expenditure claims under the Income Tax Act 1961 frequently witnesses disputes between the revenue authorities and the assessee, particularly when third-party vendors exhibit tax non-compliance. A recurring point of contention is whether the default of a supplier—such as the failure to file an Income Tax Return (ITR)—can automatically render the purchaser's claimed expenditure as bogus or non-genuine.

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently addressed this critical issue in the landmark decision of DCIT Vs Gaadi Web Private Limited. Pronounced on 28 September 2026, the ruling in ITA No. 7992/Del/2025 for the Assessment Year (AY) 2023-24 provides substantial clarity on the evidentiary requirements for disallowances under Section 37 of the Act. The Tribunal categorically held that a vendor's non-filer status does not, in isolation, empower the Assessing Officer (AO) to disallow the assessee's legitimate business expenses, especially when the revenue fails to bring forth corroborative adverse material.

This comprehensive summary and analysis delves into the factual matrix, the procedural history, the appellate observations, and the broader legal principles established by the ITAT in this judicial pronouncement.

The Factual Matrix of the Dispute

The assessee, Gaadi Web Private Limited, is a private limited company engaged in the business of operating a digital web portal named Gaadi.com. The platform primarily serves as an information repository and service provider for consumers and dealers in the used automobile sector.

For the Assessment Year 2023-24, the assessee filed its return of income on 12.12.2023, declaring a substantial loss amounting to Rs. 59,12,37,871/-. This return was initially processed under Section 143(1) of the Income Tax Act 1961.

The genesis of the scrutiny proceedings traces back to a survey operation conducted under Section 133A of the Act on 13.12.2023. This survey targeted a group of entities, prominently including Elegance Globex Services and others, who were suspected of providing non-genuine purchases and facilitating bogus transactions. During the course of this survey, the records of one Mr. Akash, the proprietor of JMD Globex Services, were examined. The revenue authorities alleged that the assessee had engaged in transactions amounting to Rs. 90,01,887/- with JMD Globex Services during the Financial Year 2022-23, which the AO suspected to be accommodation entries.

The Assessing Officer's Scrutiny and Disallowances

Consequently, the assessee's case was selected for scrutiny assessment. During the assessment proceedings, the assessee submitted that the amount of Rs. 90,01,887/- was incurred toward advertising expenses and provided the corresponding ledger account of JMD Globex Services. However, the AO noted that the assessee could not produce sub-contractual agreements or concrete evidence demonstrating the actual delivery of services. Relying on the findings of the Section 133A survey, the AO categorized these expenses as non-genuine and disallowed them under Section 37 of the Act.