TMI Blog2024 (4) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under Sections 147/143(3) of the Act, the AO made addition on account of difference of purchase price concerning purchases made by the assessee from M/s Gaja Nand Pardeep Kumar, in comparison to purchases made from other entities, on the same day. The application of mind on the part of the AO in the aforesaid assessment order is evident from the fact that the AO clearly held that in the enquiry conducted by issuance of summons and by calling for information from the Market Committee, Dabwali, the stated firm of M/s Gaja Nand Pardeep Kumar, Dabwali was found to be non existent. It was on these basis, that the AO held that it appeared that the assessee had made purchases from the grey market at prices much lower than that recorded in the books of account and that the assessee had obtained bogus higher rate purchase bills from the said party, in order to suppress gross/net profit. The AO, therefore, made addition on account of difference of purchase price and added an amount. It was only the profit element embedded in the entire purchases made, that could have been brought to tax, which is exactly what has been done by the AO following case Sathyanarayan P. Rathi [ 2013 (6) TMI 257 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore untenable - HELD THAT:- Purchases having been duly accepted, adverse inference against the assessee was wrongly drawn with regard to sundry creditors u/s 68 of the Act. PCIT evidently erred in holding that the AO had failed to verify the genuineness and credit worthiness of the sundry creditors. PCIT further went wrong in observing, in the face of the evidence produced by the assessee, that the AO had not called for any ledger documents and confirmation of accounts of the sundry creditors. The ld. PCIT further went wrong in holding that the AO had failed to make any independent enquiry to verify the genuineness of the creditors. The impugned order in this regard is also set aside and reversed and the assessment order is revived with regard to the issue of sundry creditors also. Issue of payments made to partners - Where no disallowance with regard to either partners remuneration or interest paid to partners has suffered disallowance in the earlier years as well as in the immediately succeeding assessment year, in scrutiny assessment proceedings, no disallowance in the year under consideration is called for, in order to maintain consistency, too for the reason that advers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket as the sales have been confirmed; However AO has failed to acknowledge this fact and no disallowance were made as per provision of section 40A(3) of the Act are factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable. 2.2 That the learned Principal Commissioner of Income Tax has erred in holding that it is a case of lack of enquiry and, further failing to appreciate that alleged inadequate enquiry in the manner, suggested without any independent evidence and, without any further enquiries by him, cannot be a basis for assumption of jurisdiction u/s 263 of the Act. 2.3 That the learned Pr. Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries, had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Pr. Commissioner of Income Tax had a different opinion and that too, without having established in any manner that the view adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for the purpose of limitation. It was, accordingly, submitted that the delay in filing the present appeal may be condoned. 4. The ld. DR did not raise any specific objection. 5. In view of the submissions made by both the parties, the delay is hereby condoned and appeal of the assessee is admitted for adjudication. 6. Ground Nos. 3, 4 and 4.1 are not pressed. Accordingly, these grounds are rejected. 7. Ground No.1 is general and needs no adjudication. 8. Apropos Ground Nos. 2 to 2.7, the facts are that the ld. PCIT issued a Show Cause Notice dated 06.08.2019 to the assessee u/s 262 of the Income Tax Act as follows : 2. The assessment record for the period under consideration was called upon and examined. On such examination, it has been noticed that you have made bogus purchases from M/s Gaja Nand Pardeep Kumar which is non-existent party. It was also confirmed by the third party enquiry i.e., Market Committee, Dabwali vide letter No.1527 dated 14.11.2018 that there is no firm registered by the name of M/s Gaja Nand Pardeep Kumar, Shop No. 209, NGM, Dabwali during the year 2010-11. Further, the summons u/s 131 of the Income Tax Act, 1961 was issued on 31.10.2018 to ascertain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Quality Steel , 395 ITR 1 (S.C), wherein, it has been held that where two views are possible and the AO had taken one view and the CIT revised the said order on the ground that he did not agree with the view taken by the AO, the assessment order could not be treated as an erroneous order or prejudicial to the interests of the Revenue; that the reason is simple, i.e., that while exercising the revisionary jurisdiction, the CIT is not setting in appeal. The assessee also relied on Malabar Industries Co. Ltd. Vs CIT , (2000) 243 ITR 83 (S.C), wherein it was held that jurisdiction u/s 263 of the Act cannot be assumed in respect of a debatable issue. As per the assessee, this was reiterated in CIT Vs Max India Ltd. (2007) 295 ITR 282 (S.C); Mohammad Haji Adam Co. , (2019) 2 TMI 1632 Bombay High Court; Paramshakti Distributors Pvt. Ltd. (2019) 7 TMI 832 Bombay High Court. 9.1 The ld. PCIT, however, was not satisfied with the reply of the assessee. He observed that it had been noticed that the assessee had submitted documents which had already been filed during the assessment proceedings in his reply; that no additional document had been submitted by the assessee to prove the genuinene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om that held by the AO, that the impugned order was passed illegally, without establishing as to how the view of the AO was an impossible view in any manner; that the ld. PCIT has failed to appreciate that under the provisions of Section 263 of the Act, an order of assessment cannot be set aside simply to make further enquiries and to thereafter pass a fresh order; that the ld. PCIT has failed to appreciate that surmises, conjectures and suspicion could not be a valid basis to invoke the provisions of Section 263 of the Act; that the ld. PCIT has erred in acting beyond the Show Cause Notice issued u/s 263 of the Act and, therefore, findings, observations and material relied on but not referred to in the Show Cause Notice, but made part of order, could not have been made the basis for assumption of jurisdiction u/s 263 of the Act. 9.4. The ld. DR, on the other hand has placed strong reliance on the impugned order. It has been contended that the ld. PCIT has correctly observed that the assessee did not produce on record any documents other than those submitted during the assessment proceedings, to prove the genuineness of the firm, M/s Gaja Nand Pardeep Kumar ; that it remains undisp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdeep Kumar and bank statements were enclosed. On 30.03.2018, a notice (APB 57) u/s 148 of the Act was issued to the assessee. Then, notice u/s 142(1) was issued on 27.08.2018 (APB 64). On 31.10.2018, a summon (APB 65) was issued to Shri Pardeep Kumar, Proprietor M/s Gaja Nand Pardeep Kumar u/s 131 of the Act. On 26/31.10.2018, notice (APB 66-67) was issued to the Market Committee, Dabwali, u/s 133(6) of the Act. On 14.11.2018, a reply (APB 68) was filed by the Market Committee, Dabwali, before the AO, stating that as per their office record available, there was no firm registered as M/s Gaja Nand Pardeep Kumar, Shop No.209, New Grain Market, Dabwali during the year 2010-11. On 11.12.2018, a reply (APB 69-78) was filed by the assessee before the AO alongwith copies of ledger (APB 110) of M/s Gaja Nand Pardeep Kumar in the audited books of account, purchase bill and transportation bilty of tansporter (APB 111-125) and C-Form issued to M/s Gaja Nand Pardeep Kumar. Vide order dated 21.12.2018, the AO made a further addition of Rs. 1,86,110/-, to the already assessed income of Rs. 65,15,880/- u/s 143(3) of the Act. 9.6 As correctly submitted on behalf of the assessee, the claim made re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as regard to purchase made with the parties, but he has neither appeared nor filed any written reply. A letter was sent to him by Registered Post on his residential address i.e., ..2875, Gandhi Memorial Vidhalya, Abohar by specifically mentioning that the entries in the account will be treated as his income from other sources and action will be initiated against him as per provisions of Income Tax Act, but no reply furnished by him. As Shri Pardeep Kumar has not submitted any reply or clarified his credit entries in his bank account, it is clear that he is not doing any business activity but merely an entry provider. As per reply submitted by the counsel of the assessee on 26.03.2016 stated that they have made purchases from M/s Gaja Nand Pardeep Kumar, Dabwali to the tune of Rs. 58,42,590/-. As M/s Gaja Nand Pardeep Kumar, is found to be a non existing entity, total purchases of the assessee are bogus purchases and only bills have been raised. The assessee thus, found to have concealed its income by booking bogus expenses. From perusal of the records, it has been noticed that the case of the assessee already assessed at an income of Rs. 65,15,880/- u/s 143(3) of the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.03.2011, has been filed at APB 110. 9.13 Copies of relevant pages of bank statement of the assessee, pertaining to State Bank of Patiala has been filed at APB 127-128 and that concerning Punjab National Bank, has been filed at APB 129-132. These bank statements show payments made by the assessee to M/s Gaja Nand Pardeep Kumar against purchases made from M/s Gaja Nand Pardeep Kumar/ 9.14 The copy of C-Form issued by the assessee to M/s Gaja Nand Pardeep Kumar has been filed at APB 126. 9.15 Details of purchases made from M/s Gaja Nand Pardeep Kumar, in the form of bilty number, have been placed at APB 111, 114, 117, 123 and 120. The details with regard to the sales, in the shape of ledger account of the party, are at APB 137-138 concerning Fertichem Cotspin Ltd. and at APB 136, concerning Cheema Spintex Ltd. The respective bills have been placed at APB 113-116, 119, 125 and 122. The relevant pages of the Purchase Book and Sale Book have been filed at APB 133-135, showing a direct one to one nexus between the respective purchases and hence, the purchases and sales have been depicted in a tabular form, as above. 9.16 As correctly contended on behalf of the assessee, it is seen that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 from M/s Gaja Nand Pardeep Kumar, Dabwali on 01.11.2010 and also purchased same type of cotton @ Rs. 9872.85 from M/s Neelkamal Industries, Jaitsar on the same day i.e., 01.11.2010. Therefore, it is clear that assessee has purchased cotton on higher rate of Rs. 1058.29 from M/s Gaja Nand Pardeep Kumar in comparison to the other party. 5. The matter was discussed with the counsel of the assessee on the above issues and after discussion and taking a reasonable view, difference on account of above discrepancy has been worked out (sic) Rs. 186110 [cotton 175.86 qtl. X Rs. 1058.29 {10931.14 987285}]. Therefore, an addition of Rs. 1,86,110/- is made towards the taxable income of the assessee . 9.17 The application of mind on the part of the AO in the aforesaid assessment order is evident from the fact that the AO clearly held that in the enquiry conducted by issuance of summons and by calling for information from the Market Committee, Dabwali, the stated firm of M/s Gaja Nand Pardeep Kumar, Dabwali was found to be non existent. It was on these basis, that the AO held that it appeared that the assessee had made purchases from the grey market at prices much lower than that recorded in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the finished goods were, in fact, purchased by the assessee, though not from the parties shown in the accounts. The Tribunal held that it was not the entire amount of purchases, but the profit margin embedded therein, which would be subjected to tax. On appeal, the Hon'ble Gujrat High Court held that the Tribunal had committed no error; that whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus, was essentially a question of fact; that the Tribunal, having examined the evidence on record, had come to the conclusion that the assessee did purchase the cloth and sold the finished goods; that as a natural corollary, it was not the entire amount covered under such purchase, but the profit element embedded therein, which would be subject to tax. 9.20 Reliance has also correctly been placed on behalf of the assessee, on Pr. CIT Vs Jagdish H Patel , 84 taxmann.com 259 (Guj). Therein, the Tribunal while sustaining the findings of the ld. CIT(A) regarding bogus purchases, reduced the addition to 8% from that of 25%, as made by the ld. CIT(A). The Tribunal confirmed the action of the ld. CIT(A) in not separately tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made was with regard to suspicious purchases made by the assessee from various entities of a tainted group. Specific queries had been raised by the AO requiring the assessee to substantiate the purchased under suspicion. The assessee furnished their requisite details and documentary evidences before the AO. Such evidence included stock record and quantitative details of opening stock, closing stock, purchase, sale etc. The assessee also demonstrated before the AO, the corresponding sales made against the purchases. In support of the purchase transaction, copies of purchase invoices sales ledger extracts were furnished. It was on considering all these evidences, that the AO came to a conclusion that since sales had been offered and adequate quantitative details had been produced by the assessee, the conclusion to be drawn was that the goods were purchased from the grey market, whereas the bills were obtained from accommodating suppliers. The AO exercised the only option available, that was, to estimate the suppressed profits on these transacstions. Considering the applicable VAT rate, the AO estimated a further addition of 1.6% against the purchases. The ITAT observed that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions of Rs. 6,26,847/-. It had been found that the completed assessment had been reopened on the ground of information received from the Investigation Wing of the Department that the assessee had made purchases from alleged bogus suppliers. The AO, after having made detailed enquiry and investigation, found that the corresponding sales had been duly accounted for by the assessee in its books. The AO found that accordingly, the entire purchases could not be added. He, as such, estimated extra profit of 6% on such purchases and added the same to the assessee's income. The Tribunal held that it had also considered the various decisions wherein under identical facts and circumstances, 2% additions on bogus purchases had been made; that since the additions in such type of cases depend on the facts of each case, the provisions of Section 263 of the Act could not have been invoked by the ld. CIT. The grounds raised by the assessee were, accordingly, allowed. 10.2 In Raj Lakshmi B Vs PCIT , the Mumbai Bench of the Tribunal, vide order dated 18.03.2019, passed in ITA No.6188/Mum/2018, it was observed that the facts on record revealed that the assessee had been subjected to re- assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f N.K.Proteins (supra) and secondly due to lack of proper enquiry ; that the Tribunal did not agree with the view of the PCIT that it was a case of lack of proper enquiry to find out the genuineness of the purchases; that as regards the PCIT s allegation of non consideration of the decision in N.K. Proteins (supra), the said decision had been rendered by the Hon'ble Supreme Court on 16.01.2017, much after the date of the passing of the assessment order, i.e., 02.03.2016; that this being so, there was no occasion for the AO to consider N.K. Proteins (supra); that this being the case, exercise of power u/s 263 of the Act for the alleged non consideration of the Supreme Court decision in N.K. Proteins , was wholly misconceived; that in any case, addition to be made on the basis of bogus purchases is a purely factual issue and varies from case to case, depending on the facts of each case; that in the case of N.K.Proteins (supra), there had been a search seizure operation carried out in the case of N.K.Proteins , during which, various incriminating documents including blank check books in the name of different entities were found which conclusively proved that the assessee had not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the copies of bank account collected by the AO showed the assessee to have made the payments to the stated parties by way of account payee cheques, showing that the transactions had been routed through bank accounts; that also, it was not the case of the AO that the assessee had indulged in accounting of bogus purchases; that when the assessee submitted that he could not effected the sales when making corresponding purchases, the AO took the view that the assessee could have effected purchases from the grey market; that such a conclusion was, in fact, not supported by any material; that it was under this impression only, that the AO had further expressed the view that the assessee would have purchased the materials by paying cash, thus, violating the provisions of Section 40A(3) of the Act; that this occasion, was based only on surmises; that in the absence of any material to support this view, such view taken by the taxing authorities, that the purchases amount was liable to be disallowed under the provisions of Section 40A(3)of the Act, could not be agreed with; that it was on the same expression, that in the remand report, the AO had expressed the view that the purchases amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish the purchases made. In the absence of any evidence on record to the contrary, purchases amounting to Rs. 58,42,492/- could not be said to be bogus purchases calling for disallowance. In fact, neither the AO, nor the PCIT disputed either the delivery of goods, or the payment of the consideration for such delivery. Rather, remarkably, the sales and closing stock had been accepted in the assessment proceedings, both in the original assessment proceedings as well as the re-assessment proceedings. It is also not in question that the consideration paid as flowed from the bank account of the assessee. It has also not even been contended, much less proved that the amount of the consideration had been ploughed back to the bank of the assessee. It being a transaction of sale and purchase, the factum of delivery of goods and payment of consideration therefore having not been questioned, the manner and mode thereof and the alleged misconduct of the supply cannot be held to be attributable to the assessee, in any manner, so as to decline the claim of such expenditure by the assessee. 12.1 Further, so far as regards the assessee, the burden caused on the assessee stood duly and amply d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hases, it was incumbent upon him to cause further enquiries so as to ascertain the genuineness or otherwise all these transactions; that in the absence of further enquiries in respect of the purchases, the AO could not make addition u/s 69C of the Act by merely relying on the information obtained from the Sales Tax Department, the statements/affidavits of the third party without affording opportunity of cross-examination of these persons to the assessee, for not having responded to the requirements of providing of information u/s 133(6) of the Act. It was observed that the AO had failed to make any enquiry to establish his suspicion that the purchases were bogus, whereas the assessee had produced on record documentary evidence to establish the genuineness of the purchase transactions; that the AO had brushed aside these evidences, which could not be accepted; that in CIT Vs Ashish International , in ITA No.4299 of 2009, the Hon'ble Bombay High Court had held that the genuineness of the statements relied on by the Revenue was not established when the assessee disputed the correctness thereof and had not been provided opportunity to cross examine the parties; that moreover, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly when it was found that the assessee, the trader, had also shown sales out of purchases made which also were accepted by the Department. The SLP filed by the Department was dismissed vide theory No. 12670/2018. 13. In the following decisions, it has been settled that where purchases are duly recorded in the books of account, payment has been made through account payee cheques and the sales/closing stock are accepted, no disallowance can be made : i) M/s Fancy Wear Vs ITO, 167 ITD 621 (Mum) ii) CIT Vs Oswal Chemical Fertilizers Ltd. 200 taxman 170 (Del) iii) CIT Vs Nikunj Exim P. Ltd. 372 ITR 619 (Bom) iv) Ramanand Sagar Vs DCIT 256 ITR 134 (Bom) v) Babulal C Borana V ITO 282 ITR 251 (Bom) vi) CIT Vs M.K.Brothers 163 ITR 249 (Guj) vii) CIT V Nangalia Fabrics (P) Ltd. 220 taxman 17 (Guj) viii) CIT V Famish Enterprises 276 CTR 89 (Cal) ix) CIT V Precious Jewels Corporation 205 taxman 22 (Raj( (MAG) x) E-land International P.Ltd. V DCIT 124 TTJ 554 (Del) 13.1 Particularly, in Precious Jewels Corporation Ltd. (supra) it was held that on the one hand, the assessee had furnished all the necessary information supported with documents to establish the genuineness of the claimed purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal 151 ITR 150 (Patna) ii) Mather Platt (I) Ltd. V CIT 168 ITR 493 (Cal) iii) Addl. CIT V Bahri Bros P.Ltd. 154 ITR 244 iv) Order of the Mumbai Bench of the Tribunal in the case of Prabhat Gupta V ITO in ITA No. 271/Mum/2017 and in M/s Vision Advertising P Ltd. V CIT, order dated 12.08.2018, in ITA No. 890/Mum/2015 13.7 Then, it has rightly been contended that the AO has passed the order after making all possible enquiries and the ld. PCIT has gone wrong in holding it to be a case of lack of enquiry, attracting the provisions of Section 263 of the Act. 13.8 As discussed, it is patent that during the assessment proceedings, the AO had made all possible enquiries into the matter of purchases. The ld. PCIT, on the other hand erred in not repeating the categorical response made by the assessee by way of its reply (APB 50-52). 13.9 In this regard, it is settled that there is a distinction between lack of enquiry and inadequate enquiry and as that it is only not case of lack of enquiry that revisional power can be exercised. This proposition stands settled, inter-alia in the following decisions : i) CIT V Vikas Polymers 341 ITR 537 (Del) ii) CIT Vs Sunbeam Auto Ltd. 332 ITR 16 (Del) iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been stated to have been skipped by the AO. Therefore, again, the assessment order cannot be said to be erroneous and prejudicial to the interests of the Revenue. In this regard, the following decisions are to the same effect: i) CIT Vs Max India Ltd. 295 ITR 282 (S.C.) ii) Malabar Industrial Co.Ltd. V CIT 243 ITR 83 iii) 171 ITR 698 (All) CIT v. Goyal Private Family Specific Trust iv) 170 ITR 28 (All) CIT v. Kashnl Nath Company v) 171 ITR 141 (MP) CIT v. Ratlam Coal Asn. Co. vi) 430 ITR 55 (Kar) CIT vs. Cyber Park Development Construction Ltd. vii) ITA No.25l9/Kol/2017 dated 18.4.2018 Garg Brothers (P) Ltd. vs. DCIT viii) 1TA Nos. 3281-3284/D/2015 dated 11.10.2019 Smt. Shumana Sen vs. DCIT ix) ITA No. 5239/D/2019 dated 21.2.2020 M/s Sunrays Cotspln (P) Ltd. vs. PCIT x) ITA No. 3207/Ahd/2009 Gujarat Laxmi Majur Kamgar Sahkari Mandi Ltd. vs. CIT xi) ITA No. 499/Chd/2016 dated 9.11.2016'Sh. Paramjit Singh vs. POT 15.1 Then, the assessment order, as rightly stated is not based on either incorrect application of law or incorrect application of facts or non application of mind on the part of the AO. There is nothing on record to show that the income assessed has not been assessed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or normally treated as erroneous and prejudicial to the interests of the Revenue because the revisionary authority feels and opines that further enquiry/investigation was required or deeper or further scrutiny should be undertaken. These decisions are also to this effect: i) 332 ITR 167 (Del) CIT vs. Sunbeam Auto Ltd ii) 341 ITR 537 (Del) CIT vs. Vikas Polymers Income Tax Appellate Tribunal iii) ITA No. 7265/D/2017 dated 27.1.2020 M/s Klaxon Trading (P) Ltd. vs. PCIT (Delhi Tribunal) iv) ITA No. 1781/D/2016 dated 24.4.2019 Sanjeev Singh vs. PCIT (Delhi Tribunal) 15.5 Then, it is also settled that for holding that the assessment order prejudicial to the interests of the Revenue but is also erroneous, there has to be some minimal enquiry preceding such a conclusion is held in PCIT Vs Delhi Airport Metro Express (P) Ltd,. 398 ITR 8 (Del), if the PCIT is of the view that AO did not undertake any enquiry, it becomes incumbent on the PCIT to conduct such enquiry. Where such basic exercise has not been carried out by the PCIT, the revisionary order is not sustainable. Such decision is in conformity with the following decisions : i) ITA No. 771/CHD/2017 Shri Abhimanyii Gupta Vs. PCIT ii) 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal No. 170 of 2007, against which last order, the SLP filed by the Department has been dismissed vide order dated 15.01.2000 in SLP (Civil) [CC No. 13518/2007]. (ii) Sri Bala Forgings (P) Ltd. Vs PCIT 175 DTR 57 (Del) (Trib) is also to the same effect. (iii) Too, once the order passed u/s 147/143(3) of the Act is invalid, the consequential proceedings u/s 263 are also invalid, as held in ; i) 341 ITR 240 (Del) CIT v. Software Consultants ii) 49 ITR (T) 0406 (Mum) dated 24.6.2016 M/s Westlife Development Ltd v. Pr. CIT iii) ITA No. 2857/Del./2017 dated 10.12.2018 in the case of M/s. SPJ Hotels Pvt. Ltd. vs The PCIT-8 iv) ITA No. 2808/D/2016 M/s Aas Research and Solutions (P) Ltd. (since kaizen Products (P) Ltd.) vs. PCIT affirmed by Delhi High Court in the case of Pr. CIT v. Kaizen Products (P Ltd. presently known as Aas Research Solutions (P) Ltd. in ITA No. 466/2017 dated 2.5.2017. v) 220 TTJ 0273 (Jodhpur-Tribunal) dated 9.5.2019 M/s Vinod Commodities Ltd. vs. ACIT vi) ITA No. 764 to 766/Kol/2014 dated 5.4.2017 M/s Classic Flour Food Processing (P) Ltd. vs. CIT vii) ITA No. 2269/D/2017 dated 10.12.2018 M/s Supersonic Technologies (P) Ltd. vs. PCIT viii) lTA. No.50/DEL/2021 Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inivasa Iyer iv) 60 ITD 295 (Del) Jagjit Industries Ltd vs. ACIT v) 61 ITD 307 (Ahd) Satishbhai Jayantilal Shah vs. ACIT vi) 125 Taxation 188 (AP) CIT vs. G.K. Kabra Cooperative Ind. Estate vii) 61 ITD 317 (Mad) Sanco Trans Ltd. vs. ACIT 17. No decision contrary to the above has been cited before us. 18. In the entirety of the facts and circumstances discussed herein above, it is found that the revisional proceedings, culminating in the impugned order are not sustainable in law, look at from any angle. Accordingly, the grievance of the assessee is justified and is accepted. The order under appeal is set aside and quashed and that passed by the AO is revived. Ordered accordingly. 19. ITA 146/CHD/2021 is, accordingly, partly allowed. ITA 147/CHD/2021 20. In this appeal for assessment year 2015-16, the assessee has raised the following grounds of appeal : 1. That order dated 20.3.2021 u/s 263 of the Act by learned Principal Commissioner of Income Tax, Rohtak has been made without satisfying the statutory preconditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such. 2. That the conclusion of learned Principal Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Pr. Commissioner of Income Tax had a different opinion and that too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible view 2.6 That the learned Pr. Commissioner of Income Tax has also failed to appreciate that, u/s 263 of the Act, an order of assessment cannot be set-aside to simply to make further enquiries and thereafter pass fresh order of assessment and as such, impugned order is contrary to law and hence, unsustainable. 2.7 That the learned Principal Commissioner of Income Tax has failed to appreciate that surmises, conjecture and suspicion could not be a basis much less a valid basis to invoke section 263 of the Act. 2.8 That while passing the order u/s 263 of the Act the learned Principal Commission of Income Tax cannot travel beyond the show cause notice and therefore findings and observation and also the material relief upon not referred in the show cause notice but made part of the order could neither in law and nor on fact be made a basis to assume jurisdiction u/s 263 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on record and make independent enquiry and also carry out examination of the parties to verify the genuineness and credit worthiness of the parties; and that there is a clear cut lack of enquiry on this issue. 25.2 The stand of the assessee is that the unsecured loans amount to Rs. 19,33,54,914/-; that of 10 lenders from whom, in addition to brought forward loans, the assessee had received fresh borrowings during the year under consideration, amounting to Rs. 12,76,80,548/- and that there are 23 lenders, from whom no fresh loans were received by the assessee during the year and the loans from whom amounted to Rs. 6,56,74,365/-. The details of all the unsecured loans, amounting to Rs. 19,33,54,914/-, i.e., name of the lender, opening balance, as on 01.04.2014, fresh borrowings, interest, TDS, repayment and closing balance as on 31.03.2015, have been tabulated as under, alongwith a reference to the relevant copy of ledger, as placed in APB-II: 26. Besides it has been stated that in the case of Krishna Devi Sharda, lender, whose copy of ledger has been placed at APB 86-87, the balance as on 01.04.2014 was a debit balance of Rs. 1,36,18,277/-; that fresh evidences in her case were of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance was of Rs. 2 lacs and above, would be produced during the year, with documentary evidence would also be produced during the manual hearing. 27.2 Vide notice (APB 48-49) dated 11.12.2018, issued u/s 142(1) of the Act, the assessee was required to attend the AO s office on 17.12.2018 alongwith the required information/documents, and also to produce the books of account. 27.3 In the ordersheet entry (APB 59) dated 21.12.2018, the AO noted that the counsel of the assessee had submitted the required documents/information and had also produced the books of account, which had been test checked, and that the case had been discussed with the counsel of the assessee. 27.4 In the assessment order (APB 50-59) dated 21.12.2018, passed u/s 143(3) of the Act, the AO observed, inter-alia, that the response of the assessee to the notices had been received and the assessee had requested for personal hearing for submission of complete information/documents; that accordingly, notice u/s 142(1) of the Act had been issued on 11.12.2018, fixing the case for 17.12.2018 for personal hearing; that in response, the authorized representative of the assessee had appeared, with whom the case had been disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT iii) ITA No. 3736/D/2017 dated 27.11.2020 ACIT vs. SPG Finvest (P) Ltd. (in respect of investments pertains to earlier years) iv) 21 SOT 22 (Delhi) (URO) Suraj Bhan Bajaj vs. ITO v) 65 TTJ 476 (Del) Jagtar Singh vs. ITO vi) ITA No 1219/Mum/2013 Rita Stephen Pinto vs. 1TO vii) ITA No. 2927/Mum/2017 dated 15.6.2018 Syntensia Network Security India (P) Ltd. vs. ITO viii) ITA No 1078/Bang/2014 Glen Willians vs ACIT ix) ITA No 305/Mds/2016 M/s. Sooraj Leathers vs. ITO x) ITA No 557/LKW/20M dated 17.3.2016 ITO vs. Shri Kamal Raheja xi) 157 ITD 924 (Calcutta - Trib.) DCIT vs. Global Mercantiles (P) Ltd. 28.1 With regard to the sum of Rs. 12,76,80,548/-, undisputedly, these are outstanding balances reflected as payable and are opening balances carried forward with regard thereto , the issue as to the genuineness of credit entries therefore, does not arise in the year under consideration. The said issue could only be examined in the year when the liability was recorded as having a reason. 28.2 The relation of the assessee, with the lenders pertaining to those loans pertaining to earlier years, amounting to Rs. 12,76,80,548/-, has been tabulated as under: 28.3 It has been stated that apar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT Vs H.P. Stock Holdings Ltd. 325 ITR 316 (Del) 28. In view of the above discussion, we find that the assessee is justified in contending that the ld. PCIT has gone wrong in observing that the AO has failed to verify the genuineness and credit worthiness of the unsecured loans, that the AO has not called for any ledger documents and confirmation of accounts of the parties from whom the assessee had taken the unsecured loans and that the AO has failed to make any independent enquiry to verify the genuineness of the lenders. As discussed, these findings are diametrically opposite to the facts placed by the assessee on record, which evidence, as noted, has remained unshaken. 29. So far as regards the issue of sundry creditors, the ld. PCIT observed that the assessment record showed that the replies filed during the assessment proceedings were just placed on record and the AO had failed to verify the genuineness and credit worthiness of the sundry creditors; that the AO had not called for any ledger documents and confirmation of accounts of the sundry creditors during the assessment proceedings; that the AO had also failed to make any independent enquiry to verify the genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that accordingly, notice u/s 142(1) had been issued on 11.12.2018, fixing the case for 17.12.2018 for personal hearing; that in response, the CA/authorized representative of the assessee company had appeared, with whom, the case had been discussed, that the assessee had produced books of account, which had been test checked; and that the requisite documents/information had been furnished, which had been placed on record after examination. 29.7 The assessee has produced on record, during the assessment proceedings, as before us, copies of ledger accounts of the sundry creditors, for the year under consideration, as follows: 29.8 We find that as rightly been contended on behalf of the assessee that once the purchases made are accepted, thereby accepting the trading results, no adverse inference can be drawn out of sundry creditors u/s 68 of the Act. This position stands settled vide inter-alia, the following decisions : i) ITA No. 325/2008 (Del) CIT vs. Ritu Anurag Agarwal As there was no case for disallowance for corresponding purchases, no addition could be made under Section 68 in as much as it is not in dispute that the creditors outstanding related to purchases and the trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected out of purchases made from these parties, then, it cannot be said that the purchases were bogus. The finding of bogus sale can only lead to the inference that the corresponding amount should be deleted from the turnover of the assessee. The AO has also not rejected the books of account to estimate profit on these transactions in case it was a firm finding that purchases and sales were bogus. The facts of the case of La Medica (supra) are different in the sense that detailed enquiries were made into the purchases made by the assessee, which were held to be bogus by the AO. It was found that the purchase consideration got deposited in a bank account of an employee in Calcutta, which was opened with the introduction of the assessee. No such enquiry was made in this case. In the case of La Medica (supra), it was also not the case that sales were effected from the purchases made and, thus, the purchases could not be out-rightly termed as bogus. Therefore, we are of the view that the facts of the two cases are distinguishable. In absence of displacing the finding of the learned CIT(A) and the fact that the assessee showed profit from these transactions, it is held that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of books of accounts. Here, the payments to the suppliers, as stated earlier, have been made by cheques. So, it cannot be held that expenses were incurred by the assessee outside the books of accounts. Section 69C was introduced in to the statute with a specific purpose. A bare reading of the section makes it clear that if the assessee incurred any expenditure, but offered no explanation about the source of such expenditure or part thereof, or the explanation so offered is not satisfactory, such expenditure may be deemed to be the income of the assessee. The assessee has offered satisfactory explanation about the source of the expenditure in the case before us. xv) 100 TTJ 892 (Ahd) Rajesh P Soni v ACIT 29.9 Further besides the above, as available from the assessee's reply (APB 67-69) before the ld. PCIT, the assessee has filed evidence, ledger account of the sundry creditors in the assessee's books of account, from where, it is evident that payment was made to them by the assessee through the banking channels in the subsequent years. The summary of such payments made by the assessee in the subsequent years is at APB 73-76 and the copy of ledger accounts has been furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 20,33.464 Circle iii) 2013-14 4,80.000 29,92.937 Sirsa iv) 2014-15 12,00,000 40,26.827 ~ v) 2015-16 12,00,000 46,34,236 vi) 2016-17 12,00.000 96.94,384 30. In the above situation, where no disallowance with regard to either partners remuneration or interest paid to partners has suffered disallowance in the earlier years as well as in the immediately succeeding assessment year, in scrutiny assessment proceedings, no disallowance in the year under consideration is called for, in order to maintain consistency, too for the reason that adverse inference was drawn against the assessee in this regard only on the ground that copy of Partnership Deed had not been placed on record. The following decisions are to the same effect : i) 358 ITR 295 (SC) CIT vs. Excel Industries Ltd. ii) 308 ITR 161 (SC) CIT vs. J. K. Charitable Trust iii) 266 ITR 99 (SC) CIT v. Berger Paints iv) 394 ITR 449 (SC) Godrej Boyce Manufacturing company Ltd. vs. DCIT 30.1 Otherwise too, as rightly contended, both the payments, i.e., either on account of remuneration paid to partners, or on account of interest paid to partners is taxable in their respective hands and not in the hands of the assessee. Therefore, no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 263 of the Act by learned Principal Commissioner of Income Tax, Rohtak has been made without satisfying the statutory preconditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such. 2. That the conclusion of learned Principal Commissioner of Income Tax that the assessment order dated 21.12.2018 passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue to the extent of genuineness and creditworthiness of unsecured loans, verification of sundry creditors and payments made to the partners' is based on fundamental misconception of facts and provisions of law and thus not in accordance with law and, therefore untenable. 2.1. That the finding that the AO has failed to verify the genuineness and creditworthiness of unsecured loans and also the observation that AO has not called for any ledger documents and confirmation of accounts of the parties from whom the assessee had taken unsecured loan ; However AO has failed to make any independent enquiry to verify the genuineness of the loans is factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 263 of the Act the learned Principal Commission of Income Tax cannot travel beyond the show cause notice and therefore findings and observation and also the material relied upon not referred in the show cause notice but made part of the order could neither in law and nor on fact be made a basis to assume jurisdiction u/s 263 of the Act; and thus order on this ground alone deserve to be quashed as such. 2.9 That various other adverse findings recorded in the notice u/s 263 of the Act and, also in impugned order are factually incorrect, vague, legally misconceived and untenable. 3. That the learned Principal Commissioner of Income Tax has framed the impugned order without granting sufficient opportunity to the appellant and therefore the order made is illegal, invalid and vitiated order 34. At the outset, it is noted that there is a delay in filing the present appeal by 19 days. In this regard, the assessee has filed an application seeking condonation of delay stating that the period of delay is covered by the decision of the Hon'ble Supreme Court wherein the period of Covid-19 Pandemic was directed to be excluded for the purpose of limitation. It was, accordingly, submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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