THE LOOT (INDIA) PRIVATE LIMITED,MUMBAI vs. DCIT-WARD 8(3)(1), MUMBAI

PER OM PRAKASH KANT, AM

These two appeals by the assessee are directed against two separate orders passed by the learned National Faceless Appeal Centre (NFAC), Delhi [hereinafter shall be referred to as ‘the learned CIT(A)’] for A.Y. 2009-10 and A.Y. 2015-16 respectively. The appeal for A.Y.2009-10 is related to quantum assessment proceeding arising from order passed u/s 143(3) of the Income-tax Act, 1961

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(in short ‘the Act’), whereas the appeal for whereas the appeal for A.Y.2015 2015-16 relates to penalty levied u/s 271(1)(c) of the Act. 271(1)(c) of the Act. Firstly, we take up the appeal of the assessee for 2. we take up the appeal of the assessee for we take up the appeal of the assessee for A.Y. 2009- 10. The grounds raised by the assessee are reproduced as under: 10. The grounds raised by the assessee are reproduced as under 10. The grounds raised by the assessee are reproduced as under

“1. On facts and circumstances of the case and in law the NFAC (Appeals) has 1. On facts and circumstances of the case and in law the NFAC (Appeals) has 1. On facts and circumstances of the case and in law the NFAC (Appeals) has erred in passing the order dated 13/06/2025 without appreciating the entire erred in passing the order dated 13/06/2025 without appreciati erred in passing the order dated 13/06/2025 without appreciati submissions filed by the appellant and therefore demonstrating no application of submissions filed by the appellant and therefore demonstrating no application of submissions filed by the appellant and therefore demonstrating no application of mind to the merits of the claim. mind to the merits of the claim. 2. The Ld. CIT(A) has also erred in Disposing of the appeal by instructing 2. The Ld. CIT(A) has also erred in Disposing of the appeal by instructing 2. The Ld. CIT(A) has also erred in Disposing of the appeal by instructing Assessing Officer to apply gross profit percentage me Assessing Officer to apply gross profit percentage method without applying his thod without applying his mind independently to the facts of the case & also without considering the mind independently to the facts of the case & also without considering the mind independently to the facts of the case & also without considering the essence of the submissions made before him during the appellate proceedings. essence of the submissions made before him during the appellate proceedings. essence of the submissions made before him during the appellate proceedings. without considering the essence of the submission made filed during the course of without considering the essence of the submission made filed during the course without considering the essence of the submission made filed during the course assessment proceedings assessment proceedings 3. The appellant reserves its right to add to, alter, amend, modify or delete any of 3. The appellant reserves its right to add to, alter, amend, modify or delete any of 3. The appellant reserves its right to add to, alter, amend, modify or delete any of the grounds taken in this appeal. the grounds taken in this appeal.” 3. The present appeal is directed against the order dated The present appeal is directed against the order dated The present appeal is directed against the order dated 13/06/2025 passed by the learned Commissioner of 2025 passed by the learned Commissioner of 2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi ["CIT(A)"] under (Appeals), National Faceless Appeal Centre, Delhi ["CIT(A)"] under (Appeals), National Faceless Appeal Centre, Delhi ["CIT(A)"] under section 250 of the Income section 250 of the Income-tax Act, 1961 ["the Act"] for Assessment tax Act, 1961 ["the Act"] for Assessment 10. The order under appeal arises out of the order dated Year 2009-10. The order under appeal arises out of the order dated 10. The order under appeal arises out of the order dated ioner of Income- 31 October 2019 passed by the Deputy Commiss 31 October 2019 passed by the Deputy Commissioner of Income tax, Circle 8(3)(1), Mumbai ["AO"] under section 254 read with tax, Circle 8(3)(1), Mumbai ["AO"] under section 254 read with tax, Circle 8(3)(1), Mumbai ["AO"] under section 254 read with section 143(3) of the Act, in the second round of proceedings, section 143(3) of the Act, in the second round of proceedings, section 143(3) of the Act, in the second round of proceedings, pursuant to the order of this Tribunal dated 18 pursuant to the order of this Tribunal dated 18/09/ /09/2018 remitting the matter to the AO. the matter to the AO.

3.1 The sole issue in th The sole issue in the appeal is the addition of Rs. e appeal is the addition of Rs.79,35,261/- made by the AO under section 69C of the Act, treating purchases made by the AO under section 69C of the Act, treating purchases made by the AO under section 69C of the Act, treating purchases

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made by the assessee assessee from seven suppliers during the previous year from seven suppliers during the previous year as "bogus purchases", on the strength of information received from as "bogus purchases", on the strength of information received from as "bogus purchases", on the strength of information received from the Sales Tax Department. The learned CIT(A) the Sales Tax Department. The learned CIT(A) in second round of in second round of proceedings has held that section 69C has no application to the has held that section 69C has no application to the has held that section 69C has no application to the case, but has nonetheless sustained an addition by directing the nonetheless sustained an addition by directing the nonetheless sustained an addition by directing the AO to apply an unspecified unspecified "gross profit percentage" to the said sum "gross profit percentage" to the said sum of Rs. 79,35,261 and to treat the result as undisclosed income. of Rs. 79,35,261 and to treat the result as undisclosed income. of Rs. 79,35,261 and to treat the result as undisclosed income.

3.2 Briefly stated facts of the case are that during the relevant Briefly stated facts of the case are that during the relevant Briefly stated facts of the case are that during the relevant year, the assessee company was engaged in the business of assessee company was engaged in the business of retail assessee company was engaged in the business of trading in branded apparel, in branded apparel, footwear and accessories footwear and accessories at discounted prices under the name under the name ‘The Loot’ through a chain of retail store in ’ through a chain of retail store in Mumbai and Navi Mumabi and another location serviced by a Mumbai and Navi Mumabi and another location s Mumbai and Navi Mumabi and another location s Central Warehouse at tral Warehouse at ‘Bivandi’. For the assessment assessment year under consideration, the assessee filed a return of income consideration, the assessee filed a return of income on 29/11/2009 declaring a total income total income of Rs. 29835330/-. The assessment was . The assessment was completed u/s 143(3) of the Act on 29/12/ 43(3) of the Act on 29/12/2011 at 2011 at a total income Rs.3,03,49,660/-. Thereafter . Thereafter, on the basis of the on the basis of the information received from the Sales received from the Sales-Tax Department, Maharashtra Maharashtra, through the Director General of Income Director General of Income-Tax (Investigation) to to the effect that certain dealers from whom the certain dealers from whom the assessee had made purchases had made purchases, had not complied with the provisions of the Mahara not complied with the provisions of the Maharashtra Value Added shtra Value Added Tax Act, 2002, and thus, and thus, the assessment was reopen the assessment was reopened invoking section 147 of the Act. In the order passed section 147 of the Act. In the order passed u/s147 read with section 147 read with section 143(3) dated 27/02/ dated 27/02/2014, the Assessing Officer made addi 2014, the Assessing Officer made addition of

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Rs.79,35,261/- being the aggregate of purchases from the following being the aggregate of purchases from the following being the aggregate of purchases from the following seven parties held as seven parties held as ‘bogus purchases’.

Sr. Supplier Amount Nature of Accounting Accounting Paper- (Rs.) goods treatment treatment book pages 1 Mahadespura 8,15,563 Branded Purchases Purchases 42 to 62 Enterprises jeans and (trading stock) (trading stock) shirts (Lee Cooper, etc.) 2 Shreeji Traders 36,10,473 CTD bars, GI Capitalised Capitalised to to 111 to 137 pipes and Furniture Furniture & & steel for Tixtures store fit-out projects 3 M.R. Corporation 17,732, “Loot” Purchases Purchases 63 to 69 branded (trading stock) (trading stock) Tribunal- shirts 4 Marco Enterprises 22,08,311 Canvas Purchases Purchases 70 to 89 (formerly Reiver shoes (trading stock) (trading stock) Gold Elevators) (3,000+1,500 pairs) and other merchandise 5 Om Corporation 4,22,510 Uniforms for Purchases/staff Purchases/staff 90 to 92 shop staff uniform (not for sale) expense 6 Sonotron Trading 1,50,332 Jeans Purchase Purchase 102 to 110 Co. Pvt. Ltd. (trading stock) (trading stock) 7 Siddhivinayak 7,10,340 Cotton bags Purchases Purchases 93 to 101 Corporation and belts (trading stock) (trading stock) Total 79,35,261 3.3 On further appeal before the ld CIT(A) , it was submitted that further appeal before the ld CIT(A) , it was submitted that further appeal before the ld CIT(A) , it was submitted that the disputed purchases constitute he disputed purchases constituted about 1.92 per cent of the about 1.92 per cent of the assessee’s total purchases for the year; that no order recording s total purchases for the year; that no order recording s total purchases for the year; that no order recording rejection of the assessee assessee's books of account as passed; no as passed; no any adverse finding concerning the reported sales or closing e finding concerning the reported sales or closing e finding concerning the reported sales or closing stock or

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any finding that the turnover was inflated. any finding that the turnover was inflated. But t But the assessee's appeal against the reassessment order was dismissed by the appeal against the reassessment order was dismissed by the appeal against the reassessment order was dismissed by the learned CIT(A)-14, Mumbai by order dated 31 14, Mumbai by order dated 31/03/ /03/2015. On the assessee's further ther appeal, appeal, this Tribunal, , by by order order dated dated 18/09/2018, remitted the issue of the alleged bogus purchases to 2018, remitted the issue of the alleged bogus purchases to 2018, remitted the issue of the alleged bogus purchases to the file of the AO "to consider the same afresh in light of the the file of the AO "to consider the same afresh in light of the the file of the AO "to consider the same afresh in light of the submissions made before the CIT(A)". submissions made before the CIT(A)".

4.1 In the second round of proceedings, the AO observed, inter n the second round of proceedings, the AO observed, inter n the second round of proceedings, the AO observed, inter alia, that the assessee had failed to produce the concerned , that the assessee had failed to produce the concerned , that the assessee had failed to produce the concerned suppliers either during the original reassessment proceedings or in suppliers either during the original reassessment proceedings or in suppliers either during the original reassessment proceedings or in the proceedings pursuant to the Tribunal's order. The AO also the proceedings pursuant to the Tribunal's order. The AO also the proceedings pursuant to the Tribunal's order. The AO also observed that the documents furnished by the assessee did not, observed that the documents furnished by the assessee did not, observed that the documents furnished by the assessee did not,

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according to him, satisfactorily establish the receipt of the goods. ng to him, satisfactorily establish the receipt of the goods. ng to him, satisfactorily establish the receipt of the goods. He particularly referred to the alleged absence of invoices in respect He particularly referred to the alleged absence of invoices in respect He particularly referred to the alleged absence of invoices in respect of certain parties, absence of adequate transportation particulars, of certain parties, absence of adequate transportation particulars, of certain parties, absence of adequate transportation particulars, absence of a stock register in the manner perceived by him, and absence of a stock register in the manner perceived by absence of a stock register in the manner perceived by non-production of the suppliers. The AO further relied upon the production of the suppliers. The AO further relied upon the production of the suppliers. The AO further relied upon the information emanating from the Sales Tax Department and held information emanating from the Sales Tax Department and held information emanating from the Sales Tax Department and held that the assessee had failed to discharge the burden of establishing that the assessee had failed to discharge the burden of establishing that the assessee had failed to discharge the burden of establishing the genuineness of the purchases. He accordingly disallowed the the genuineness of the purchases. He accordingly disa the genuineness of the purchases. He accordingly disa entire amount of ₹79,35,261/ 79,35,261/- under section 69C of the Act. under section 69C of the Act.

4.2 In the second round round appellate proceedings before the ld CIT(A) before the ld CIT(A) , the , , the the assessee filed detailed assessee filed detailed assessee filed detailed submissions submissions along submissions along along with with the with the the documentary material relating to the disputed purchases. By the documentary material relating to the disputed purchases. documentary material relating to the disputed purchases. impugned order dated 13/06/2025, the learned CIT(A) (i) upheld impugned order dated 13/06/2025, the learned CIT(A) (i) upheld impugned order dated 13/06/2025, the learned CIT(A) (i) upheld the AO's conclusion the AO's conclusion that the documents furnished by the assessee that the documents furnished by the assessee were satisfactory and, he were satisfactory and, he was justified in drawing an adverse was justified in drawing an adverse inference regarding the genuineness of the purchases (ii) held that inference regarding the genuineness of the purchases inference regarding the genuineness of the purchases by no stretch of imagination, the provisions of section 69C are by no stretch of imagination, the provisions of section 69C are by no stretch of imagination, the provisions of section 69C are applicable in the case of the assessee"; and (iii) applicable in the case of the assessee"; and (iii) Nevertheless, he Nevertheless, he proceeded to treat the matter as one involving disallowance of proceeded to treat the matter as one involving disallowance of proceeded to treat the matter as one involving disallowance of allegedly inflated purchases and directed the AO to apply a “gross allegedly inflated purchases and directed the AO to allegedly inflated purchases and directed the AO to profit percentage (in terms of purchase)” to the amount of profit percentage (in terms of purchase)” to the amount of profit percentage (in terms of purchase)” to the amount of ₹79,35,261/- and to treat the resultant amount as undisclosed and to treat the resultant amount as undisclosed and to treat the resultant amount as undisclosed income of the assessee. income of the assessee. The relevant finding of ld CIT(A) is The relevant finding of ld CIT(A) is reproduced as under : reproduced as under :

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“5.6 The Assessing Officer’s stand 5.6 The Assessing Officer’s stand that the amount of Rs.79,35,261/ that the amount of Rs.79,35,261/- is not a genuine claim has been upheld. However, as per settled principle in this regard, genuine claim has been upheld. However, as per settled principle in this regard, genuine claim has been upheld. However, as per settled principle in this regard, the entire amount of such expenditure cannot be disallowed since the Assessing the entire amount of such expenditure cannot be disallowed since the Assessing the entire amount of such expenditure cannot be disallowed since the Assessing Officer has not made a case that corresponding sales Officer has not made a case that corresponding sales have not been considered in have not been considered in the accounts. Therefore, the accounts. Therefore, I direct the Assessing Officer to apply the gross I direct the Assessing Officer to apply the gross profit percentage (in terms of purchase) on the amount of Rs.79,35,261/- profit percentage (in terms of purchase) on the amount of Rs.79,35,261/ profit percentage (in terms of purchase) on the amount of Rs.79,35,261/ and to treat the resultant amount as undisclosed income of the appellant to treat the resultant amount as undisclosed income of the appellant to treat the resultant amount as undisclosed income of the appellant for the relevant assessment year.” relevant assessment year.” 4.3 The operative direction of the learned CIT(A), as reproduced in The operative direction of the learned CIT(A), as reproduced in The operative direction of the learned CIT(A), as reproduced in the impugned order, is to the effect that the AO shall “apply the the impugned order, is to the effect that the AO shall “apply the the impugned order, is to the effect that the AO shall “apply the gross profit percentage (in terms of purchase) on the amount of gross profit percentage (in terms of purchase) on the amount of gross profit percentage (in terms of purchase) on the amount of Rs.79,35,261/- and to treat and to treat the resultant amount as undisclosed the resultant amount as undisclosed income of the assessee.” income of the assessee.”

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also relied upon the monthly stock and book also relied upon the monthly stock and book-debt st debt statements furnished to its banker in the ordinary course of business. With furnished to its banker in the ordinary course of business. furnished to its banker in the ordinary course of business. regard to the purchase from Marco Enterprises, it was submitted regard to the purchase from Marco Enterprises, it was submitted regard to the purchase from Marco Enterprises, it was submitted that the transaction was supported by an independent reverse- that the transaction was supported by an independent reverse that the transaction was supported by an independent reverse factoring arrangement with GTF, under which GTF directly paid the factoring arrangement with GTF, under which GTF directly factoring arrangement with GTF, under which GTF directly supplier against the accepted invoices and the assessee thereafter supplier against the accepted invoices and the assessee thereafter supplier against the accepted invoices and the assessee thereafter repaid GTF through banking channels. It was contended that such repaid GTF through banking channels. It was contended that such repaid GTF through banking channels. It was contended that such a transaction provided an independent banking trail between the a transaction provided an independent banking trail between the a transaction provided an independent banking trail between the supplier and the financier. supplier and the financier. It was also submitted that the purchase hat the purchase of ₹36,10,473/- from Shreeji Traders related to CTD bars, GI pipes from Shreeji Traders related to CTD bars, GI pipes from Shreeji Traders related to CTD bars, GI pipes and other steel material used for store fit and other steel material used for store fit-outs and that the entire outs and that the entire amount was capitalised under “Furniture & Fixtures” and was not amount was capitalised under “Furniture & Fixtures” and was not amount was capitalised under “Furniture & Fixtures” and was not debited to the Profit & Loss Account as debited to the Profit & Loss Account as revenue expenditure. revenue expenditure. Similarly, the purchase of Similarly, the purchase of ₹4,22,510/- from Om Corporation from Om Corporation represented uniforms for the assessee's shop staff and the goods represented uniforms for the assessee's shop staff and the goods represented uniforms for the assessee's shop staff and the goods were not meant for resale. were not meant for resale.

5.1 The learned Counsel submitted that the findings of the AO The learned Counsel submitted that the findings of the AO The learned Counsel submitted that the findings of the AO were factually inconsistent with the material available on record. In nsistent with the material available on record. In nsistent with the material available on record. In particular, it was submitted that the AO had recorded that invoices particular, it was submitted that the AO had recorded that invoices particular, it was submitted that the AO had recorded that invoices in respect of certain suppliers were not furnished, whereas the in respect of certain suppliers were not furnished, whereas the in respect of certain suppliers were not furnished, whereas the corresponding invoices were in fact available in the paper book. It corresponding invoices were in fact available in the paper book. It corresponding invoices were in fact available in the paper book. It was also lso lso submitted submitted submitted that that that Marco Marco Marco Enterprises Enterprises Enterprises was was was the the the successor/changed name of River Gold Elevators and that the successor/changed name of River Gold Elevators and that the successor/changed name of River Gold Elevators and that the documents relating to Marco Enterprises were consequently the documents relating to Marco Enterprises were consequently the documents relating to Marco Enterprises were consequently the

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documents pertaining to the very supplier referred to by the AO documents pertaining to the very supplier referred to by the AO documents pertaining to the very supplier referred to by the AO under its earlier name. under its earlier name. It was further submitted that the AO's t was further submitted that the AO's observation regarding pipes and iron bars was relevant only to the observation regarding pipes and iron bars was relevant only to the observation regarding pipes and iron bars was relevant only to the purchases from Shreeji Traders, which were capitalised and were purchases from Shreeji Traders, which were capitalised and were purchases from Shreeji Traders, which were capitalised and were not not not trading trading trading purchases. purchases. purchases. The The The remaining remaining remaining disputed disputed disputed purchases purchases purchases comprised apparel, shoes, bags, comprised apparel, shoes, bags, belts and other merchandise belts and other merchandise relevant to the assessee's retail business. It was also submitted that relevant to the assessee's retail business. It was also submitted that relevant to the assessee's retail business. It was also submitted that the AO's observation regarding absence of stock records was the AO's observation regarding absence of stock records was the AO's observation regarding absence of stock records was contrary to the quantitative stock statements and warehouse contrary to the quantitative stock statements and warehouse contrary to the quantitative stock statements and warehouse records placed on record. records placed on record.

5.2 The learned Counsel further submitted that the assessee's arned Counsel further submitted that the assessee's arned Counsel further submitted that the assessee's sales, books of account and closing stock had not been rejected or sales, books of account and closing stock had not been rejected or sales, books of account and closing stock had not been rejected or disturbed; there was no finding that the reported sales were disturbed; there was no finding that the reported sales were disturbed; there was no finding that the reported sales were inflated, that the closing stock was fictitious, or that any part of the inflated, that the closing stock was fictitious, or that any part of the inflated, that the closing stock was fictitious, or that any part of the payments made to the suppliers had returned to the assessee in ments made to the suppliers had returned to the assessee in ments made to the suppliers had returned to the assessee in cash. It was submitted that the information received from the Sales It was submitted that the information received from the Sales It was submitted that the information received from the Sales Tax Department was not independently verified by the AO and that Tax Department was not independently verified by the AO and that Tax Department was not independently verified by the AO and that no statement of any supplier or other third party was furnished to no statement of any supplier or other third party was furnished no statement of any supplier or other third party was furnished the assessee. No opportunity of cross the assessee. No opportunity of cross-examination was provided. It examination was provided. It was also pointed out that the AO did not issue notices under was also pointed out that the AO did not issue notices under was also pointed out that the AO did not issue notices under sections 131 or 133(6) to the suppliers, the assessee's bankers, GTF sections 131 or 133(6) to the suppliers, the assessee's bankers, GTF sections 131 or 133(6) to the suppliers, the assessee's bankers, GTF or other relevant persons to independently verify the transactions. or other relevant persons to independently verify the t or other relevant persons to independently verify the t

5.3 Reliance was placed, inter alia, on the decisions of the Hon'ble Reliance was placed, inter alia, on the decisions of the Hon'ble Reliance was placed, inter alia, on the decisions of the Hon'ble Supreme Court in CIT v. Odeon Builders Pvt. Ltd., (2019) 418 CIT v. Odeon Builders Pvt. Ltd., (2019) 418 CIT v. Odeon Builders Pvt. Ltd., (2019) 418

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ITR 315 (SC) and Andaman Timber Industries v. CCE, (2015) Andaman Timber Industries v. CCE, (2015) Andaman Timber Industries v. CCE, (2015) 281 CTR 241 (SC) and on the decisions of the Hon'ble Bombay and on the decisions of the Hon'ble Bombay High Court in PCIT v. Vaman International Pvt. Ltd., (2020) 422 PCIT v. Vaman International Pvt. Ltd., (2020) 422 PCIT v. Vaman International Pvt. Ltd., (2020) 422 ITR 520 (Bom) and and CIT v. Nikunj Eximp Enterprises Pvt. Ltd., CIT v. Nikunj Eximp Enterprises Pvt. Ltd., (2015) 372 ITR 619 (Bom) (2015) 372 ITR 619 (Bom).

5.4 It was further submitted that section 69C could not be It was further submitted that section 69C could not be It was further submitted that section 69C could not be invoked merely because the AO entertained doubts about the nvoked merely because the AO entertained doubts about the nvoked merely because the AO entertained doubts about the genuineness of purchases. According to the assessee, the source of genuineness of purchases. According to the assessee, the source of genuineness of purchases. According to the assessee, the source of the expenditure was fully reflected in its disclosed books and bank the expenditure was fully reflected in its disclosed books and bank the expenditure was fully reflected in its disclosed books and bank accounts and, therefore, the very basis of the addition under accounts and, therefore, the very basis of the addition under accounts and, therefore, the very basis of the addition under section 69C had ceased to exist once the learned CIT(A) himself ection 69C had ceased to exist once the learned CIT(A) himself ection 69C had ceased to exist once the learned CIT(A) himself recorded a finding that section 69C was not applicable. It was recorded a finding that section 69C was not applicable. recorded a finding that section 69C was not applicable. argued that the learned CIT(A), having held section 69C to be argued that the learned CIT(A), having held section 69C to be argued that the learned CIT(A), having held section 69C to be inapplicable, could not nevertheless sustain an addition by inapplicable, could not nevertheless sustain an addition by inapplicable, could not nevertheless sustain an addition by directing the AO to apply an unspecified gross g the AO to apply an unspecified gross-profit percentage. profit percentage. The learned Counsel submitted that the learned CIT(A) neither The learned Counsel submitted that the learned CIT(A) neither The learned Counsel submitted that the learned CIT(A) neither specified the rate of gross profit, nor identified the basis or specified the rate of gross profit, nor identified the basis or specified the rate of gross profit, nor identified the basis or comparable purchases, nor determined the quantum of addition comparable purchases, nor determined the quantum of addition comparable purchases, nor determined the quantum of addition himself.

5.5 Reliance was also placed upon the judgment of the Hon'ble Reliance was also placed upon the judgment of the Hon'ble Reliance was also placed upon the judgment of the Hon'ble Bombay High Court in Bombay High Court in PCIT v. Mohommad Haji Adam & Co. PCIT v. Mohommad Haji Adam & Co., ITA No. 1004 of 2016 and connected appeals, order dated 11.02.2019, No. 1004 of 2016 and connected appeals, order dated 11.02.2019, No. 1004 of 2016 and connected appeals, order dated 11.02.2019, to submit that where sales are accepted, any addition in relation to to submit that where sales are accepted, any addition in relation to to submit that where sales are accepted, any addition in relation to disputed purchases, where otherwise warranted, has to be confined sputed purchases, where otherwise warranted, has to be confined sputed purchases, where otherwise warranted, has to be confined

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to the differential gross profit attributable to such purchases and to the differential gross profit attributable to such purchases and to the differential gross profit attributable to such purchases and cannot automatically extend to the entire purchase amount. It was cannot automatically extend to the entire purchase amount. cannot automatically extend to the entire purchase amount. emphasised that the learned CIT(A) had neither examined the emphasised that the learned CIT(A) had neither examined th emphasised that the learned CIT(A) had neither examined th gross-profit rate of the assessee nor compared the disputed profit rate of the assessee nor compared the disputed profit rate of the assessee nor compared the disputed purchases with undisputed purchases. Further, the learned purchases with undisputed purchases. Further, the learned purchases with undisputed purchases. Further, the learned Counsel submitted that a gross Counsel submitted that a gross-profit method could not, in any profit method could not, in any event, mechanically be applied to the Shreeji Traders purchase of event, mechanically be applied to the Shreeji Traders purchase of event, mechanically be applied to the Shreeji Traders purchase of ₹36,10,473/- which had been capitalised, or to the which had been capitalised, or to the ₹4,22,510/- which had been capitalised, or to the purchase of staff uniforms, which was not trading stock. The purchase of staff uniforms, which was not trading stock. purchase of staff uniforms, which was not trading stock. learned Counsel also submitted that the direction contained in learned Counsel also submitted that the direction contained in learned Counsel also submitted that the direction contained in paragraph 5.6 of the impugned order was inherently indeterminate paragraph 5.6 of the impugned order was inherently indeterminate paragraph 5.6 of the impugned order was inherently indeterminate because the learned CIT(A) had merely directed the AO to apply a he learned CIT(A) had merely directed the AO to apply a he learned CIT(A) had merely directed the AO to apply a “gross profit percentage” without specifying the percentage, the “gross profit percentage” without specifying the percentage, the “gross profit percentage” without specifying the percentage, the basis for adopting such percentage, the comparable cases, or the basis for adopting such percentage, the comparable cases, or the basis for adopting such percentage, the comparable cases, or the precise quantum of addition. Such a direction, according to the precise quantum of addition. Such a direction, according to the precise quantum of addition. Such a direction, according to the learned Counsel, amounted to leaving the substantive adjudication d Counsel, amounted to leaving the substantive adjudication d Counsel, amounted to leaving the substantive adjudication of the appeal to the AO. of the appeal to the AO.

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satisfactorily discharged the burden cast upon it. The learned satisfactorily discharged the burden cast upon it. The learned satisfactorily discharged the burden cast upon it. The learned Departmental Representative also relied upon the judgment of the Departmental Representative also relied upon the judgment of the Departmental Representative also relied upon the judgment of the Hon'ble Bombay High Court in Hon'ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd., PCIT v. Kanak Impex (India) Ltd., (2025) 474 ITR 175 (Bom) (2025) 474 ITR 175 (Bom) and submitted that the issue ought and submitted that the issue ought to be decided having regard to the factual circumstances of the be decided having regard to the factual circumstances of the be decided having regard to the factual circumstances of the present case.

7.1 The ld counsel summarised his submission as under The ld counsel summarised his submission as under The ld counsel summarised his submission as under:

(a) the assessee assessee has produced, for each disputed purchase, the has produced, for each disputed purchase, the supplier's VAT invoice, the warehouse receipt and inward records supplier's VAT invoice, the warehouse receipt and inward records supplier's VAT invoice, the warehouse receipt and inward records (including the (including the vehicle number), the stock entries, the ledger, and vehicle number), the stock entries, the ledger, and proof of payment through its bank or through an independent NBFC proof of payment through its bank or through an independent NBFC proof of payment through its bank or through an independent NBFC financier;

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(b) the assessee assessee's sales, books of account, stock and gross profit 's sales, books of account, stock and gross profit have been accepted in their entirety, and no finding of have been accepted in their entirety, and no finding of have been accepted in their entirety, and no finding of inflated sales, unaccounted stock or return of cash has been recorded; unaccounted stock or return of cash has been recorded; unaccounted stock or return of cash has been recorded; (c) the only material against the (c) the only material against the assessee is untested information is untested information from the Sales Tax Department, never furnished to the Appellant, on from the Sales Tax Department, never furnished to the Appellant, on from the Sales Tax Department, never furnished to the Appellant, on which no enquiry of any kind was made by the AO in which no enquiry of any kind was made by the AO in which no enquiry of any kind was made by the AO in either round of proceedings; proceedings; (d) the findings in paragraphs 8.1 and 8.2 of the assessment order, (d) the findings in paragraphs 8.1 and 8.2 of the assessment order, (d) the findings in paragraphs 8.1 and 8.2 of the assessment order, adopted by the learned CIT(A), are contradicted by the documents on adopted by the learned CIT(A), are contradicted by the documents on adopted by the learned CIT(A), are contradicted by the documents on record, and the learned CIT(A) has not examined the documents at record, and the learned CIT(A) has not examined the documents at record, and the learned CIT(A) has not examined the documents at all; (e) section 69C, the (e) section 69C, the sole provision invoked by the AO, has no sole provision invoked by the AO, has no application, as the learned CIT(A) has himself held; application, as the learned CIT(A) has himself held; application, as the learned CIT(A) has himself held; (f) the direction to apply an unspecified "gross profit percentage" (f) the direction to apply an unspecified "gross profit percentage" (f) the direction to apply an unspecified "gross profit percentage" specifies no rate, gives no reasons, and is untenable in law; and specifies no rate, gives no reasons, and is untenable in law; and specifies no rate, gives no reasons, and is untenable in law; and (g) the disputed purchases (g) the disputed purchases constitute less than two per cent of the constitute less than two per cent of the Appellant's purchases for the year, and the matter has been Appellant's purchases for the year, and the matter has been Appellant's purchases for the year, and the matter has been agitated in three rounds agitated in three rounds over more than a decade without the over more than a decade without the Revenue bringing on record any material beyond the original Revenue bringing on record any material beyond the original Revenue bringing on record any material beyond the original information. information. 8. We have heard the We have heard the rival submissions and carefully perused the rival submissions and carefully perused the material available on record. The controversy before us requires material available on record. The controversy before us requires material available on record. The controversy before us requires examination in two distinct aspects: first, the manner in which the examination in two distinct aspects: first, the manner in which the examination in two distinct aspects: first, the manner in which the genuineness of the disputed purchases was dealt with in the second genuineness of the disputed purchases was dealt with in the second genuineness of the disputed purchases was dealt with in the second round of proceedings; and second, the legality of the direction oceedings; and second, the legality of the direction oceedings; and second, the legality of the direction issued by the learned CIT(A) to the AO to apply an unspecified issued by the learned CIT(A) to the AO to apply an unspecified issued by the learned CIT(A) to the AO to apply an unspecified gross-profit percentage. profit percentage.

8.1 At the outset, it is necessary to notice the precise scope of the At the outset, it is necessary to notice the precise scope of the At the outset, it is necessary to notice the precise scope of the proceedings before us. The original addition of ₹79,35,261/ proceedings before us. The original addition 79,35,261/- was made by the AO under section 69C of the Act on the footing that the made by the AO under section 69C of the Act on the footing that the made by the AO under section 69C of the Act on the footing that the

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purchases were unexplained expenditure. The Tribunal thereafter purchases were unexplained expenditure. The Tribunal thereafter purchases were unexplained expenditure. The Tribunal thereafter restored the matter to the AO for fresh consideration in the light of restored the matter to the AO for fresh consideration in the light of restored the matter to the AO for fresh consideration in the light of the material and submissions alre the material and submissions already placed before the learned ady placed before the learned CIT(A). In the consequential proceedings, the assessee furnished In the consequential proceedings, the assessee furnished In the consequential proceedings, the assessee furnished documentary material relating to the transactions. The AO, documentary material relating to the transactions. The AO, documentary material relating to the transactions. The AO, however, once again rejected the purchases principally on the however, once again rejected the purchases principally on the however, once again rejected the purchases principally on the ground that the suppliers were not produ ground that the suppliers were not produced and by relying upon ced and by relying upon the information originating from the Sales Tax Department. The the information originating from the Sales Tax Department. The the information originating from the Sales Tax Department. The learned CIT(A), in turn, substantially adopted the AO's reasoning on learned CIT(A), in turn, substantially adopted the AO's reasoning on learned CIT(A), in turn, substantially adopted the AO's reasoning on genuineness but expressly held that section 69C was not genuineness but expressly held that section 69C was not genuineness but expressly held that section 69C was not applicable.

8.2 In our considered view, the In our considered view, the approach adopted by the learned approach adopted by the learned CIT(A) suffers from a fundamental difficulty. Once the learned CIT(A) suffers from a fundamental difficulty. Once the learned CIT(A) suffers from a fundamental difficulty. Once the learned CIT(A) came to the conclusion that section 69C was not applicable CIT(A) came to the conclusion that section 69C was not applicable CIT(A) came to the conclusion that section 69C was not applicable to the case, the assessment could not be sustained on that to the case, the assessment could not be sustained on that to the case, the assessment could not be sustained on that provision. If the learned CIT(A) int provision. If the learned CIT(A) intended to examine whether any ended to examine whether any part of the purchase price represented an excessive or inflated part of the purchase price represented an excessive or inflated part of the purchase price represented an excessive or inflated trading cost warranting an addition on the basis of gross profit, trading cost warranting an addition on the basis of gross profit, trading cost warranting an addition on the basis of gross profit, such issue required a proper determination on the basis of the such issue required a proper determination on the basis of the such issue required a proper determination on the basis of the material available on record and i material available on record and in accordance with law. Instead, n accordance with law. Instead, the learned CIT(A) merely directed the AO to “apply the gross profit the learned CIT(A) merely directed the AO to “apply the gross profit the learned CIT(A) merely directed the AO to “apply the gross profit percentage” to ₹79,35,261/ 79,35,261/-. The order does not disclose what . The order does not disclose what percentage was to be applied, why that percentage was appropriate, percentage was to be applied, why that percentage was appropriate, percentage was to be applied, why that percentage was appropriate,

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what comparable purchases what comparable purchases or gross-profit rate were to be profit rate were to be considered, or how the resultant addition was to be quantified. considered, or how the resultant addition was to be quantified. considered, or how the resultant addition was to be quantified.

8.3 The Section 251(1)(a) of the Act confers upon the first Section 251(1)(a) of the Act confers upon the first Section 251(1)(a) of the Act confers upon the first appellate authority the power, in an appeal against an order of appellate authority the power, in an appeal against an order of appellate authority the power, in an appeal against an order of assessment, to confirm, reduce, enha assessment, to confirm, reduce, enhance or annul the assessment. nce or annul the assessment. The statutory power to set aside an assessment and restore the The statutory power to set aside an assessment and restore the The statutory power to set aside an assessment and restore the matter to the AO, was was no longer available to the Commissioner no longer available to the Commissioner (Appeals) during relevant time during relevant time. The learned CIT(A), therefore, could The learned CIT(A), therefore, could not leave the determination of an not leave the determination of an essential component of the essential component of the proposed addition, namely, the applicable gross namely, the applicable gross-profit rat profit rate and the consequential quantum, consequential quantum, to be decided afresh by the AO. The to be decided afresh by the AO. The direction effectively leaves the substantive adjudication incomplete direction effectively leaves the substantive adjudication incomplete direction effectively leaves the substantive adjudication incomplete and delegates to the AO the dete and delegates to the AO the determination of the very basis and rmination of the very basis and quantum of the addition. quantum of the addition. Such a direction cannot be sustained in Such a direction cannot be sustained in law This aspect assumes greater significance because the learned This aspect assumes greater significance because the learned This aspect assumes greater significance because the learned CIT(A) was required to dispose of the appeal by recording the points CIT(A) was required to dispose of the appeal by recording the points CIT(A) was required to dispose of the appeal by recording the points for determination, the de for determination, the decision thereon and the reasons for such cision thereon and the reasons for such decision, as contemplated by section 250(6) of the Act. The decision, as contemplated by section 250(6) of the Act. The decision, as contemplated by section 250(6) of the Act. The impugned order does not determine the applicable gross-profit rate, impugned order does not determine the applicable gross impugned order does not determine the applicable gross nor does it record any reason for adopting one rate rather than nor does it record any reason for adopting one rate rather than nor does it record any reason for adopting one rate rather than another. The The appellate appellate a authority uthority cannot cannot substitute substitute an an indeterminate direction for an adjudication of the issue before it. An indeterminate direction for an adjudication of the issue before it. An indeterminate direction for an adjudication of the issue before it. An appellate order must disclose the conclusion reached and the appellate order must disclose the conclusion reached and the appellate order must disclose the conclusion reached and the

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reasons which support that conclusion. The direction in the present reasons which support that conclusion. The direction in the present reasons which support that conclusion. The direction in the present case leaves the essential case leaves the essential question of quantum open.

8.4 We also find considerable force in the contention that the We also find considerable force in the contention that the We also find considerable force in the contention that the gross-profit method, even where its application may otherwise be profit method, even where its application may otherwise be profit method, even where its application may otherwise be warranted in a case concerning disputed trading purchases, cannot warranted in a case concerning disputed trading purchases, cannot warranted in a case concerning disputed trading purchases, cannot be applied mechanically to the entire amount of be applied mechanically to the entire amount of ₹79,35,261/ 79,35,261/-. The record, as placed before us, shows that record, as placed before us, shows that ₹36,10,473/ 36,10,473/- relating to Shreeji Traders was capitalised as furniture and fixtures and was Shreeji Traders was capitalised as furniture and fixtures and was Shreeji Traders was capitalised as furniture and fixtures and was not debited to the Profit & Loss Account as revenue expenditure. not debited to the Profit & Loss Account as revenue expenditure. not debited to the Profit & Loss Account as revenue expenditure. Likewise, ₹4,22,510/ 4,22,510/- relating to Om Corporation represented relating to Om Corporation represented uniforms for shop staff and not goods acquired for resale. The uniforms for shop staff and not goods acquired for resale. The uniforms for shop staff and not goods acquired for resale. The nature and accounting treatment of these transactions are nature and accounting treatment of these transactions are nature and accounting treatment of these transactions are materially different from ordinary purchases of trading stock. materially different from ordinary purchases of trading stock. materially different from ordinary purchases of trading stock. Further, the principle emerging from the decision of the Hon'ble Further, the principle emerging from the decision of the Hon'ble Further, the principle emerging from the decision of the Hon'ble y High Court in Mohommad Haji Adam & Co. (supra) Mohommad Haji Adam & Co. (supra), as Bombay High Court in relied upon before us, is that where the sales corresponding to relied upon before us, is that where the sales corresponding to relied upon before us, is that where the sales corresponding to disputed purchases have not been disturbed, the addition, where disputed purchases have not been disturbed, the addition, where disputed purchases have not been disturbed, the addition, where warranted, is to be determined with reference to the differential warranted, is to be determined with reference to the differential warranted, is to be determined with reference to the differential gross profit attributable to the disputed purchases vis fit attributable to the disputed purchases vis fit attributable to the disputed purchases vis-à-vis genuine purchases, rather than by treating the entire purchase amount as purchases, rather than by treating the entire purchase amount as purchases, rather than by treating the entire purchase amount as income. In the present case, the learned CIT(A) did not undertake In the present case, the learned CIT(A) did not undertake In the present case, the learned CIT(A) did not undertake that exercise. There is no determination of the assessee's gross- that exercise. There is no determination of the assessee's gross that exercise. There is no determination of the assessee's gross profit rate on comparable genuine purchases, no finding that the profit rate on comparable genuine purchases, no finding that the profit rate on comparable genuine purchases, no finding that the disputed purchases were made at inflated prices, and no disputed purchases were made at inflated prices, and no disputed purchases were made at inflated prices, and no

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determination of any differential gross profit. The direction to apply determination of any differential gross profit. The direction to apply determination of any differential gross profit. The direction to apply an unspecified percentage to the entire amount is consequently an unspecified percentage to the entire amount is consequently an unspecified percentage to the entire amount is consequently incapable of being sustained as a reasoned determination of taxable incapable of being sustained as a reasoned determination of taxable incapable of being sustained as a reasoned determination of taxable income.

8.5 We make it clear, however, that the above observations should We make it clear, however, that the above observations should We make it clear, however, that the above observations should not be understood as a final adjudication by us on the genuineness not be understood as a final adjudication by us on the genuineness not be understood as a final adjudication by us on the genuineness or otherwise of each of the seven disputed pur or otherwise of each of the seven disputed purchases. The material chases. The material placed on record includes invoices, warehouse/inward records, placed on record includes invoices, warehouse/inward records, placed on record includes invoices, warehouse/inward records, stock-related documents, supplier ledgers and banking records, related documents, supplier ledgers and banking records, related documents, supplier ledgers and banking records, while the Revenue has relied upon the information received from while the Revenue has relied upon the information received from while the Revenue has relied upon the information received from the Sales Tax Department and the non the Sales Tax Department and the non-production of the suppliers. n of the suppliers. These matters require consideration by the competent appellate These matters require consideration by the competent appellate These matters require consideration by the competent appellate authority in accordance with law. authority in accordance with law.

8.6 We also note that the assessee has specifically contended that We also note that the assessee has specifically contended that We also note that the assessee has specifically contended that the information from the Sales Tax Department was not subjected the information from the Sales Tax Department was not subjected the information from the Sales Tax Department was not subjected to independent verification and that the material, if any, relied upon pendent verification and that the material, if any, relied upon pendent verification and that the material, if any, relied upon against the assessee was not furnished to it. The decisions relied against the assessee was not furnished to it. The decisions relied against the assessee was not furnished to it. The decisions relied upon by the assessee, including upon by the assessee, including Odeon Builders Pvt. Ltd. (supra) Odeon Builders Pvt. Ltd. (supra), Andaman Timber Industries (supra) Andaman Timber Industries (supra), Vaman International Pvt. Vaman International Pvt. Ltd. (supra) and Nikunj Eximp Enterprises Pvt. Ltd. (supra) Nikunj Eximp Enterprises Pvt. Ltd. (supra) Nikunj Eximp Enterprises Pvt. Ltd. (supra), have been pressed into service in this regard. been pressed into service in this regard. On the other hand, the On the other hand, the learned Departmental Representative has relied upon Kanak Impex learned Departmental Representative has relied upon learned Departmental Representative has relied upon (India) Ltd. (supra). The applicability and factual distinct . The applicability and factual distinct . The applicability and factual distinction of the respective authorities are matters which should be considered by respective authorities are matters which should be considered by respective authorities are matters which should be considered by

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the first appellate authority after examining the entire evidentiary the first appellate authority after examining the entire evidentiary the first appellate authority after examining the entire evidentiary record. We, therefore, do not consider it appropriate to record any record. We, therefore, do not consider it appropriate to record any record. We, therefore, do not consider it appropriate to record any final finding on the merits of the genuinen final finding on the merits of the genuineness of the purchases at ess of the purchases at this stage.

8.7 In view of the foregoing discussion, the impugned order of the In view of the foregoing discussion, the impugned order of the In view of the foregoing discussion, the impugned order of the learned CIT(A) cannot be sustained in its present form. The learned learned CIT(A) cannot be sustained in its present form. The learned learned CIT(A) cannot be sustained in its present form. The learned CIT(A) was not justified in directing the AO to determine afresh the CIT(A) was not justified in directing the AO to determine afresh the CIT(A) was not justified in directing the AO to determine afresh the gross-profit percentage and consequential addition without himself centage and consequential addition without himself centage and consequential addition without himself adjudicating the issue and determining the basis and quantum adjudicating the issue and determining the basis and quantum adjudicating the issue and determining the basis and quantum thereof. However, instead of finally adjudicating the factual However, instead of finally adjudicating the factual However, instead of finally adjudicating the factual controversy for the first time at this stage, and having regard to the controversy for the first time at this stage, and having regard to the controversy for the first time at this stage, and having regard to the fact that the learned CIT(A) has not properly examined the he learned CIT(A) has not properly examined the he learned CIT(A) has not properly examined the documentary evidence and has not recorded a complete and documentary evidence and has not recorded a complete and documentary evidence and has not recorded a complete and reasoned finding on the issues arising from the material on record, reasoned finding on the issues arising from the material on record, reasoned finding on the issues arising from the material on record, we consider it appropriate, in the interest of substantial justice, to we consider it appropriate, in the interest of substantial justice, to we consider it appropriate, in the interest of substantial justice, to restore the matter to the file of the learned CIT(A). matter to the file of the learned CIT(A).

8.8 Accordingly, the order of the learned CIT(A) dated 13.06.2025 Accordingly, the order of the learned CIT(A) dated 13.06.2025 Accordingly, the order of the learned CIT(A) dated 13.06.2025 is set aside and the matter is restored to his file for fresh is set aside and the matter is restored to his file for fresh is set aside and the matter is restored to his file for fresh adjudication in accordance with law. The learned CIT(A) shall adjudication in accordance with law. The learned CIT(A) shall adjudication in accordance with law. The learned CIT(A) shall examine the entire docum examine the entire documentary material furnished by the entary material furnished by the assessee, consider the findings recorded by the AO, deal with the assessee, consider the findings recorded by the AO, deal with the assessee, consider the findings recorded by the AO, deal with the objections raised by the assessee as well as the submissions of the objections raised by the assessee as well as the submissions of the objections raised by the assessee as well as the submissions of the Revenue, and thereafter determine the issue afresh by passing a Revenue, and thereafter determine the issue afresh by passing a Revenue, and thereafter determine the issue afresh by passing a speaking and reasoned ord speaking and reasoned order.

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8.9 We clarify that we have expressed We clarify that we have expressed no final opinion on the no final opinion on the genuineness or otherwise of the disputed purchases or on the genuineness or otherwise of the disputed purchases or on the genuineness or otherwise of the disputed purchases or on the ultimate quantum, if any, liable to be assessed ultimate quantum, if any, liable to be assessed. All such issues are All such issues are left open for determination by the learned CIT(A) in accordance with left open for determination by the learned CIT(A) in accordance with left open for determination by the learned CIT(A) in accordance with law. The grounds of appeal on merit are allowed for statistical The grounds of appeal on merit are allowed for statistical The grounds of appeal on merit are allowed for statistical purposes.

“1. On facts and circumstances of the case and in law the NFAC (Appeals) has 1. On facts and circumstances of the case and in law the NFAC (Appeals) has 1. On facts and circumstances of the case and in law the NFAC (Appeals) has erred in affirming penalty levied by the AO as per the erred in affirming penalty levied by the AO as per the provisions of law, where provisions of law, where the Id AO has erred in not recording his satisfaction before initiating penalty the Id AO has erred in not recording his satisfaction before initiating penalty the Id AO has erred in not recording his satisfaction before initiating penalty proceedings under Section 271(1)(c) of the Act. proceedings under Section 271(1)(c) of the Act. 2. The Ld. CIT(A) has further erred in affirming penalty levied by the AO without 2. The Ld. CIT(A) has further erred in affirming penalty levied by the AO without 2. The Ld. CIT(A) has further erred in affirming penalty levied by the AO without appreciating the fact that, as per the provisions of law, the learned AO has erred fact that, as per the provisions of law, the learned AO has erred fact that, as per the provisions of law, the learned AO has erred in initiating proceedings under Section 271(1)(c) of the Act without specifying the in initiating proceedings under Section 271(1)(c) of the Act without specifying the in initiating proceedings under Section 271(1)(c) of the Act without specifying the limb of Section 271(1)(c), whether being concealment of income or furnishing of limb of Section 271(1)(c), whether being concealment of income or furnishing of limb of Section 271(1)(c), whether being concealment of income or furnishing of inaccurate particulars of inaccurate particulars of income, that is contravened by the Appellant. income, that is contravened by the Appellant. 3. The Ld. CIT(A) has erred in affirming penalty levied by the AO on the 3. The Ld. CIT(A) has erred in affirming penalty levied by the AO on the 3. The Ld. CIT(A) has erred in affirming penalty levied by the AO on the disallowance in respect of bad debts of Rs 2,94,91,486 claimed by the Appellant. disallowance in respect of bad debts of Rs 2,94,91,486 claimed by the Appellant. disallowance in respect of bad debts of Rs 2,94,91,486 claimed by the Appellant. 4. The Ld. CIT(A) has erred in affirming penalty levied by the AO on the 4. The Ld. CIT(A) has erred in affirming penalty levied 4. The Ld. CIT(A) has erred in affirming penalty levied disallowance under Section 43B of Rs 30,10,00,000 in respect of interest disallowance under Section 43B of Rs 30,10,00,000 in respect of interest disallowance under Section 43B of Rs 30,10,00,000 in respect of interest expenses. 5. The appellant reserves its right to add to, alter, amend, modify or delete any of 5. The appellant reserves its right to add to, alter, amend, modify or delete any of 5. The appellant reserves its right to add to, alter, amend, modify or delete any of the grounds taken in this appeal. the grounds taken in this appeal.” 10. For the year under consideration For the year under consideration, the assessee filed its return , the assessee filed its return of income on 30.09.2015 declaring a loss of ₹21,87,89,971/ of income on 30.09.2015 declaring a loss of 21,87,89,971/-. The assessment was completed under section 143(3) of the Act on assessment was completed under section 143(3) of the Act on assessment was completed under section 143(3) of the Act on

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29.11.2017. In the assessment, the Assessing Officer (“AO”) made, 29.11.2017. In the assessment, the Assessing Officer (“AO”) made, 29.11.2017. In the assessment, the Assessing Officer (“AO”) made, inter alia, the following three disallowances: (i) ₹2,94,91,486/ inter alia, the following three d 2,94,91,486/- in respect of sundry balances written off, claimed under section respect of sundry balances written off, claimed under section respect of sundry balances written off, claimed under section 36(1)(vii) read with section 36(2) of the Act; (ii) ₹30,10,00,000/ 36(1)(vii) read with section 36(2) of the Act; (ii) 30,10,00,000/- in respect of interest expenditure disallowed under section 43B of the respect of interest expenditure disallowed under section 43B of the respect of interest expenditure disallowed under section 43B of the Act; and (iii) ₹24,63,986/ 63,986/- in respect of rent and legal and in respect of rent and legal and professional charges disallowed under section 40(a)(ia) of the Act. professional charges disallowed under section 40(a)(ia) of the Act. professional charges disallowed under section 40(a)(ia) of the Act. The assessee did not challenge the assessment order in appeal. The assessee did not challenge the assessment order in appeal. The assessee did not challenge the assessment order in appeal. Penalty proceedings under section 271(1)(c) were, however, initiated Penalty proceedings under section 271(1)(c) were, however, initiated Penalty proceedings under section 271(1)(c) were, however, initiated and the penalty was ty was levied in respect of all three disallowances three disallowances made in assessment order. made in assessment order.

“ 5.3.2: In Para 5.1.1 to 5.1.3 above in this order, it has been discussed as to In Para 5.1.1 to 5.1.3 above in this order, it has been discussed as to In Para 5.1.1 to 5.1.3 above in this order, it has been discussed as to how the Assessing Officer has recorded his satisfaction for initiation of penalty how the Assessing Officer has recorded his satisfaction for initiation of penalty how the Assessing Officer has recorded his satisfaction for initiation of penalty u/s 271(1)(c). It can be seen that the Assessing Officer has initiated penalty for u/s 271(1)(c). It can be seen that the Assessing Officer has initiated penalty for u/s 271(1)(c). It can be seen that the Assessing Officer has initiated penalty for furnishing inaccurate particulars of income in respect of some item(s) of ate particulars of income in respect of some item(s) of ate particulars of income in respect of some item(s) of disallowance and also for concealment of particulars of income in respect of some disallowance and also for concealment of particulars of income in respect of some disallowance and also for concealment of particulars of income in respect of some item(s). It is also to be mentioned that the there was a single notice u/s 274. item(s). It is also to be mentioned that the there was a single notice u/s 274. item(s). It is also to be mentioned that the there was a single notice u/s 274. Hence, it was not possible for the Ass Hence, it was not possible for the Assessing Officer to specify the limb under essing Officer to specify the limb under which penalty was initiated because in this case, one single notice was issued for which penalty was initiated because in this case, one single notice was issued for which penalty was initiated because in this case, one single notice was issued for separate contravention of the limbs. Thus, it is held that there was no infirmity in separate contravention of the limbs. Thus, it is held that there was no infirmity in separate contravention of the limbs. Thus, it is held that there was no infirmity in

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the action of the Assessing Officer in not spec the action of the Assessing Officer in not specifying any limb, as contended by the ifying any limb, as contended by the appellant. The ground no. 2 is therefore, dismissed. appellant. The ground no. 2 is therefore, dismissed. 5.4.1 In the ground no. 3, the appellant has argued that the Assessing Officer has 5.4.1 In the ground no. 3, the appellant has argued that the Assessing Officer has 5.4.1 In the ground no. 3, the appellant has argued that the Assessing Officer has erred in levying penalty on the disallowance in respect of bad debts of erred in levying penalty on the disallowance in respect of bad debts of erred in levying penalty on the disallowance in respect of bad debts of Rs.2,94,91,486/- claimed by the Appellant. In the impugned order u/s 271(1)(c), claimed by the Appellant. In the impugned order u/s 271(1)(c), claimed by the Appellant. In the impugned order u/s 271(1)(c), the Assessing Officer has observed as follows: the Assessing Officer has observed as follows: "During the course of the assessment proceedings on perusal of the "During the course of the assessment proceedings on perusal of the "During the course of the assessment proceedings on perusal of the breakup of the miscellaneous expenses it was seen that the assessee had breakup of the miscellaneous expenses it was seen that the assessee had breakup of the miscellaneous expenses it was seen that the assessee had debited a sum of Rs. 2,94,91,486/ ebited a sum of Rs. 2,94,91,486/- as sundry balances written off. The as sundry balances written off. The assessee, during the course of the assessment proceedings was required assessee, during the course of the assessment proceedings was required assessee, during the course of the assessment proceedings was required to furnish the allowability of the said expenses debited to the P&L A/c. in to furnish the allowability of the said expenses debited to the P&L A/c. in to furnish the allowability of the said expenses debited to the P&L A/c. in the light of the provisions of section the light of the provisions of section 37(1) of the I. T. Act. On perusal of the 37(1) of the I. T. Act. On perusal of the submission made by the assessee it was seen that the assessee has not submission made by the assessee it was seen that the assessee has not submission made by the assessee it was seen that the assessee has not brought on record any documentary evidence to establish that the debts brought on record any documentary evidence to establish that the debts brought on record any documentary evidence to establish that the debts and advances written off by the assessee are akin to any provisions for and advances written off by the assessee are akin to any provisions for and advances written off by the assessee are akin to any provisions for such debts was created in the balance sheet of the assessee for previous uch debts was created in the balance sheet of the assessee for previous uch debts was created in the balance sheet of the assessee for previous year in view of provisions of Section 36(1) (viia). Further, the assessee has year in view of provisions of Section 36(1) (viia). Further, the assessee has year in view of provisions of Section 36(1) (viia). Further, the assessee has failed to establish with supporting ledgers and other documents that the failed to establish with supporting ledgers and other documents that the failed to establish with supporting ledgers and other documents that the advances and debts have been actu advances and debts have been actually written off in the books of the ally written off in the books of the assessee. Further, on perusal of the balance sheet of the assessee, it was assessee. Further, on perusal of the balance sheet of the assessee, it was assessee. Further, on perusal of the balance sheet of the assessee, it was seen that the seen that the assessee has shown other debts receivable under the head assessee has shown other debts receivable under the head trade receivable at Rs.38, 12,234/ trade receivable at Rs.38, 12,234/-for the Y.E. 31.03.2014 and Rs. for the Y.E. 31.03.2014 and Rs. 1,38,09,929/ - for the Y.E. 31.03.2015. From the same, it can be seen that for the Y.E. 31.03.2015. From the same, it can be seen that the sundry balances written off by the assessee were not reflected in the the sundry balances written off by the assessee were not reflected in the the sundry balances written off by the assessee were not reflected in the balance sheet of the previous year and since the assessee were not balance sheet of the previous year and since the assessee were not balance sheet of the previous year and since the assessee were not reflected in the balance sheet of the previous reflected in the balance sheet of the previous year. [Emphasis added] [Emphasis added] 5.4.2 The above observation would reveal that there was specific failure on the 5.4.2 The above observation would reveal that there was specific failure on the 5.4.2 The above observation would reveal that there was specific failure on the part of the appellant in establishing its claim before the Assessing Officer. part of the appellant in establishing its claim before the Assessing Officer. part of the appellant in establishing its claim before the Assessing Officer. Therefore, it is NOT a case of "a mere making of the claim, which is not Therefore, it is NOT a case of "a mere making of the claim, which is not Therefore, it is NOT a case of "a mere making of the claim, which is not sustainable in law, by itself", as held by the Hon'ble Supreme Court in the case of stainable in law, by itself", as held by the Hon'ble Supreme Court in the case of stainable in law, by itself", as held by the Hon'ble Supreme Court in the case of CIT -vs- Reliance Petroproducts (P) Ltd 322 ITR 158 (SC). Instead, it is a case of Reliance Petroproducts (P) Ltd 322 ITR 158 (SC). Instead, it is a case of Reliance Petroproducts (P) Ltd 322 ITR 158 (SC). Instead, it is a case of failure on the part of the appellant and thus, is not covered by the following failure on the part of the appellant and thus, is not covered by the following failure on the part of the appellant and thus, is not covered by the following observation of the Apex Court in the case of Reliance Petroproducts (P) Ltd(supra): of the Apex Court in the case of Reliance Petroproducts (P) Ltd(supra): of the Apex Court in the case of Reliance Petroproducts (P) Ltd(supra): 9. We are not concerned in the present case with the mens rea. However, 9. We are not concerned in the present case with the mens rea. However, 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the we have to only see as to whether in this case, as a matter of fact, the we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particula assessee has given inaccurate particulars. In Webster's Dictionary, the rs. In Webster's Dictionary, the word "inaccurate" has been defined as: word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". erroneous; as an inaccurate statement, copy or transcript".

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We have already seen the meaning of the word "particulars" in the We have already seen the meaning of the word "particulars" in We have already seen the meaning of the word "particulars" in earlier part of this judgment. Reading the words in conjunction, they earlier part of this judgment. Reading the words in conjunction, they earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not must mean the details supplied in the Return, which are not must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. accurate, not exact or correct, not according to truth or erroneous. accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding We must hasten to add here that in this case, there i We must hasten to add here that in this case, there i that any details supplied by the assessee in its Return were found that any details supplied by the assessee in its Return were found that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there to be incorrect or erroneous or false. Such not being the case, there to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) would be no question of inviting the penalty under Section 271(1)(c) would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the clai of the Act. A mere making of the claim, which is not sustainable in m, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars law, by itself, will not amount to furnishing inaccurate particulars law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the regarding the income of the assessee. Such claim made in the regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars." Return cannot amount to the inaccurate particulars." Return cannot amount to the inaccurate particulars." [Emphasis supplied] [Emphasis supplied] 5.4.3 It is respectfully reiterated that since the appellant has failed to bring on respectfully reiterated that since the appellant has failed to bring on respectfully reiterated that since the appellant has failed to bring on record any documentary evidence to establish that the debts and advances record any documentary evidence to establish that the debts and advances record any documentary evidence to establish that the debts and advances written off by the assessee are akin to any provisions for such debts created in written off by the assessee are akin to any provisions for such debts created in written off by the assessee are akin to any provisions for such debts created in the balance sheet of the asses the balance sheet of the assessee for previous year in view of provisions of see for previous year in view of provisions of Section 36(1)(viia), the facts of the appellant's are distinguishable from the facts of Section 36(1)(viia), the facts of the appellant's are distinguishable from the facts of Section 36(1)(viia), the facts of the appellant's are distinguishable from the facts of the case Reliance Petroproducts (P) Ltd(supra). I, therefore, uphold the imposition the case Reliance Petroproducts (P) Ltd(supra). I, therefore, uphold the imposition the case Reliance Petroproducts (P) Ltd(supra). I, therefore, uphold the imposition of penalty u/s 271(1)(c) in of penalty u/s 271(1)(c) in respect of the amount of Rs.2,94,91,486/ f the amount of Rs.2,94,91,486/-, Ground no. 3 is dismissed. 5.5.1 In ground no. 4, the appellant has agitated the levy of penalty on the 5.5.1 In ground no. 4, the appellant has agitated the levy of penalty on the 5.5.1 In ground no. 4, the appellant has agitated the levy of penalty on the disallowance under Section 43B of Rs.30,10,00,000/ disallowance under Section 43B of Rs.30,10,00,000/- in respect of interest in respect of interest expenses. In the impugned order u/s 271(1)( expenses. In the impugned order u/s 271(1)(c), the Assessing Officer has c), the Assessing Officer has observed as follows: observed as follows: "In response to the notice u/s 271 of the ITA the assessee vide its "In response to the notice u/s 271 of the ITA the assessee vide its "In response to the notice u/s 271 of the ITA the assessee vide its submission received in this office on 08.05.2018 has stated that the said submission received in this office on 08.05.2018 has stated that the said submission received in this office on 08.05.2018 has stated that the said disallowance of RS. 301000000/ disallowance of RS. 301000000/- shall not be treated as furnish shall not be treated as furnishing inaccurate particulars and concealment of income on the part of the inaccurate particulars and concealment of income on the part of the inaccurate particulars and concealment of income on the part of the assessee assessee assessee applicant applicant applicant company. company. company. During During During the the the course course course of of of assessment assessment assessment proceedings before learned AO, the assessee applicant company had given proceedings before learned AO, the assessee applicant company had given proceedings before learned AO, the assessee applicant company had given the necessary information and explanation for disall the necessary information and explanation for disall the necessary information and explanation for disallowing the said expenses. The submission of the assessee has been carefully perused but expenses. The submission of the assessee has been carefully perused but expenses. The submission of the assessee has been carefully perused but the same is not acceptable. In the recent judgment of the Hon'ble Delhi the same is not acceptable. In the recent judgment of the Hon'ble Delhi the same is not acceptable. In the recent judgment of the Hon'ble Delhi High Court in the case of Pr. CIT vs. Dr. Vandana Gupta ITA 219/2017 High Court in the case of Pr. CIT vs. Dr. Vandana Gupta ITA 219/2017 High Court in the case of Pr. CIT vs. Dr. Vandana Gupta ITA 219/2017 dated 20.02.2018, it was hel dated 20.02.2018, it was held by the Hon'ble Delhi High Court that mere d by the Hon'ble Delhi High Court that mere voluntary surrender of income does not absolve the assessee from penalty. voluntary surrender of income does not absolve the assessee from penalty. voluntary surrender of income does not absolve the assessee from penalty. In this regards it was held by the Hon'ble Delhi High Court that the In this regards it was held by the Hon'ble Delhi High Court that the In this regards it was held by the Hon'ble Delhi High Court that the complete failure to furnish any details with respect to the income, w complete failure to furnish any details with respect to the income, w complete failure to furnish any details with respect to the income, which if given could have been the only reasonable basis for deletion of penalty, in given could have been the only reasonable basis for deletion of penalty, in given could have been the only reasonable basis for deletion of penalty, in the opinion of the court, reinforced the views of the AO and CIT (A) that the the opinion of the court, reinforced the views of the AO and CIT (A) that the the opinion of the court, reinforced the views of the AO and CIT (A) that the revised return was an afterthought, based on the subsequent event of revised return was an afterthought, based on the subsequent event of revised return was an afterthought, based on the subsequent event of disclosure of Rs.2,00,00, disclosure of Rs.2,00,00,000/-. The court further notices that by re son of . The court further notices that by re son of

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Explanation 1 to Section 271 (1)(c), an assessee is not absolved of penalty, Explanation 1 to Section 271 (1)(c), an assessee is not absolved of penalty, Explanation 1 to Section 271 (1)(c), an assessee is not absolved of penalty, if she or he "offers an explanation which he is not able to substantiate and if she or he "offers an explanation which he is not able to substantiate and if she or he "offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide a fails to prove that such explanation is bona fide and that all the facts nd that all the facts relating to the same and material to the computation of his total income relating to the same and material to the computation of his total income relating to the same and material to the computation of his total income have been disclosed by him". The mere offer therefore, of the amount have been disclosed by him". The mere offer therefore, of the amount have been disclosed by him". The mere offer therefore, of the amount during the search in the absence of any explanation for the source of during the search in the absence of any explanation for the source of during the search in the absence of any explanation for the source of income, renders the as income, renders the assessee's argument insubstantial..... sessee's argument insubstantial..... 5.5.2 I have perused the order. In the case of Pr. CIT vs. Dr. Vandana Gupta, the 5.5.2 I have perused the order. In the case of Pr. CIT vs. Dr. Vandana Gupta, the 5.5.2 I have perused the order. In the case of Pr. CIT vs. Dr. Vandana Gupta, the issue before the Hon'ble Delhi High Court was as follows: issue before the Hon'ble Delhi High Court was as follows: "In these search proceedings, the assessee who is a Medical Practitioner, "In these search proceedings, the assessee who is a Medical Practitioner, "In these search proceedings, the assessee who is a Medical Practitioner, surrendered 2,00,00,000/ ndered 2,00,00,000/- and filed a revised return declaring that and filed a revised return declaring that amount as additional income. The AO completed scrutiny assessment, by amount as additional income. The AO completed scrutiny assessment, by amount as additional income. The AO completed scrutiny assessment, by assessing total of the two figures i.e. `2,09,18,060/ assessing total of the two figures i.e. `2,09,18,060/-. He initiated penalty . He initiated penalty proceedings, on the footing that the assessee proceedings, on the footing that the assessee had concealed the income had concealed the income and filed inaccurate particulars when she, in fact, filed the return on and filed inaccurate particulars when she, in fact, filed the return on and filed inaccurate particulars when she, in fact, filed the return on 25.09.2009. The penalty order was subsequently made on 29.06.2012. 25.09.2009. The penalty order was subsequently made on 29.06.2012. 25.09.2009. The penalty order was subsequently made on 29.06.2012. The assessee appealed to the CIT (A) against imposition of penalty The assessee appealed to the CIT (A) against imposition of penalty The assessee appealed to the CIT (A) against imposition of penalty contending that she neith contending that she neither concealed particulars of income nor furnished er concealed particulars of income nor furnished inaccurate particulars and that all material disclosures were made during inaccurate particulars and that all material disclosures were made during inaccurate particulars and that all material disclosures were made during the assessment proceedings. The revised return merely reflected the the assessment proceedings. The revised return merely reflected the the assessment proceedings. The revised return merely reflected the voluntary disclosures made by her." voluntary disclosures made by her." 5.5.3 The decision of the Hon 5.5.3 The decision of the Hon'ble Delhi High Court was, therefore, delivered in a 'ble Delhi High Court was, therefore, delivered in a completely distinguishable set of facts where the assessee concerned initially completely distinguishable set of facts where the assessee concerned initially completely distinguishable set of facts where the assessee concerned initially suppressed the income and then, revised the return of income, declaring the suppressed the income and then, revised the return of income, declaring the suppressed the income and then, revised the return of income, declaring the income which was suppressed earlier. Hence, the which was suppressed earlier. Hence, the decision relied upon by the decision relied upon by the Assessing officer is distinguishable. Assessing officer is distinguishable. 5.5.4 It is true that in the case of the appellant, the disallowance was, admittedly 5.5.4 It is true that in the case of the appellant, the disallowance was, admittedly 5.5.4 It is true that in the case of the appellant, the disallowance was, admittedly in Para 4.2 of the assessment order dated 29.11.2017, made based on the in Para 4.2 of the assessment order dated 29.11.2017, made based on the in Para 4.2 of the assessment order dated 29.11.2017, made based on the submission made by the appellant. submission made by the appellant. At the same time, however, it is also true that At the same time, however, it is also true that in the Audit report in form 3CD Part A col. No. 26 pertaining to non payments of in the Audit report in form 3CD Part A col. No. 26 pertaining to non payments of in the Audit report in form 3CD Part A col. No. 26 pertaining to non payments of expenses pertaining to section 43B of the ITA, the appellant has reported the expenses pertaining to section 43B of the ITA, the appellant has reported the expenses pertaining to section 43B of the ITA, the appellant has reported the figure of NIL. 5.5.5 The appellant's submission .5.5 The appellant's submission has been perused as well. The decisions of the has been perused as well. The decisions of the Hon'ble High Court of Madras in the case of CIT Hon'ble High Court of Madras in the case of CIT -vs- MSK Constructions Pvt Ltd, MSK Constructions Pvt Ltd, Hon'ble ITAT Mumbai in the case of Triumph Securities Ltd, Hon'ble ITAT Mumbai Hon'ble ITAT Mumbai in the case of Triumph Securities Ltd, Hon'ble ITAT Mumbai Hon'ble ITAT Mumbai in the case of Triumph Securities Ltd, Hon'ble ITAT Mumbai in the case of M/s Abjal Ali Sha, Hon'ble ITAT, Ko in the case of M/s Abjal Ali Sha, Hon'ble ITAT, Kolkata in the case of Budge lkata in the case of Budge Budge Jute Ltd etc., relied upon by the appellant in the written submission, are Budge Jute Ltd etc., relied upon by the appellant in the written submission, are Budge Jute Ltd etc., relied upon by the appellant in the written submission, are distinguishable from the facts of the case of the appellant since unlike in the case distinguishable from the facts of the case of the appellant since unlike in the case distinguishable from the facts of the case of the appellant since unlike in the case of the appellant, there was apparently no suppression in the Audit Report in Form of the appellant, there was apparently no suppression in the Au of the appellant, there was apparently no suppression in the Au 3CD.

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5.5.6 After careful consideration of the aspects involved in the issue, I agree with 5.5.6 After careful consideration of the aspects involved in the issue, I agree with 5.5.6 After careful consideration of the aspects involved in the issue, I agree with the Assessing Officer that the appellant had deliberately violated the provision of the Assessing Officer that the appellant had deliberately violated the provision of the Assessing Officer that the appellant had deliberately violated the provision of section 43B by claiming interest which was not paid by it; and also that the section 43B by claiming interest which was not paid by it; and section 43B by claiming interest which was not paid by it; and instant case is a clear case of furnishing inaccurate particulars of income. The instant case is a clear case of furnishing inaccurate particulars of income. The instant case is a clear case of furnishing inaccurate particulars of income. The appellant's reliance on the decision of the Hon'ble Supreme Court in the case of appellant's reliance on the decision of the Hon'ble Supreme Court in the case of appellant's reliance on the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P) Ltd(supra) is misplaced, since the Apex Court has Reliance Petroproducts (P) Ltd(supra) is misplaced, since the Apex Court has Reliance Petroproducts (P) Ltd(supra) is misplaced, since the Apex Court has made the following observations, on which reliance is being placed by me: e the following observations, on which reliance is being placed by me: e the following observations, on which reliance is being placed by me: "8. Therefore, it is obvious that it must be shown that the conditions under "8. Therefore, it is obvious that it must be shown that the conditions under "8. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no Section 271(1)(c) must exist before the penalty is imposed. There can be no Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would dispute that everything would depend upon the Return filed because that depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his is the only document, where the assessee can furnish the particulars of his is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability income. When such particulars are found to be inaccurate, the liability income. When such particulars are found to be inaccurate, the liability would arise." [Emphasis supplied] would arise." [Emphasis supplied] 5.5.7 In view of the aforesaid f 5.5.7 In view of the aforesaid findings, I, uphold the imposition of penalty u/s indings, I, uphold the imposition of penalty u/s 271(1)(c) in respect of disallowance of Rs.30,10,00,000/ 271(1)(c) in respect of disallowance of Rs.30,10,00,000/- - made u/s 43B in respect of interest expenses. Ground No. 4 is dismissed. respect of interest expenses. Ground No. 4 is dismissed.” 12. Aggrieved, the assessee filed the assessee filed appeal before the Tribunal before the Tribunal raising the grounds as above as above.

13.1 On merits, with regard to the disallowance of On merits, with regard to the disallowance of On merits, with regard to the disallowance of ₹2,94,91,486/-, the learned Counsel submitted that the amount represented sundry the learned Counsel submitted that the amount represented sundry the learned Counsel submitted that the amount represented sundry balances/bad debts written off and was duly disclosed in the balances/bad debts written off and was duly disclosed in the balances/bad debts written off and was duly disclosed in the

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audited accounts. It was submitted that the assessee had furnished audited accounts. It was submitted that the assessee had furnished audited accounts. It was submitted that the assessee had furnished the relevant ledger accounts and supporting details and had the relevant ledger accounts and supporting details and had the relevant ledger accounts and supporting details and had explained that the amounts represented unrealisable dues of explained that the amounts represented unrealisable dues of explained that the amounts represented unrealisable dues of franchisees and dealers whose businesses had closed and recovery franchisees and dealers whose businesses had closed and recovery franchisees and dealers whose businesses had closed and recovery had become time-barred and commercially unviable. It was barred and commercially unviable. It was barred and commercially unviable. It was contended that the disallowance represented, at the highest, failure contended that the disallowance represented, at the highest, failure contended that the disallowance represented, at the highest, failure to establish the allowability of a disclosed claim and did not to establish the allowability of a disclosed claim and did not to establish the allowability of a disclosed claim and did not constitute furnishing of inaccurate particulars of income. Reliance constitute furnishing of inaccurate particulars of income. Reliance constitute furnishing of inaccurate particulars of income. Reliance was placed upon CIT v. Reliance Petroproducts (P.) Ltd., (2010) CIT v. Reliance Petroproducts (P.) Ltd., (2010) CIT v. Reliance Petroproducts (P.) Ltd., (2010) 322 ITR 158 (SC) and the other decisions referred to in the written and the other decisions referred to in the written and the other decisions referred to in the written submissions.

13.2 With regard to the disallowance of With regard to the disallowance of ₹30,10,00,000/ 30,10,00,000/- under section 43B, the learned Counsel submitted that the disallowance section 43B, the learned Counsel submitted that the section 43B, the learned Counsel submitted that the was made on the basis of the assessee's own disclosure during the was made on the basis of the assessee's own disclosure during the was made on the basis of the assessee's own disclosure during the assessment proceedings. The assessee had furnished particulars of assessment proceedings. The assessee had furnished particulars of assessment proceedings. The assessee had furnished particulars of the finance cost and the amounts actually paid to the State Bank of the finance cost and the amounts actually paid to the State Bank of the finance cost and the amounts actually paid to the State Bank of India and SIDBI, on the basis of which the India and SIDBI, on the basis of which the AO computed the unpaid AO computed the unpaid interest of ₹30.10 crore. It was submitted that the interest liability 30.10 crore. It was submitted that the interest liability 30.10 crore. It was submitted that the interest liability itself was genuine and the disallowance was only on account of the itself was genuine and the disallowance was only on account of the itself was genuine and the disallowance was only on account of the statutory requirement of actual payment under section 43B. It was statutory requirement of actual payment under section 43B. It was statutory requirement of actual payment under section 43B. It was further submitted that the further submitted that the “NIL” entry in column 26 of Form 3CD “NIL” entry in column 26 of Form 3CD was an inadvertent error, which had been explained by the tax was an inadvertent error, which had been explained by the tax was an inadvertent error, which had been explained by the tax auditor on affidavit, and that such an error could not, by itself, auditor on affidavit, and that such an error could not, by itself, auditor on affidavit, and that such an error could not, by itself, establish concealment or furnishing of inaccurate particulars. establish concealment or furnishing of inaccurate particulars. establish concealment or furnishing of inaccurate particulars.

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Reliance was placed upon Reliance was placed upon Price Waterhouse Coopers (P.) Ltd. v. ice Waterhouse Coopers (P.) Ltd. v. CIT, (2012) 348 ITR 306 (SC) CIT, (2012) 348 ITR 306 (SC) and other decisions referred to in and other decisions referred to in the written submissions. the written submissions.

13.3 The learned Counsel further submitted that the assessed The learned Counsel further submitted that the assessed The learned Counsel further submitted that the assessed income even after the impugned disallowances remained a income even after the impugned disallowances remained a income even after the impugned disallowances remained a substantial loss and that the assessee did not subsequently utilise ss and that the assessee did not subsequently utilise ss and that the assessee did not subsequently utilise the corresponding carried the corresponding carried-forward loss. According to the learned forward loss. According to the learned Counsel, this circumstance corroborated the bona fides of the Counsel, this circumstance corroborated the bona fides of the Counsel, this circumstance corroborated the bona fides of the explanation and militated against any inference of concealment or explanation and militated against any inference of concealment or explanation and militated against any inference of concealment or furnishing of inaccurate particulars. g of inaccurate particulars.

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for furnishing inaccurate particulars of the income furnishing inaccurate particulars of the income which lead to furnishing inaccurate particulars of the income the concealment of particular income. I of particular income. In respect of the issue for n respect of the issue for interest disallowance u interest disallowance u/s 43B, penalty was initiated for furnishing /s 43B, penalty was initiated for furnishing inaccurate particulars of income. Since the penalty was initiated for inaccurate particulars of income. Since the penalty was initiated for inaccurate particulars of income. Since the penalty was initiated for the limbs, therefore the contention of the assessee therefore the contention of the assessee therefore the contention of the assessee that particular limb was not strike off in notice for penalty strike off in notice for penalty , does not satisfy the does not satisfy the criteria of decision relied upon teria of decision relied upon. The Assessing officer has initiated ssessing officer has initiated penalty on both the g both the grounds of concealment of the concealment of the income as well as furnishing of incurred of incurred particular of the income. income. The learned CIT(A), while dealing with this objection, observed that the AO had CIT(A), while dealing with this objection, observed that the CIT(A), while dealing with this objection, observed that the initiated penalty in respect of different items on different grounds, initiated penalty in respect of different items on different grounds, initiated penalty in respect of different items on different grounds, namely, furnishing of inaccurate particulars and concealment of namely, furnishing of inaccurate particulars and concealment of namely, furnishing of inaccurate particulars and concealment of particulars of income, and that a common notice under section 274 particulars of income, and that a common notice under section 274 particulars of income, and that a common notice under section 274 had been issued. The learned CIT(A), therefore, had been issued. The learned CIT(A), therefore, held that the AO held that the AO was not required to specify a particular limb in the notice. was not required to specify a particular limb in the notice. was not required to specify a particular limb in the notice.

15.1 As far as ground no. 1 of no satisfaction recorded for initiation As far as ground no. 1 of no satisfaction recorded for initiation As far as ground no. 1 of no satisfaction recorded for initiation of penalty, we find, that the assessment order itself records the of penalty, we find, that the assessment order itself records the of penalty, we find, that the assessment order itself records the satisfaction of the AO with reference to satisfaction of the AO with reference to the respective items of the respective items of disallowance. In particular, the material on record shows that the disallowance. In particular, the material on record shows that the disallowance. In particular, the material on record shows that the AO invoked the charge of furnishing inaccurate particulars and AO invoked the charge of furnishing inaccurate particulars and AO invoked the charge of furnishing inaccurate particulars and concealment of income in relation to the relevant disallowances. The concealment of income in relation to the relevant disallowances. The concealment of income in relation to the relevant disallowances. The assessee's contention that no sat assessee's contention that no satisfaction whatsoever was recorded isfaction whatsoever was recorded is, therefore, not borne out by the assessment order. is, therefore, not borne out by the assessment order. is, therefore, not borne out by the assessment order.

15.2 Accordingly, we do not find merit in Ground Nos. 1 and 2. Accordingly, we do not find merit in Ground Nos. 1 and 2. Accordingly, we do not find merit in Ground Nos. 1 and 2.

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15.3 We now turn to the penalty sustained with reference to the We now turn to the penalty sustained with reference to the We now turn to the penalty sustained with reference to the disallowance of ₹2,94,91,486/ 2,94,91,486/-. The assessment order shows that . The assessment order shows that the assessee had debited the said amount as sundry balances the assessee had debited the said amount as sundry balances the assessee had debited the said amount as sundry balances written off and had claimed the same as an allowable deduction. written off and had claimed the same as an allowable deduction. written off and had claimed the same as an allowable deduction. The AO disallowed the claim on the ground that the assessee had The AO disallowed the claim on the ground that the assessee had The AO disallowed the claim on the ground that the assessee had failed to establish, failed to establish, with supporting evidence, satisfaction of the with supporting evidence, satisfaction of the conditions contained in section 36(1)(vii) read with section 36(2). conditions contained in section 36(1)(vii) read with section 36(2). conditions contained in section 36(1)(vii) read with section 36(2). The learned CIT(A) sustained the penalty primarily on the ground The learned CIT(A) sustained the penalty primarily on the ground The learned CIT(A) sustained the penalty primarily on the ground that the assessee had failed to substantiate the claim. that the assessee had failed to substantiate the claim. that the assessee had failed to substantiate the claim.

15.4 It is well settled that assessment proceedings and penalty tled that assessment proceedings and penalty tled that assessment proceedings and penalty proceedings are distinct. The mere fact that a claim made by the proceedings are distinct. The mere fact that a claim made by the proceedings are distinct. The mere fact that a claim made by the assessee is disallowed in assessment does not ipso facto lead to the assessee is disallowed in assessment does not ipso facto lead to the assessee is disallowed in assessment does not ipso facto lead to the conclusion that the assessee furnished inaccurate particulars of conclusion that the assessee furnished inaccurate particulars of conclusion that the assessee furnished inaccurate particulars of income. In CIT v. Reliance Petroproducts (P.) Ltd., (2010) 322 IT v. Reliance Petroproducts (P.) Ltd., (2010) 322 IT v. Reliance Petroproducts (P.) Ltd., (2010) 322 ITR 158 (SC), the Hon'ble Supreme Court held that a mere making , the Hon'ble Supreme Court held that a mere making , the Hon'ble Supreme Court held that a mere making of a claim which is not sustainable in law, by itself, does not of a claim which is not sustainable in law, by itself, does not of a claim which is not sustainable in law, by itself, does not amount to furnishing inaccurate particulars of income. The amount to furnishing inaccurate particulars of income. The amount to furnishing inaccurate particulars of income. The essential question in penalty proceedings is whether the particulars in penalty proceedings is whether the particulars in penalty proceedings is whether the particulars furnished by the assessee were inaccurate, incorrect or false. In the furnished by the assessee were inaccurate, incorrect or false. In the furnished by the assessee were inaccurate, incorrect or false. In the present case, the amount of present case, the amount of ₹2,94,91,486/- was duly disclosed in was duly disclosed in the audited financial statements as sundry balances written off. The the audited financial statements as sundry balances written off. The the audited financial statements as sundry balances written off. The assessee also furnished the relevant ledger accounts and an assessee also furnished the relevant ledger accounts and an assessee also furnished the relevant ledger accounts and an explanation concerning the nature of the balances. There is no explanation concerning the nature of the balances. There is no explanation concerning the nature of the balances. There is no finding by the AO that any particular figure disclosed by the finding by the AO that any particular figure disclosed by the finding by the AO that any particular figure disclosed by the

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assessee was false or fictitious, or that the underlying entries were assessee was false or fictitious, or that the underlying entries were assessee was false or fictitious, or that the underlying entries were fabricated. The disallowance resulted from the AO's view that the abricated. The disallowance resulted from the AO's view that the abricated. The disallowance resulted from the AO's view that the statutory conditions for allowability had not been satisfactorily statutory conditions for allowability had not been satisfactorily statutory conditions for allowability had not been satisfactorily established. Such failure to substantiate the allowability of a established. Such failure to substantiate the allowability of a established. Such failure to substantiate the allowability of a disclosed claim cannot, without more, be equated with furnishing disclosed claim cannot, without more, be equated with furnish disclosed claim cannot, without more, be equated with furnish inaccurate particulars of income. The learned CIT(A)'s distinction of inaccurate particulars of income. The learned CIT(A)'s distinction of inaccurate particulars of income. The learned CIT(A)'s distinction of Reliance Petroproducts (supra) Reliance Petroproducts (supra) on the ground that there was a on the ground that there was a “failure” on the part of the assessee to establish the claim, “failure” on the part of the assessee to establish the claim, “failure” on the part of the assessee to establish the claim, therefore, does not by itself meet the statutory requirement for levy therefore, does not by itself meet the statutory requireme therefore, does not by itself meet the statutory requireme of penalty under section 271(1)(c). There must be a finding, of penalty under section 271(1)(c). There must be a finding, of penalty under section 271(1)(c). There must be a finding, supported by material, that the particulars furnished by the supported by material, that the particulars furnished by the supported by material, that the particulars furnished by the assessee were inaccurate or false. In the absence of such a finding, assessee were inaccurate or false. In the absence of such a finding, assessee were inaccurate or false. In the absence of such a finding, we are unable to sustain the penalty in respect of the disallowance we are unable to sustain the penalty in respect of th we are unable to sustain the penalty in respect of th of ₹2,94,91,486/-. Accordingly, Ground No. 3 is allowed. . Accordingly, Ground No. 3 is allowed. . Accordingly, Ground No. 3 is allowed.

15.5 The next issue concerns penalty on the disallowance of The next issue concerns penalty on the disallowance of The next issue concerns penalty on the disallowance of ₹30,10,00,000/- under under under section section section 43B 43B 43B in in in respect respect respect of of of interest interest interest expenditure. The assessment record, as noted by the learned CIT(A) expenditure. The assessment record, as noted by the learned CIT(A) expenditure. The assessment record, as noted by the learned CIT(A) himself, shows that the disallowance was made on the basis of the himself, shows that the disallowance was made on the basis of the himself, shows that the disallowance was made on the basis of the particulars furnished by the assessee during the assessment particulars furnished by the assessee during the assessment particulars furnished by the assessee during the assessment proceedings. The assessee had disclosed finance cost of ₹39.18 proceedings. The assessee had disclosed finance cost of proceedings. The assessee had disclosed finance cost of crore and furnished particulars of payments made to the State crore and furnished particulars of payments made to the State crore and furnished particulars of payments made to the State Bank of India and SIDBI, on the basis of which the AO determined of India and SIDBI, on the basis of which the AO determined of India and SIDBI, on the basis of which the AO determined the unpaid amount of the unpaid amount of ₹30.10 crore. The nature of the disallowance 30.10 crore. The nature of the disallowance is also material. The interest expenditure was recorded in the books is also material. The interest expenditure was recorded in the books is also material. The interest expenditure was recorded in the books

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on the mercantile basis, but the amount not actually paid within on the mercantile basis, but the amount not actually paid wi on the mercantile basis, but the amount not actually paid wi the prescribed period was disallowed under section 43B. Thus, the the prescribed period was disallowed under section 43B. Thus, the the prescribed period was disallowed under section 43B. Thus, the disallowance was founded upon the statutory timing requirement disallowance was founded upon the statutory timing requirement disallowance was founded upon the statutory timing requirement for allowability of the expenditure and not upon a finding that the for allowability of the expenditure and not upon a finding that the for allowability of the expenditure and not upon a finding that the interest expenditure itself was fictitious or that the particulars of interest expenditure itself was fictitious or that the interest expenditure itself was fictitious or that the the liability were false. the liability were false.

15.6 The learned CIT(A) has principally relied upon the fact that The learned CIT(A) has principally relied upon the fact that The learned CIT(A) has principally relied upon the fact that column 26 of Form 3CD reported the relevant amount as “NIL” and column 26 of Form 3CD reported the relevant amount as “NIL” and column 26 of Form 3CD reported the relevant amount as “NIL” and inferred therefrom that the assessee had deliberately furnished inferred therefrom that the assessee had deliberately furnished inferred therefrom that the assessee had deliberately furnished inaccurate particulars. However, the assessee's explanation that the inaccurate particulars. However, the assessee's explanation that t inaccurate particulars. However, the assessee's explanation that t entry was an inadvertent error has to be considered in the context entry was an inadvertent error has to be considered in the context entry was an inadvertent error has to be considered in the context of the undisputed fact that the underlying interest expenditure was of the undisputed fact that the underlying interest expenditure was of the undisputed fact that the underlying interest expenditure was recorded in the audited accounts and the payment particulars were recorded in the audited accounts and the payment particulars were recorded in the audited accounts and the payment particulars were furnished to the AO himself. The Hon'ble Supreme Court in Price furnished to the AO himself. The Hon'ble Supreme Cou furnished to the AO himself. The Hon'ble Supreme Cou Waterhouse Coopers (P.) Ltd. v. CIT, (2012) 348 ITR 306 (SC) Waterhouse Coopers (P.) Ltd. v. CIT, (2012) 348 ITR 306 (SC) Waterhouse Coopers (P.) Ltd. v. CIT, (2012) 348 ITR 306 (SC) has recognised that a bona fide and inadvertent error, in the has recognised that a bona fide and inadvertent error, in the has recognised that a bona fide and inadvertent error, in the absence of material establishing a deliberate attempt to furnish absence of material establishing a deliberate attempt to furnish absence of material establishing a deliberate attempt to furnish inaccurate particulars, does not automatically attract penalty under inaccurate particulars, does not automatically attract p inaccurate particulars, does not automatically attract p section 271(1)(c). The principle is equally relevant while examining section 271(1)(c). The principle is equally relevant while examining section 271(1)(c). The principle is equally relevant while examining the effect of an erroneous reporting entry in a tax audit report. the effect of an erroneous reporting entry in a tax audit report. the effect of an erroneous reporting entry in a tax audit report.

15.7 In the present case, there is no finding that the interest In the present case, there is no finding that the interest In the present case, there is no finding that the interest liability was fictitious, that the expendit liability was fictitious, that the expenditure was not incurred, or ure was not incurred, or that the assessee had suppressed the underlying particulars from that the assessee had suppressed the underlying particulars from that the assessee had suppressed the underlying particulars from the AO. On the contrary, the AO was able to determine the the AO. On the contrary, the AO was able to determine the the AO. On the contrary, the AO was able to determine the

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disallowance from the particulars furnished by the assessee itself. disallowance from the particulars furnished by the assessee itself. disallowance from the particulars furnished by the assessee itself. The mere fact that the tax audit report The mere fact that the tax audit report contained an erroneous contained an erroneous “NIL” entry cannot, in the circumstances of the present case, by “NIL” entry cannot, in the circumstances of the present case, by “NIL” entry cannot, in the circumstances of the present case, by itself establish that the assessee furnished inaccurate particulars of itself establish that the assessee furnished inaccurate particulars of itself establish that the assessee furnished inaccurate particulars of income in the return so as to attract penalty under section income in the return so as to attract penalty under section income in the return so as to attract penalty under section 271(1)(c). In our considered view, th 271(1)(c). In our considered view, therefore, the Revenue has not erefore, the Revenue has not established the essential ingredients necessary for sustaining the established the essential ingredients necessary for sustaining the established the essential ingredients necessary for sustaining the penalty under section 271(1)(c) in respect of the disallowance of penalty under section 271(1)(c) in respect of the disallowance of penalty under section 271(1)(c) in respect of the disallowance of ₹30,10,00,000/- under section 43B. Accordingly, Ground No. 4 is under section 43B. Accordingly, Ground No. 4 is under section 43B. Accordingly, Ground No. 4 is allowed. Accordingly, the pena Accordingly, the penalty sustained by the learned CIT(A) in lty sustained by the learned CIT(A) in respect of the two items of disallowances, firstly of Sundry respect of the two items of disallowances, firstly of Sundry respect of the two items of disallowances, firstly of Sundry balances/bad debts written off of Rs. 2,94,91,486, and secondly, balances/bad debts written off of Rs. 2,94,91,486, and secondly, balances/bad debts written off of Rs. 2,94,91,486, and secondly, Interest disallowed under section 43B of Rs. 30,10,00,000 is Interest disallowed under section 43B of Rs. 30,10,00,000 is Interest disallowed under section 43B of Rs. 30,10,00,000 is deleted.

Sd/- Sd/- (SIDDHARTHA NAUTIYAL SIDDHARTHA NAUTIYAL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT Mumbai; Dated: 25/09/2026 /2026 Kunal Kr. P.S.

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Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai