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Facts
The assessee filed a return of loss for AY 2018-19. The AO selected the return for scrutiny and issued notices. During assessment, the assessee provided details of sundry creditors. Notices under Section 133(6) were issued to some creditors, with some not responding. The AO made additions only for two creditors, despite doubting the genuineness of transactions with 10 creditors. The PCIT invoked Section 263, alleging the assessment order was erroneous and prejudicial to revenue.
Held
The Tribunal held that the assessment order was passed without proper inquiry or verification, especially concerning the remaining 8 creditors for whom no addition was made. The PCIT's order under Section 263 was found to be correct, and the AO was directed to conduct a de novo assessment.
Key Issues
Whether the assessment order was erroneous and prejudicial to the interest of the revenue due to lack of proper inquiry and selective additions for sundry creditors.
Sections Cited
263, 133(6), 143(2), 142(1), 143(3), 144B, 41(1), 138
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI B. R. BASKARANSHRI SANDEEP SINGH KARHAIL
Date of Hearing – 28/01/2025 Date of Order - 30/01/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal challenging the impugned order dated 20/03/2024 passed under section 263 of the Income Tax Act, 1961 (“the Act”) by the learned Principal Commissioner of Income Tax-I, Thane [“learned PCIT”], for the Assessment Year 2018-19.
2. In this appeal, the assessee has raised the following grounds: – “The order of the PCIT-1 u/s.263 of the Act is wrong as there wre regular business with M/s. AJS Impex Private Ltd. during the Assessment Year 2018-19 as under:
Particulars Debit Rs. Credit Rs.
-Mum-2024 (A.Y. 2018-19) 2 Op. Balance 5,91,128 Purchases made in FY 16,78,51416 2017-18 (AY 2018-19) Interest debited by 10,38,251 party Payments made F.Y. 9,99,11,583 2017-18 (A.Y. 2018- 19) Balance 6,95,69,212 Total 16,94,80,495 16,94,80,495 Hence the AO correctly allowed the transaction as per supra, though he has highlighted on Page 11-12 of the order as under: Sr. Name Op. Balance Closing Balance No. 1 Turakhia International Pvt. Ltd. 8,46,02,450 2,79,01,886 DR.
2. Turakhia International Pvt. Ltd. 23,16,581 1,34,393 cr.
3. Standard Retail Pvt. Ltd. 1,16,29,625 17,77,249 Dr.
4. Nyka Engineering co. Nil 1,93,50,020 cr 5. Vipul Lalit Seth Prop. M/s. 1,15,29,293 1,08,46,045 Dr. Siddhi Enterprises 6. AJS Impex Pvt. Ltd. (Pur) 5,91,129 6,95,69,212 Dr. The AO did not make any mistake based on copies of ledger accounts submitted by us during the course of assessment proceedings. (Coolly. ) 2. The appellant had issued the cheques for due payments to M/s. AS Impex Pvt. Ltd., the same could not be honoured by the bank as CC Account of the Appellant made stiky by the bank.
3. The M/s AJS Impex Pvt. Ltd., filed the case against Appellant under NI Act u/s 138 and same is pending in MM Court. The copies of proceedings attached.
4. Once the cheques were bounce the creditor M/s AJS Impex Pvt. Ltd., filed a case against your Appellant under section 9 of the | & B Code,2016 in the National Company Law Tribunal, Mumbai Bench-IV. The copy of order dated03.02.2023 is enclosed for your reference.
5. The appellant crave leave to delete the addition as proposed by the PCIT, Thane-1 in his order dated 20.03.2024.
6. The appellant submitted the detailed reply in this regard to Honourable PCIT-1, Thane on 02/03/2024. The copy enclosed.”
3. The solitary grievance raised by the assessee is against the initiation of revisionary proceedings under section 263 of the Act.
-Mum-2024 (A.Y. 2018-19) 3
The brief facts of the case pertaining to this issue, as emanating from the record are: The assessee is engaged in the business of manufacturing of round/rectangular pipes from steel coils/sheets and is used for further manufacturing scaffolding and props. For the year under consideration, the assessee filed its return of income on 31.10.2018 declaring a loss of Rs.7,36,71,524/-. On the basis of the information received from the Director General of GST Intelligence, the return filed by the assessee was selected for compulsory scrutiny and statutory notices under section 143(2) and 142(1) were issued and served on the assessee. During the assessment proceedings, the assessee filed the details in respect of sundry creditors. To examine the genuineness of the creditors, notices under section 133(6) of the Act were randomly issued to certain parties. Out of the few parties to whom the notice under section 133(6) of the Act was issued, replies from certain parties were not received. It was further observed from a few replies received in response to the notice issued under section 133(6) of the Act that the opening and closing balance does not match with the details provided by the assessee and parties. Further, the ledger account of the parties was not furnished. During the assessment proceedings, the assessee, inter alia, was asked to provide the confirmation and bank statement along with the ITR in respect of the following 10 parties: -
1. 1. Turakhia International Pvt Ltd 2. JSW Severfield Structures Ltd 3. Standard Retail Pvt. Ltd.
4. Nyka Engineering Co., 5. Vipul Lalit Seth Co.
-Mum-2024 (A.Y. 2018-19) 4
Dilip Bildcon Ltd 7. Zamil Steel Building India Pvt. Ltd. 8. Pranav Construction System Pvt. Ltd. 9. Aamil Technocraft Pvt. Ltd. 10.AJS Impex Pvt. Ltd.
However, after several opportunities, the assessee failed to provide the details as sought. Since the assessee has failed to discharge its primary onus to explain the credit appearing in its books of account, the Assessing Officer (“AO”) vide order dated 17.09.2021 passed under section 143(3) r.w.s. 144B of the Act proceeded to make an addition, inter alia, of Rs.1,94,84,413/- on account of credit balance appearing in respect of only two parties of sundry creditors, i.e Turakhia International Pvt Ltd. and Nyka Engineering Co.
6. Subsequently, the learned PCIT vide notice dated 01.03.2024 issued under section 263 of the Act alleged that the AO added the credit amounts of two parties after concluding that the assessee has failed to discharge its onus to explain the genuineness of credits appearing in its books of account with regard to respective parties, however, in case of one more creditor, viz., AJS Impex Pvt. Ltd., although the AO held that the liability was not genuine no disallowance was made by the AO in the assessment order. Accordingly, the learned PCIT alleged that the assessment order passed under section 143(3) r.w.s. 144B of the Act is erroneous insofar as it is prejudicial to the interest of the Revenue. In response, the assessee submitted that the AO did not make any addition in respect of AJS Impex Pvt. Ltd. -Mum-2024 (A.Y. 2018-19) 5
The learned PCIT, vide impugned order, disagreed with the submission of the assessee and held that the AO in the assessment order mentioned that the assessee has failed to discharge its primary onus to explain the credits appearing in its books of account, however, on the very same page only discuss the details of certain parties. The learned PCIT held that the AO has not given any reason for not making the addition in respect of the balance 8 parties even though notices issued to all the 10 parties under section 133(6) of the Act were not responded to either by the respective parties or by the assessee. Accordingly, the learned PCIT held that failure on the part of the AO has rendered the assessment order as erroneous insofar as prejudicial to the interest of the Revenue. Accordingly, the assessment order passed under section 143(3) r.w.s 144B of the Act was set aside for de novo consideration with the following directions: - “1. The AO is directed to examine the status of liability in the books of the assessee of all the 10 parties to whom notices u/s. 133(6) were issued.
The submission of the assessee in regard to the existence of liability in the case of AJX Impex Pvt Ltd is to be examined with reference to the NCLT's order No.CP(IB) No. 1009/MB-IV/2020 dated 03.02.2023.
The AO is directed to verify the assessee's submission that M/s.AJS Impex Pvt Ltd has filed a case u/s.138 of the Negotiable Instruments Act for cheque bouncing, which is contended to have bounced due to operation remaining closed by bank as per DRT order. It is submitted by the assessee that the proceedings are pending before the 56th Metropolitan Magistrate, 56th Court and the next date of hearing is on 12/04/2024.
4. The AO is directed to verify the ledger of M/s.AJS Impex Pvt Ltd in the books of the assessee.
5. The AO is directed to examine the issue of cessation of liability in all the other cases by bringing relevant documents on record as per the relevant provisions of the Act.”
-Mum-2024 (A.Y. 2018-19) 6
We have considered the submissions of both sides and perused the material available on record. In the present case, it is evident from the record that in order to examine the genuineness of the creditors as appearing in the books of the assessee. Notices under section 133(6) of the Act were issued. It is further evident from the record that during the assessment proceedings in respect of 10 creditors, as noted in the foregoing paragraph, due to no response from these parties to the notices issued under section 133(6) of the Act, the assessee was asked to provide the confirmation and bank statement along with their ITR. However, it is evident from the record that even the assessee also failed to furnish the details as sought during the assessment proceedings. Accordingly, the AO concluded that the initial onus upon the assessee to prove the genuineness of the transaction was not discharged by the assessee. From the perusal of the assessment order, we find that even though the AO doubted the genuineness of the transaction with 10 parties, as noted in the foregoing paragraph, however, proceeded to make the addition under section 41(1) of the Act in respect of only two sundry creditors, i.e., Turakhia International Pvt. Ltd. and NYKA Engineering Company. We find that as regards the remaining 8 parties shown as sundry creditors by the assessee, there is no examination by the AO nor any addition was made.
During the hearing, the learned Authorized Representative furnished a copy of the ledger account of AJS Impex Pvt. Ltd. in the books of the assessee. From the perusal of the same, we find that there is a credit balance as against the debit balance noted on page 12 of the assessment order. Thus, it is ostensible that even despite coming to the conclusion that the genuineness of -Mum-2024 (A.Y. 2018-19) 7 the transaction in respect of afore-noted 10 parties is not proved, the addition was only made in respect of two parties on the basis that liability has ceased to exist under section 41(1) without giving any reasoning as to why the same conclusion cannot be reached in respect of remaining 8 parties. Thus, we are of the considered view that the assessment order passed under section 143(3) r.w.s. 144B of the Act has been passed without making inquiries or verification which should have been made, and therefore, the present case clearly falls within the ambit of provisions of Explanation 2 to Section 263 of the Act. Accordingly, we find no infirmity in the findings of the learned PCIT vide impugned order that the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue. Accordingly, the order passed under section 263 and directions rendered therein to the AO to conduct de novo assessment are upheld. As a result, the grounds raised
by the assessee are dismissed.
10. In the result, the appeal by the assessee is dismissed. Order pronounced in the open Court on 30/01/2025