Loading judgment…
Facts
The assessee, a partnership firm, had its assessment reopened on the basis of information suggesting it received a fictitious loan. The original assessment was completed after a reassessment proceeding, but the PCIT initiated revision proceedings under Section 263, citing lack of proper verification by the AO.
Held
The Tribunal held that the revisionary jurisdiction under Section 263 was wrongly exercised. The assessee had provided sufficient documentation to prove that the transactions were business expenses and not a loan. The PCIT's order was found to be based on a borrowed satisfaction and not an independent application of mind.
Key Issues
Whether the revisionary proceedings initiated under Section 263 by the PCIT were justified given the AO's assessment and the assessee's submissions regarding the nature of transactions?
Sections Cited
147, 144B, 143(3), 148, 68, 69A, 143(2), 142(1), 263
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Smt. Annapurna Gupta & Shri T. R. Senthil Kumar
M R Patel And Sons Principal One 42 South Tower- Commissioner of 1204 Ambli Bopal Road, Vs Income Tax-1, Bopal, Bodakdev, Ahmedabad Ahmedabad-380054 Gujarat PAN: AAFFM0677E (Appellant) (Respondent) Assessee Represented: Shri Tushar Hemani, Sr. Adv. & Shri Parimalsinh B. Parmar, A.R. Revenue Represented: Shri V Nandakumar, CIT-DR Date of hearing : 06-02-2025 Date of pronouncement : 08-05-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the Revision order dated 26.02.2024 passed by the Principal Commissioner of Income Tax-1, Ahmedabad arising out of the reassessment order passed under section 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2014-15.
A.Y. 2014-15 Page No 2 M R Patel And Sons vs. PCIT
Brief facts of the case is that the assesse is a Partnership Firm engaged in the business of prepaid freight agent and loading work for Gujarat Electricity Board and others. For the Assessment Year 2014-15, the assessee filed its Return of Income on 10-09-2014 declaring total income of Rs.82,95,161/-. Regular assessment u/s. 143(3) was completed on 15-11-2016 determining the income at Rs.87,75,910/- by making two additions. Subsequently, the assessment was reopened by issuing notice dated 30-03-2021, under section 148 of the Act, that the assessee is one of the beneficiaries who has obtained Rs.1,13,27,000/- in the form of fictitious loan taken from M/s. Dishman Pharmaceuticals and Chemicals Ltd. (for short ‘DPCL’).
2.1. In response, the assessee filed a return on 30-04-2021 declaring total income of Rs.87,51,570/-. During the reassessment proceedings, a show cause notice was issued as to why not to add the unsecured loan of Rs.1,13,27,000/- received from DPCL to be treated as bogus. In response, the assessee submitted a detailed reply as follows:
“(a) It is submitted that Dishman Pharma & Chemicals Ltd, a listed company and as per the audited accounts, the company had incurred Expenses towards Employee benefits of Rs. 5,837.83 Lakhs, and earned Profit After Tax of Rs. 8,678.67 Lakhs, for ready reference we are enclosing herewith (i) Copy of Audited Balance Sheet. (ii) Copy of Audited Profit & Loss A/c. (iii) Annexure 12A & 12B of Audited Accounts of fixed asset (iv) Annexure-20 & 21 of Revenue from operations and other income. (v) Annexure-23 of Employee benefit expenses.
A.Y. 2014-15 Page No 3 M R Patel And Sons vs. PCIT
It is respectfully submitted that from the copy of the Audited accounts your good self can verify that company has share holder's funds of Rs. 79.707.53 Lakhs, as on 31/03/2014 & had Total Revenue from operations of Rs. 52,925.68 Lakhs & has incurred expenses towards employee benefits of Rs. 5,837.83 Lakhs. From the above we would like to state that when the company has incurred the expenses towards employees of Rs. 5,837 83 Lakhs, & has Gross block of fixed assets of Rs 94,226.52 Lakhs, how it can be presume that company has no Infrastructure and man power? It is further respectfully submitted that during the year assesse/ we have received the loading super vision income of Rs.1,92,73,751/ & commission & other income of Rs.1,25,62,500/, from Gujarat Electricity Board (Government Corporation) & from others and we have taken the services of Dishman Pharma & Chemicals Ltd, for this work and had paid the loading super vision charges of Rs.1,24,16,000/-, to Dishman Pharma & Chemicals Ltd. It is furthers submitted that assesse has also deducted the TDS on this payments and deposited in Government Treasury. Dishman Pharma & Chemicals Ltd has also shown the above income and has charged the sales tax and deposited the same. The transactions for payments are made through banking channel only. Along with copy of the bills Dishman Pharma & Chemicals Ltd, has also attached the details of wagons, Grade of Coal, Date & Time of Loading etc. and we are enclosing herewith copy of the said details along with copy of the bills, and copy of the bank statements etc. It is respectfully submitted that in your show cause notice your good self has stated that as per information received. Dishman Pharma & Chemicals Ltd has paid us unsecured loans of Rs.1,13,27,000/, in this respect we would like to state that we have not received any unsecured loan as stated by your good sell hence we request your good self to kindly take the note of the same and oblige. It is further submitted that we have also filed the Copy of the Tax Audit Report and in the said report auditor has also stated the same. It is further respectfully submitted that there was scrutiny assessment u/s 143 (3) of the Act, for A.Y. 2014-15 and during the course of scrutiny assessment assesse has already filed the details of transactions with Dishman Pharma & Chemicals Ltd. & after due verification Ld. AO has accepted the same. In the above facts and circumstances we request your good self to kindly accept the same and oblige. It is further respectfully submitted that if your good self is not agree with the transactions with Dishman Pharma & Chemicals Ltd, we request your A.Y. 2014-15 Page No 4 M R Patel And Sons vs. PCIT good self to kindly provide us the statements / the records, material, information etc. relied upon by your good self and also request for the cross examination of the persons of Dishman Pharma & Chemicals Ltd, who had said that this transactions are not genuine. For your ready reference we are enclosing herewith relevant pages from Audited accounts of Dishman Pharma & Chemicals Ltd for the year ended 31/03/2014, relevant to A.Y. 2014-15. in the above facts and circumstances as the loading super vision charges paid of Rs. 1,24,16,000/ to Dishman Pharma & Chemicals Ltd, are genuine we request your good self to kindly accept the same as accepted by Ld. AO in original scrutiny assessment and oblige.”
3. After verifying the above submissions made by the assessee, the Faceless Assessing Officer accepted the returned income and without making any additions passed the reassessment order dated 29-03-2024. Ld PCIT Perused this reassessment order and found that the reassessment order was done without proper verification of the facts/details namely the assessee is one of the beneficiaries, who has obtained Rs.1,13,27,000/- in the form of fictitious loan from DPCL. Thus the A.O. failed to verify the issue and failed to make addition u/s. 68/69A of the Act. Therefore it is an erroneous order and prejudicial to the interest of Revenue and issued a SCN to the assessee as to why not to revise the reassessment order.
In response the assessee replied to the Ld. PCIT as follows:
“2.2 The case of the assessee for the year under consideration was. thereafter, reopened u/s. 147 of the Act on the basis of information received by the AO from the Investigation Wing that assessee is one of the beneficiary of accommodation entries in form of fictitious loan of Rs 1,13,27,000 received from Dishman. The reasons for reopening were provided in the notice u/s. 143(2) of the Act dated 21.05.2021 as referred to at Pg. No. 21 to 24 of Paper book of Documents The AO, called for A.Y. 2014-15 Page No 5 M R Patel And Sons vs. PCIT various information and details during the course of assessment proceedings and the same were duly furnished by assessee from time to time. 2.3 The AO, vide notice u/s. 142(1) of the Act dated 13. 12. 2021, inter alia called for the following details: Details of unsecured loans as under (Please refer Point No. 4 of such notice). Name & address of the lender, PAN of lender and Amount of unsecured loan received Please refer to notice u/s. 142(1) dated 13.12.2021 at Pg. No. 25 to 26 of Paper book of Documents. 2.4 The AO, vide show cause notice dated 25.03.2022 has proposed to disallow an amount of Rs.1,13,27,000 u/s 68 of the Act being alleged to be a fictitious unsecured loan received from Dishman Please refer to show cause notice dated 25.03.2022 at Pg. No. 27 to 32 of Paper book of Documents. 2.5 Against the above show cause notice, the assessee, vide letter dated 28.03.2022, clarified that the assessee has not received any unsecured loan of Rs. 1,13,27,000/- from Dishman during the year under consideration as alleged by the Assessing Officer. On the contrary, the assessee has made payments of Rs.1,24,16.000 to Dishman on account of loading supervision services taken from Dishman. Please refer to letter dated 28.03.2022 at Pg. No. 33 to 98 of Paper book of Documents. 2.6 The AO, thereafter, framed assessment under section 147 r.ws. 144B of the Act vide order dated 29.03.2022. Since the Assessing Officer was satisfied with the assessee's submission regarding no loan transaction with Dishman, no addition was made in respect of the same Please refer to Assessment Order dated 29.03.2022 at Pg. No. 99 to 100 of Paper book of Documents. 2.7 Thereafter. Your Honors has issued the captioned notice dated 03.01 2024 under section 263 of the Act seeking to revise the Assessment Order dated 29.03.2022 in respect of the following item: "No addition was made u/s. 68/69A of the Act on account of fictitious loan of Rs.1,13,27,000 received by the assessee from Dishman Pharmaceuticals and Chemicals."
A.Y. 2014-15 Page No 6 M R Patel And Sons vs. PCIT
Please refer to Notice u/s. 263 of the Act dated 03.01.2024 at Pg. No. 101 to 103 of Paper book of Documents. It is case of Your Honors that the assessee is a beneficiary of fictitious loan from Dishman to the tune of Rs.1,13,27,000/- as per report of the Investigation Wing, thus the same is being liable to addition u/s. 68/69A of the Act and such issue has not been properly adequately examined by the AO. Accordingly, Your Honors is of the view that the Assessment Order passed by the AO is erroneous and prejudicial to the interest of the revenue and hence Your Honors has issued notice under section 263 of the Act seeking to revise the said assessment order The assessee submits that the said notice issued by Your Honors is bad, illegal, without jurisdiction and not tenable in the eve of law in light of various submissions made here-in-after.” 4.1. Ld. PCIT simply reproduced the above reply filed by the assessee in his Revision order and held that the Ld. FAO failed to verify the genuineness and creditworthiness of the transaction which is an erroneous order and prejudicial to the interest of Revenue, therefore he directed to redo the assessment by observing as follows:
“7.7 The primary onus is on the assessee to establish the genuineness of the purchases/transactions claimed by it. In terms of provisions of section 101, 102 and 106 of the Evidence Act, the onus lies on the assessee to prove the genuineness & creditworthiness of all the expenses/transactions to the satisfaction of the Assessing authority, which has not been discharged. Mere filing of bills, confirmation, etc. in support of purchases/transactions and payment routed through account payee cheques cannot be conclusive in a case where genuineness and creditworthiness of the transactions are in doubt. Payment by account payee cheque is not sacrosanct and is not sufficient to establish the genuineness of the purchases/transactions. The genuineness of the transactions could be decided on the basis of primary facts on records and the revenue is not required to lead a clinching evidence to prove that the purchases are bogus. It is well settled law that the strict rules of evidence do not apply to Income-tax Act and the real test with regard to genuineness is preponderance of probabilities and not beyond reasonable doubt. 7.8 In view of the above, the FAO has failed to make addition of Rs.1,24,16,000/- on account of loading and supervision charges paid A.Y. 2014-15 Page No 7 M R Patel And Sons vs. PCIT to Dishman Group. Therefore, the order passed by the FAO is erroneous and prejudicial to the interest of the Revenue.
8. In the light of facts and circumstances narrated above, I hold that the Faceless Assessing Officer has erred in not considering the issue of transaction with Dishman Group with respect to loading and supervision charges of Rs.1,24,16,000/-. The assessment order is passed by the A.O., without making proper examination of the issues mentioned above. The Assessing Officer has failed to make addition in accordance with the provisions of the Act. The error in the assessment order has resulted into loss of revenue. The order passed by the Assessing Officer is, thus, erroneous and prejudicial to the interest of the Revenue. Therefore, provisions of section 263 of the Act are applicable in this case.”
Aggrieved against the Revision order, the assessee is in appeal before us raising the following Grounds of Appeal:
1. On the facts & in the circumstances of the case, it is most respectfully submitted that the Ld. Principal Commissioner of Income Tax-1 has erred in Law and on Facts in holding that the order passed u/s. 147 of the Income Tax Act 1961 dated 29/03/2022 as erroneous and prejudicial to the interest of revenue and directing the Ld. Assessing Officer to make fresh assessment, by passing the Order u/s. 263 of the Income Tax Act, 1961 dated 26/02/2024.
2. Your appellant craves leave to add, to alter or to amend the grounds of appeal
if occasion arises.
6. Learned Senior Counsel Mr. Tushar Hemani submitted that the Assessee, vide letter dated 20.01.2024 (Pgs.104-147 of the Paper Book) furnished detailed submissions in response to the SCN issued by PCIT u/s 263 wherein broadly, submissions were made in respect of the following vital aspects. Further the issue with respect to transactions with DPCL was threadbare examined by the AO. Attention was invited to following documents forming part of assessment record:
A.Y. 2014-15 Page No 8 M R Patel And Sons vs. PCIT
➤ Tax Audit Report & Annual Accounts (Pgs.1-17 @ 12 of PB); ➤ Assessment Order u/s 143(3) of the Act (Pgs. 18-20 of P/B); ➤ Notice dated 21.05.2021 (reasons) (Pgs.21-24 of P/B) ➤ Notice dated 13.12.2021 (Point 4) (Pgs.25-26 of P/B). ➤ Show cause notice dated 25.03.2022 (Pgs.27-32 of P/B): ➤ Letter dated 28.03.2022 (Pgs.33-98 of P/B): ➤ Assessment Order dated 29.03.2022 (Pgs.99-100 of P/B). 6.1. Further the Assessee has not received any unsecured loan of Rs.1,13,27,000/- from DPCL, rather the assessee has paid Rs.1,24,16,000/- to DPCL towards 'loading supervision charges’ which was considered by the FAO during the reassessment proceedings and therefore the reassessment order is not erroneous and hence Ld PCIT was not justified in invoking revisionary jurisdiction u/s. 263 of the Act and requested to quash the same.
Per contra Ld CIT DR Shri V. Nandhakumar appearing for the Revenue supported the order passed by the PCIT and requested to uphold the revision order.
We have given our thoughtful consideration and perused the materials available on record including the Paper Book and Case Laws compilation filed by the assessee. It is seen from record the reasons for revising the reassessment is based on the Note/ Remarks supplied by the Faceless Assessment Order [short FAO] which is reproduced in paragraph 7 of the impugned order which reads as follows:
“7. On merits, I have considered the submission of the assessee. The vital aspect of the case is that while finalizing the assessment order dated 29.03.2022, the Faceless Assessing Officer (FAO, for short) has put the following office note/remarks:
A.Y. 2014-15 Page No 9 M R Patel And Sons vs. PCIT “1. In this case, an information was received from credible source which shows that search in the case of Dishman group of Ahmedabad was conducted on 19.12.2019 and the group was found to be indulged in huge transactions of bogus loans and advances. Accordingly the reasons has been record and stated that the assessee is one of the beneficiaries who has obtained Rs.1,13,27,000/- in the form of fictitious loan from Dishman Pharmaceuticals And Chemicals Ltd.
2. During the course of assessment proceedings, details have been called for from the assessee. As the submission of the assessee was not visibile, a draft assessment order has been sent based on the details available on record and the reasons recorded. In response to this the assessee has made submission on 28-03-2022. On verification of records, it is noticed that the assessee has claimed loading & supervisions charges of Rs. 1,24,16,000/- stated to be paid to Dishman Carbogen Amis Ltd. (Formerly known as Dishman Pharmaceuticals and Chemicals Ltd.
Hence this office is not in a position to conclude. In view of the same, return income is being accepted. It is seen that no inference can be drawn without having physical & further verification of the parties and of the facts given in the submission made by the assessee. Due to paucity of time it is not possible to conduct physical verification. Hence, to protect the interest of revenue, remedial action u/s. 263 of the I.T. Act, maybe initiated if deemed fit." 7.1. In view of the specific remarks, of the FAO inasmuch as submission was not visible, and a specific remark that the assessee has claimed loading and supervision charges of Rs.1,24,16,000/- Dishman Group, but, he has not verified the transactions.”
8.1. This makes it clear that the Ld PCIT has invoked the Revision proceedings based on the request made by the Faceless Assessing Officer, which is a barrowed satisfaction. The next question that arise is whether Ld PCIT applied his mind in revising the reassessment order which is prejudicial to the interest of the Revenue ? Our Answer to that is certainly No. Since the reasons A.Y. 2014-15 Page No 10 M R Patel And Sons vs. PCIT recorded for reopening of assessment is that the assessee is a beneficiary of receipt of bogus unsecured loan of Rs.1.13 crs. from DPCL as per the investigation report, whereas the assessee has proved that it has not received any unsecured loan from DPCL, rather it had paid Rs.1.24 crs to DPCL being business transaction towards 'loading supervision charges’ with appropriate TDS. Thus the reason recorded for reopening of assessment itself failed, but the Ld PCIT revised the reassessment order on the ground the onus lies on the assessee to prove the genuineness and credit worthiness of all the expenses to the satisfaction of the Assessing authority. Ld PCIT further held that mere filing of bills, confirmation, etc. in support of purchases/transactions and payment routed through account payee cheques cannot be conclusive in a case where genuineness and creditworthiness of the transactions are in doubt. In view of the above, the FAO has failed to make addition of Rs.1.24 crs. on account of loading and supervision charges paid to Dishman Group. Therefore, the order passed by the FAO is erroneous and prejudicial to the interest of the Revenue. Thus Ld PCIT has revised the assessment order which is different [business expenses] from the reasons recorded [bogus loan transaction] for reopening of assessment, which is not permissible in law as held by Bombay High Court in the case of Jet Airways [I] Ltd [331 ITR 236] and jurisdictional Gujarat High Court in the case of Mohmed Juned Dadani [355 ITR 172].
Further perusal of documents clearly shows that the assessee discharged its initial onus to establish that the transaction as not a A.Y. 2014-15 Page No 11 M R Patel And Sons vs. PCIT loan transaction but regular business transaction. In support of its claim the assessee produced all the details of loading supervision expenses, Bills issued by DPCL, Ledger of loading supervision charges, bank statement and Annual Report of DPCL from pages 38 to 77 of the Paper book. Thus, in our considered view the assessee discharged its initial onus cast upon it by filing all relevant documents and details to prove that its regular business transaction with DPCL and not a loan transaction. Therefore, the FAO has no basis to make any addition in the reassessment proceedings and rightly made Nil assessment. However, the FAO in his Notes/Remarks states that the submission of the assessee is not visible and hence he was not in a position to conduct physical verification due to paucity of time and requested to initiate revision proceeding to protect the interest of Revenue.
9.1. This submission of the FAO is also not correct, since all relevant materials which are found at page nos.38 to 77 of the Paper Book are very much legible and readable. Thus, the assessee extended its fullest co-operation in the reassessment as well as Revision proceedings. In our considered opinion, the FAO need not have waited till the time barring period to complete the reassessment and then request the PCIT to initiate Revision proceedings to make further inquiry, which is otherwise expanding period of limitation as provided under the Act, which is not permissible under the law. Further "Inadequacy" of inquiry by AO also cannot be ground for proceedings under section 263 of the Act as held by the Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. 332 ITR 167 (Delhi).
A.Y. 2014-15 Page No 12 M R Patel And Sons vs. PCIT
We are of the considered opinion that the revisionary jurisdiction under Section 263 was wrongly exercised in this case by the LPCIT. For all the above reasons, the entire Revision proceedings is liable to be quashed.
In the result the appeal filed by the assessee is allowed.
Order pronounced in the open court on 08 -05-2025