CONE CRAFT PAPER PVT LTD,DELHI vs. PCIT-1, DELHI

Cone Craft Paper Pvt. Ltd., Delhi 5. Further, following five parties were found having no digital footprint as per ITBA from whom the assessee were allegedly made purchases of Rs. 24,34,403/- is extracted as under: S. No. Party Name Party PAN Purchase as per information available (Rs.) 1. ROHIT COKPR9125K 4,14,603/- 2. BHOLA NATH BHVPP9120P 85000 PRASAD 3. UPENDRA CHRPP9977M 13,78,619/- PRASAD 4. CHANDAN BDOPK3127N 399186/- KUMAR 5. AJAY GUPTA BUHPG1569G 156995/- Total 24,34,403/-

6. Accordingly, the show cause notice was issued as to why purchases made by the assessee from above mentioned 18 entities / persons should not be treated as bogus purchase and 12.5 % of said purchases of Rs. 1,41,30,437/- which comes to 17,66,305/- should not be disallowed and added to the total income. The assessee did not file any reply to the show cause notice dated 12.12.2022. Hence, it was concluded by the AO that Assessee Company has failed to establish the genuineness and creditworthiness of substantial purchases from Cone Craft Paper Pvt. Ltd., Delhi alleged suppliers who were either non-filers or have filed non- business ITR. Accordingly, a sum of Rs. 48,65,671/- was disallowed and added back to the total income of the assessee and final computation of the taxable income is shown as under: - S. No. Description Amount (in Rs.) 1. Income as per return of income Rs. 82,84,260/- filled 2. Income as computed u/s 143(1)(a) Rs. 82,84,260/- 3. Disallowance of bogus purchase Rs. 30,99,366/- discussed above para 1 4. Disallowance of bogus purchase Rs. 17,66,305/- discussed above para 2 5. Total income/loss determined as per Rs. 1,31,49,931/- the above proposal 6. Total income/loss determined (R/o) Rs. 1,31,49,930/-

7. The assessment record was examined by the PCIT and it was noticed that the assessee has made unverified purchases of Rs. 1,41,30,437/- and 12.50% of these unverified purchases i.e. Rs. 17,66,305/- were disallowed during the assessment proceedings. Further, the assessee has allegedly made bogus purchase of Rs. 1,23,97,466/- and 25% of bogus purchases i.e. Rs. 30,99,366/- were disallowed during the assessment proceeding. The Ld. PCIT was of the opinion that in view of non-genuine, unverified and bogus purchases, the whole amount of purchases should have been added as unexplained expenditure u/s 69 C of the Act r.w.s. 115BB of the Act. Accordingly, a show cause Cone Craft Paper Pvt. Ltd., Delhi notice was issued by Ld. PCIT to the assessee to which reply dated 4/6.12.2024 was filed where it was stated that being aggrieved by the assessment order, the appellant has filed appeal before the Ld. CIT(A) and a copy of Form 35 was enclosed. Therefore, it was stated that since the matter was pending before the Ld. CIT(A), Jurisdiction u/s 263 of the Act cannot be invoked.

8. To these arguments of assessee, the Ld. PCIT was of the opinion that the issue before the Ld. CIT(A) in appeal is not identical with the issues mentioned in show cause notice u/s 263 of the Act. It was observed that the appeal before the Ld. CIT(A) is only limited to the quantum of addition made by the AO in the assessment order.

10. Aggrieved by the impugned order, the assessee is in appeal before us and has raised following grounds of appeal:

Cone Craft Paper Pvt. Ltd., Delhi “1. On the fact and circumstances of the case as well as in Law, the Learned Principal Commissioner of Income Tax (PCIT) has erred in initiating proceedings U/s.263 of the Income Tax Act, 1961 (the Act) and passing an order U/s 263 of the Act, without considering the facts & Circumstances of the case.

2. On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in passing Revision Order u/s.263 of the Income Tax Act, 1961 for the assessment order u/s.143(3) of the Act, 1961, passed by the Learned Assessing Officer after making adequate enquiries and application of mind, without the facts and considering circumstances of the case.

3. On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in considering the order passed u/s.143(3)of the Income Tax Act, 1961 by the Learned Assessing officer as erroneous and prejudicial to the interest of the revenue, without appreciating the facts and circumstances of the case.

4. On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in partly setting aside Assessment order passed by the Learned Assessing Officer and directing him to modify the assessment order, without considering the facts circumstances of the case.

.”

11. On summarizing the grounds raised in the appeal and the contention made by the assessee and the observation of the Ld. PCIT in the impugned order, in our opinion, the following question arises for consideration before us as under:

Whether the Ld. PCIT has rightly exercised the Jurisdiction u/s 263 of the Act or the assessment order has been passed in violation of Clause b and d of Explanation 2 to Section 263 of the Act?

Cone Craft Paper Pvt. Ltd., Delhi 12. We have heard the Ld. AR for the assessee and Ld. Sr. DR on behalf of the Revenue and examined the record. The Ld. AR at the very outset submitted that the impugned order is bad in law because the Ld. PCIT has wrongly exercised the jurisdiction u/s 263 in violation of Clause C of explanation 1 of Section 263 of the Act because the identical issue of addition on account of bogus purchases is subject matter of appeal pending before the Ld. CIT(A).

13. Secondly, it is argued that the Ld. PCIT has wrongly concluded that the assessment order has been passed and relief has been granted by the AO without inquiry into the claim and further that the order has not been passed in accordance with the decision of Hon’ble Bombay High Court in Kanak Impex (India) Ltd. (supra) and Hon’ble Supreme Court in N.K.Proteins Ltd. (supra). It is argued that the necessary statutory notices u/s 142(1) and 143(2) of the Act were issued along with show cause notice dated 12.12.2022 to which detail submission were made by the assessee. The Ld. AO has also issued notice u/s 133(6) of the Act to the various entities from whom the alleged bogus purchases were made and after due deliberation and consideration of all the submissions, the assessment order was passed wherein the reply of the assessee was not considered and instead of Cone Craft Paper Pvt. Ltd., Delhi granting relief, disallowance of expenditure spent on purchases was made and as such clause b of explanation 2 to Section 263 of the Act does not get attracted.

“12. We also take note of the additional ground raised by the revenue for which Ld.SR DR referred to the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Kanak Impex (India) Ltd. (supra). We have perused the said judgment. For the reliance placed by Ld. SR DR on the decision of Hon’ble Jurisdictional High Court of Bombay in the case of PCIT vs Kanak Impex (India) Ltd (supra) calling for addition of 100% of the alleged bogus purchases as against 25% made by the Ld.AO and confirmed by Ld. CIT(A), we have perused this aforesaid judgment. We observe that in para 4, Hon’ble Court noted the factual position that assessee did not appear before the Ld.AO during the course of assessment proceedings and failed to prove the genuineness of the purchase. The said assessment was completed ex-parte u/s. 144 r.w.s 147 of the Act. Hon’ble Court also observed in para 17 about the non- appearance of assessee before the Ld.AO for which there is no justification. Again, it noted in para 29 that the assessee chose not to attend the reassessment proceedings even though the notices were sent by post, email and affixture. Accordingly, in para 13, Hon’ble Court concluded that assessee having not joined the reassessment proceedings, the contention raised by the assessee are to be rejected. Observation of the Hon’ble Court while rejecting the contention of the assessee are:

Cone Craft Paper Pvt. Ltd., Delhi “30. We fail to understand that the respondent-assessee having consciously and intentionally decided not to join the investigation, cannot now contend that the appellant-revenue should have given them all the details before making the addition. In our view, such a conduct of the respondent-assessee cannot be accepted. It was incumbent upon the respondent-assessee to have joined the re-assessment proceedings, discharge the initial onus of proving the purchases and seek details, if any.”

“6. The revenue department being aggrieved is in appeal before this court and at outset has placed reliance on the judgment passed by the Hon’ble Jurisdictional High Court in the case of Principal Commissioner Of Income Tax-5 Vs. Kanak Impex (India) Ltd. in decided on 03.03.2025, wherein the Hon’ble High Court restored the addition made by the assessing officer @100% of the bogus purchases, which was restricted to 12.5% by the Ld. Commissioner, and subsequently got affirmed by the Hon’ble Tribunal, restricting the disallowance qua profit margin, on unproven purchases.

9. The Ld. Counsel also submitted four judgments qua identical issue, by the Hon’ble Jurisdictional High Court, including in the case of Principal Commissioner of Income Tax-2 Vs Refrigerated Distribute Private Limited (ITA No. 1840/2018) decided on 05.03.2005, wherein the Assessing Officer estimated the gross profit @25%, which was confirmed by the then Ld. CIT(A). However, subsequently reduced by the tribunal to 10% and therefore, the Hon’ble High Court, by considering the peculiar fact that the issue involved relates to only estimation of profit; ultimately opined/decided that no substantial question of law can be said to have arisen in the instant case.

8. The decision relied upon by the ld. D/R is fact specific and distinguishable from the facts of the case in hand inasmuch as in that case, the assessee consciously and intentionally decided not to join the investigation and did not file the details relating to purchases and failed to prove the genuineness of purchases because of allegation of purchase by accommodation entries whereas the facts of the case in hand show that the assessee not only participated in the assessment proceedings and in the proceedings before the ld. CIT(A) but also filed necessary details relating to purchases. The allegation that the assessee did not maintain any stock registers does not hold good because the AO never rejected books of accounts but has accepted the book of accounts but for the alleged bogus purchases. v) ITO vs. M/s Mangalam Drugs & Organics Ltd. (ITA No. 5279/Mum/2015) dated 08.05.2025 (Mumbai Tribunal)

20. The ld DR submitted that the CIT(A)'s finding that the AO without rejecting the sales cannot hold the purchases is not correct in the light of the latest decision of the Hon'ble Bombay High Court in the case of PCIT vs Kanak Impex (India) Ltd (ITA No.791 of 2021 dated 03.03.2025). In our considered view, the facts considered in the said case are distinguishable. The Hon'ble High Court in the said case had dealt with the fact where the goods are purchased from grey market using cash against which purchase bills were obtained from a different party. The Cone Craft Paper Pvt. Ltd., Delhi ground on which the Hon'ble High Court held that rejecting sales is not required is that in the said case the source for the real purchase from grey market is unexplained and therefore the Hon'ble High Court held that adding only the profit element in incorrect. The decision of the Hon'ble High Court in the said case was also on the ground that the assessee has not discharged the onus of proving genuineness, has been non-cooperative during the assessment proceedings. In assessee's case, the assessee's contention is that the purchases are genuine and the assessee has discharged the onus by producing the necessary evidences to substantiate the claim. The assessee has well cooperated with the proceedings before the lower authorities which fact has been recorded by the CIT(A) in the appellate order. Therefore in our considered view, the decision of the Hon'ble High Court in the case of Kanak Impex (India) Ltd (supra) is not applicable to assessee's case. vi) Rajesh Shivji Shah vs. ITO (ITA No. 525/Mum/2025) dated 29.04.2025 (Mumbai Tribunal)

17. On examining the case in hand, we have noticed that during the course of assessment proceedings, the assessee furnished all legal documentation in the form of purchase invoices, sales invoices, bank statement highlighting the payment made through banking channels, ledger accounts of the suppliers, etc. Thus, the Ld. CIT(A) has restricted the addition to 12.5% of the non-genuine/suspicious/bogus purchases in place of 18.5% applied in the assessment order on the ground that the assessee did not produce the parties in person for the purpose of examination and recording statement on oath regarding the transactions they had with the assessee. The assessee on the other hand made a request to restrict 5% of alleged bogus purchase in place of 12.5% on the ground that assessment was made without disclosing the information to the assessee and without providing opportunity of cross examination, which was violation of principle of natural justice. Thus, it is evident from the submission of the assessee and the findings of Ld. CIT(A) that assessee in the present case has admittedly submitted at the stages from assessment proceedings till the first appellate authority as well as before us all that necessary documents to establish the purchases made and the payment made through banking channel, etc.

18. We have noticed that the case of Kanak Impex (India) Ltd. (supra) relied by the Ld. DR has been rightly distinguished in the various judgments of Tribunals including the Jurisdictional Tribunals as referred (supra). Further we have noticed that the Hon’ble Allahabad High Court in the case of Commissioner of Income-tax vs. Smt. Swapna Roy in 9, 20, 21, 23 and 31 of 2005, decided on May 24, 2010, was pleased to elaborate as to when the judgment can be followed as binding precedent. The relevant portion of the order of Hon’ble High Court is reproduced below:- “61. Reliance placed by the learned counsel for the assessee to the dismissal of the appeal in limine by the Delhi High Court or the Supreme Court seems to be not sustainable. A perusal of the order passed by the Cone Craft Paper Pvt. Ltd., Delhi Delhi High Court and the hon'ble Supreme Court shows that the appeal has been dismissed without recording a finding with regard to argument advanced or dispute raised. It is settled law that a judgment shall be binding only in case the dispute is identical based on the same set of facts. The judgment should be considered in reference to the context keeping in view the facts and circumstances of each case. It is not borne out from the judgment of the Delhi High Court that the question cropped up for adjudication in this court was raised and adjudicated by the Delhi High Court.

19. Thus, it can be culled out from the findings of Hon’ble High Court as extracted above that the judgment should be considered in reference to the context, keeping in view the facts and circumstances of each case. Further the issue which has not been considered by the court while delivering a judgment cannot be said to be binding, as a decision of the court takes its colour from the questions involved in the case in which it is rendered and while applying decision to a later case, the court must Cone Craft Paper Pvt. Ltd., Delhi carefully try to ascertain the true principle laid down by the decision of the court. The court should not place reliance upon the decision without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. A little difference in facts or additional facts may make a lot of difference in the precedential value of a decision.

Cone Craft Paper Pvt. Ltd., Delhi 20. We find force in the argument of the Ld. AR on behalf of the assessee that the plausible view in the factual matrix of the case having been taken by the AO cannot be substituted by the Ld. PCIT by assuming Jurisdiction u/s 263 of the Act. Our view is supported by the Hon’ble Apex Court pronouncements in Malabar Industrial Co. Ltd. vs. CIT [2000] 109 taxman 66 (SC) where it was held as under:

9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).

21. For the above discussion, we are of the considered opinion that the Ld. PCIT has assumed the Jurisdiction wrongly and his observation that the assessment order is hit by Clause b and d of Explanation 2 of Section 263 of the Act are found to be not supported by facts and the law. Further, we are of the view that in the given facts and circumstances, the AO has adopted one of the courses permissible in Cone Craft Paper Pvt. Ltd., Delhi law and there is nothing brought to our notice which may suggests that the view taken by the AO is unsustainable in law. For these reasons, the impugned order is not sustainable and accordingly set aside. The question framed is accordingly decided in negative i.e. against the revenue and in favour of the assessee.

Order pronounced in open Court on 29th January, 2026.