SHREE N H ENTERPRISES,RAJKOT vs. PCIT-1 RAJKOT, RAJKOT

In response to such notice, the assessee has filed its reply dated 28.01.2025. The assessee submitted that purchases were duly accounted for and recorded in books of accounts, therefore, no addition should be made under section 69C of the Act. For that assessee mentioned the provisions of section 69C of the Act, before learned PCIT, which reads as follows: 2 Shree N. H. Enterprises vs. PCIT “Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year: Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.”

The assessee submitted before learned PCIT that from plain reading of section 69C of the Act, it is clear that the said provisions were applicable if the assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof. In the present case, all purchases were duly accounted for and recorded in the books of accounts and were paid through proper banking channel, hence incurring of expenditure and source from which said expenditure was incurred is duly recorded in the books of accounts and cannot be treated as unexplained. In view of this provision, section 69C of the Act are not prima facie applicable to the present facts of the case. Hence, in view of this, assessee requested ld.PCIT to drop the proceedings u/s 263 of the Act, by taking plea that the foundation on which proceedings u/s 263 was initiated is incorrect. Besides, various three notices were issued by the assessing officer, in the course of assessment proceedings to conduct enquiry and assessee replied them with documentary evidences. Having gone through the documents and evidences submitted by the assessee during the assessment proceedings, the assessing officer took a plausible view and make addition in the hands of the assessee at the rate of 25% of bogus purchases. Therefore, order passed by the assessing officer should not be erroneous and prejudicial to the interest of the revenue.

However, learned PCIT rejected the above contention of the assessee and held that the assessment order was passed without making inquiries or 3 Shree N. H. Enterprises vs. PCIT verification which should have been made; therefore, learned PCIT was of the considered view that this is a fit case for invoking section 263 of Act, as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue are satisfied. Accordingly, the impugned assessment order passed by the A.O. u/s 143(3) r.w.s. 144B of the Income-tax Act, 1961 on 26.12.2022 was set aside by ld PCIT for fresh assessment only to the extent of the issues, discussed (supra) and directed the Assessing Officer to pass a fresh assessment order after proper application of law.

Aggrieved by the order of the Ld.PCIT, the assessee is in appeal before us.

At the outset, the Learned Counsel for the assessee submitted that in the assessee`s case under consideration section 69C is not applicable, as the purchases were recorded in the Books of Account of the assessee. However, learned PCIT was of the view that section 69C of the Act is applicable, which is factually incorrect.

The Ld. Counsel further submitted that necessary enquiry was conducted by the assessing officer during the assessment proceedings by issuing three notices u/s. 142(1) of the Act, and in response to these notices of the assessing officer, the assessee submitted its reply. The assessing officer after taking into account, took a possible view that only profit element should be taxed in the hands of the assessee, therefore instead of disallowance of 100% purchases, the assessing officer disallowed only 25% purchases. Therefore, in fact the assessing officer has applied his mind and passed a reasoned and speaking order, hence the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue, therefore jurisdiction exercised by the learned PCIT under section 263 of the Act, to revise the assessment order should be quashed. 4 Shree N. H. Enterprises vs. PCIT 10. On the other hand, the Ld. DR for the revenue submitted that the assessing officer, disallowed 25% of bogus purchases, however, as per Ld. PCIT 100% purchases, which were bogus, should have been disallowed by the assessing officer, therefore, as the assessing officer failed to disallow hundred percent purchases, hence order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue.

In a rejoinder, the Ld. Counsel further submitted that the assessee has submitted necessary documentary evidences before the assessing officer such as Purchase Bills, GST Number, Return of GST, bank statements etc. The detailed reply of the assessee submitted before the assessing officer is important to understand that the assessing officer had conducted necessary verification by issuing the three notices u/s. 142(1) of the Act. Therefore, having examined the submissions of the assessee, the assessing officer made 25% disallowance of bogus purchases. The Ld. Counsel submitted that as per the Ld. PCIT, the various parties were bogus, which is not correct statement of ld.PCIT, as the transactions were bogus and various parties cannot be treated bogus, as the assessee made the payment by account payee cheque through Banking Channel to these various parties. There is also movement of the goods from seller to purchaser, hence transaction should not be bogus, therefore, even assessing officer should not have disallowed 25% of bogus purchases.

We have heard both the parties and perused the material available on record. We note that ld. PCIT has made the revision of assessment order passed u/s 143(3) dated 26.12.2022, on the contention that the assessee has made purchases from Shri Vijaysinh Natubhai Dabhi, which were held to be non- genuine and bogus, of which the assessing officer had made disallowance @ 25% of such purchases, which according to ld.PCIT`s opinion/ view the entire amount of Rs. 4,45,52,297/- should have been treated as unexplained u/s 69C r.w.s. 5 Shree N. H. Enterprises vs. PCIT 115BBE of the Act. Besides, the main grievance of the learned PCIT was that assessing officer did not conduct proper enquiry. Therefore, first of all, we have to examine that what kind of enquiries were conducted by the assessing officer during the assessment proceedings.

We note that various notices were issued by the assessing officer, in the course of assessment proceedings to conduct enquiry, which are mentioned below:

In response to above notices, the assessee had filed detailed reply from time to time before the assessing officer; which are mentioned in the following submission:

From above various notices and submissions filed by the assessee, we note that the detailed inquiry, investigation and deliberation on issue of purchases from Shri Vijaysinh Natubhal Dabhi was made and the assessing officer had concluded that the purchases from said parties was not genuine. However, assessing officer 6 Shree N. H. Enterprises vs. PCIT was also of opinion that 100% purchases cannot be disallowed and percentage of profit should be disallowed considering the decision of various courts and observed on page no. 10 and 11 of the assessment order, as follows:

In response to the show- cause notice, the assessee submitted the detailed reply on 17.12.2022. The assessee submitted before the assessing officer, the Purchase Invoice, Lorry Receipts for transportation of goods, Weighment Slip at independent weigh bridge Inward Gate pass for receipt of goods at the assessee premises, GST Return 2A that seller has filed their GST return, the bank statement indicating that all payments were made through proper banking channel Ledger account from the books of accounts along with confirmation from seller party. The assessee relied on the decision of the Gujarat High Court in the case Shree N. H. Enterprises vs. PCIT of Bholanath Ploy Fab Pvt Ltd. (2013) 40 taxman.com 494 (Gujarat), wherein the Hon'ble court upheld the decision of the ITAT that the purchases were made from bogus parties, but the purchases themselves were not bogus as entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. Further the relevant extract of the reply of the assessee submitted on 17.12.2022 in this context is reproduced as under:

We note that the assessing officer, considering the above reply held that it is reasonable to make addition in such cases, by following, the decision of the Hon'ble Apex Court in the case of N. K Protein [2017] 250 ΤΑΧΜΑΝ 22 (SC), and thus 25% of the purchases from the Navrang Enterprises having PAN CNJPD1168C amounting to Rs. 1,11,38,074/- (25% of 4,45,52,297) was added to the income of the assessee. In view of above, we find that the allegation of ld PCIT that assessing officer in the course of assessment has not made any inquiry with respect to alleged purchases, is factually incorrect. Therefore, we find that in the course of assessment proceedings, after considering the issue of alleged purchases, the assessing officer has taken plausible view following decisions of various high courts. Hence, the order passed by the assessing officer is not erroneous and prejudicial to the interest of revenue.

We note that the Hon`ble jurisdictional, Gujarat High Court in the case of Bholanath Ploy Fab. Ltd. (2013) 40 taxman.com494 (Gujarat), held that the purchases were made from bogus parties, but the purchases themselves were not bogus as entire quantity of opening stock, purchases and the quantity Shree N. H. Enterprises vs. PCIT manufactured during the year under consideration were sold by the assessee. In that view of the matter, not the entire amount, but the profit margin embedded in such amount would be subjected to tax. Therefore, we note that in the course of assessment proceedings after considering the issue of alleged purchases, the assessing officer has taken plausible view following decisions of various high courts including the Hon`ble jurisdictional, Gujarat High Court (supra) and made disallowance of 25% purchases. Hence, the order passed by assessing officer is not erroneous and prejudicial to the interest of revenue.

Thus, from the assessee`s facts, it is abundantly clear that during the assessment stage, the Assessing Officer asked the assessee to furnish the details and documents which are placed in paper book and the assessee submitted reply which is also placed at paper book. Thus, all the documents, details and the explanations required by the Assessing Officer were submitted by the assessee. Just because the Assessing Officer does not bring these documents and details in his assessment order does not mean that assessing officer has not conducted proper enquiry during the assessment stage. In fact, assessing officer has applied his mind. The Learned Counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee`s case, it cannot be said that it is a case of 'lack of inquiry'. In view of the facts of the case and judicial pronouncements relied upon, it is well established that the impugned order passed u/s. 143(3) of the Act dated 26.12.2014, was passed by assessing officer, after calling for relevant information and after detailed examination of 9 Shree N. H. Enterprises vs. PCIT the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Based on these facts and circumstances, we quash the order dated 28.03.2025 passed by the ld. PCIT under section 263 of the Act.

In the result, appeal filed by the assessee is allowed.