ACTIONWARE INDIA PRIVATE LIMITED ,RAJKOT vs. THE PCIT-1, RAJKOT, RAJKOT

Later on, Learned Principal Commissioner of Income-tax (in short “Ld PCIT”), exercised his jurisdiction, under section 263 of the Income-tax Act, 1961. On perusal of record, it was noticed by ld PCIT that during the course of search action carried out, on 19.12.2019, in the Dishman group of Ahmedabad. The company M/s. DCAL (DPCL earlier) is found to have received (AY : 2014-15) 3 Rs.671,92,06,680/- in the form of bogus loans and advances. They have advanced Rs.795,00,36,904/-, in the form of bogus loans and advances between Financial Year (F.Y.) 2009-10 to F.Y. 2019-20. During the course of search proceedings, evidences related to Bogus Nature of Loans & Advances were found and seized from Dishman Corporate House. During the search proceedings, a statement u/s 132(4) of the I.T. Act of Shri Bharat Padia, Executive Director was recorded on oath and in his statement he had admitted that whatever facts stated about accommodation entries/transactions in DPCL/DCAL or Dishman Group entities are true and correct and that all these bogus transactions were being carried out as per his instructions.

So far, assessee under consideration, is concerned, the ld. PCIT noticed that with regard to merits of the issue, it is clear from the facts that receipt of loans/ advances of Rs.54,02,781/- from Dishman Pharmaceuticals and Chemicals Ltd. (Later, known as Dishman Carbogen Amcis Ltd) are fictitious, in the case of the assessee. Therefore, fictitious loan/advance of Rs. 54,02,781/-, taken by the assessee, from Dishman Pharmaceuticals and Chemicals Ltd (Later, known as Dishman Carbogen Amcis Ltd) ought to have treated as unexplained cash credits within the meaning of section 68 of the Income tax Act, 1961 and taxed u/s 115BBE of the Act, as the genuineness of the transaction is not proved. Considering such facts, notice u/s 263 of the Income-tax Act, 1961 vide DIN & Notice No.ITBA/REV/F/REV1/2023-24/1061295630(1) dated 21.02.2024 was issued and duly served upon the assessee. The relevant portion of said notice is reproduced as under:

The above facts show that the assessment order passed u/s. 147 r.w.s. 144B of the Income-tax Act, 1961 on 30/03/2022 by the Assessing Officer in respect of A.Y. 2014- 15 appears to be erroneous and prejudicial to the interest of the revenue. Therefore, I intend to initiate proceedings u/s 263 of the Act and pass a suitable order. Before passing such order, you are hereby given an opportunity of being heard in the matter. Please state as to why the order passed by the Assessing Officer in your case should not be revised after making necessary inquiry. In this connection you are requested to furnish your reply / submission / explanation or objection if any by mail address to ID: rajkot.cit1@incometax.gov.in or through e-filing portal or by speed post to this office on or before 28.02.2024."

In response to the above notice, the assessee has filed its reply, before the ld PCIT, on 28.02.2024. The assessee submitted before the ld. PCIT that loan was taken through banking channel and the said loan was repaid through banking (AY : 2014-15) 5 channel, interest was also paid on such loan and TDS on interest was also deducted and the assessing officer has examined all these facts. Therefore, genuineness of the transactions should not be doubted, hence the order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue.

However, Learned PCIT rejected the above contention of the assessee and observed that the assessee has taken loan/advance of Rs.54,02,781/- (Rs.50,00,000/-, loan + Rs.4,02,781/-, interest) from M/s Dishman Carbogen Amcis Ltd (Dishman Pharmaceuticals and Chemicals Pvt Ltd). During the course of search proceedings, evidences related to Bogus Nature of loans & advances were found and seized from Dishman Corporate House. During the course of search proceedings, on Dishman Group, a statement u/s 132(4) of the I.T. Act of Shri Bharat Padia, Executive Director was recorded in which he has confronted evidences seized from Dishman Corporate House. In his statement, he admitted that whatever facts about the accommodation entries/transactions in DPCL/DCAL or Dishman Group entities are true and correct, and that all these bogus transactions were being carried out as per his instruction. The ld PCIT noticed that based on detailed findings, during the course of search and subsequent investigation and the statements recorded, it is clear that the loans/advances received by the asseessee, from M/s Dishman Pharmaceuticals & Chemicals Ltd is a fictitious in nature. Accordingly, the impugned assessment order passed by the A.O. u/s 147 r.w.s. 144B of the Income-tax Act, 1961, on 30.03.2022 was set- aside by the Ld.PCIT, for fresh assessment to the extent of the issues discussed (supra) and ld.PCIT directed the Assessing Officer to pass a fresh assessment order after making necessary enquiries.

Aggrieved by the order of the ld.Pr.CIT, the assessee is in appeal before us.

Shri D.M. Rindani, Learned Counsel for the assessee, argued that during the assessment proceedings, the assessing officer issued notice under section 142(1) of the Act, dated 03.03.2022, which is placed in the assessee`s paper book page no.21, wherein the assessing officer asked the assessee to furnish the bank statement and ledger account in respect of M/s Dishman Carbogen Amcis Limited. In response to the said notice, the assessee furnished its reply before the assessing officer with documentary evidences on 22.03.2022, which is placed at paper book page No. 27. The loan of Rs.54,02,781/- was taken through banking channel and it was repaid through the bank channel. Besides, interest was also paid and the TDS on interest was also deducted. Therefore, in these circumstances, the transactions cannot be treated as bogus. All these aspects have been examined by the assessing officer during the assessment proceedings, therefore, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue.

On the other hand, the ld.DR for the Revenue submitted that during the course of search, conducted on Dishman Group, certain statements were recorded, which clearly stated that the source of fictitious loans and advances is the Dishman Group. The ld.DR for the Revenue, also took us through, the statement recorded, during the search, conducted on Dishman Group, which is reproduced below:

We have heard both sides in detail and also perused the records of the case including the paper book filed by the assessee- company, running in to 239 pages. The necessary facts of the case have already been discussed in paragraphs above. On examination of the facts and circumstances of the case, we note that in order to conduct enquiry, during the assessment proceedings, the assessing officer issued notice under section 142( 1) of the Act, dated 03.03.2022, wherein the pertinent question asked by the assessing officer, is reproduced below:

We have examined the paper book submitted by the assessee and noticed that following documents and evidences, were on the record of the assessing officer:

Copy of notice u/s 142(1) of the Act dated 03-03-2022 issued by the NFAC, Delhi during proceedings u/s 147 r.w.s. 144B of the Act 2. Copy of reply dated 22-03-2022 filed by the assessee in response to notice u/s 142(1) dated 03-03-2022 during proceedings u/s 147 r.w.s. 144B of the Act 3. Copy of Acknowledgement and computation of return of income for A.Y. 2014-15 filed alongwith reply dated 22-03-2022 in response to notice u/s 142(1) of the Act 4. Copy of audited accounts and tax audit report for the year ended on 31-03- 2014 filed alongwith reply dated 22-03-2022 in response to notice u/s 142(1) of the Act 5. Copy of leger account of M/s Dishman Pharmaceuticals & Chemicals Ltd. for the period 01-04-2013 to 31-03-2015 filed alongwith reply dated 22-03- 2022 in response to notice u/s 142(1) of the Act.

Copy of bank account statement of M/s Dishman Pharmaceuticals & Chemicals Ltd filed alongwith reply dated 22-03-2022 in response to notice u/s 142(1) of the Act 9. Copy of Annual Report of M/s Dishman Pharmaceuticals & Chemicals Ltd. for the F.Y. 2013-14 filed alongwith reply dated 22-03-2022 in response to notice u/s 142(1) of the Act.

From the above documents and evidences, it is abundantly clear that during the assessment proceedings, the assessing officer has conducted sufficient enquiry in respect of the issue raised by the ld. PCIT in his revision order under section 263 of the Act. We find that the assessing officer issued notice to the assessee, calling for various details and information, and in response to the notice, the assessee submitted its reply before the assessing officer, which is placed in the paper book of the assessee. Therefore, sufficient inquiry was conducted during the assessment stage, and it is not a case of lack of enquiry.

The ld.DR for the Revenue argued that cash is given by the assessee, and then cheque is taken by the assessee and to demonstrate, to be a genuine transaction, the TDS was deducted on interest, therefore, it is a case of completely lack of inquiry on the part of the assessing officer.We do not agree with the above arguments advanced by the ld. DR for the revenue.The Supreme Court, in a plethora of judgments, has taken the view that if the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the State, seeking to recover the tax, cannot bring the citizen within the letter of the law, the citizen is free, however, apparently within the spirit of law the case might otherwise appear to be. The Supreme Court, in CST v. Modi Sugar Mills Ltd., AIR 1961 SC 1047, observed thus :

Therefore, we find that there is no lack of inquiry on the part of assessing officer. Inadequacy of inquiry alleged by ld. PCIT is not a valid ground to assume jurisdiction u/s 263 of the Act. It is also obvious that the assessing officer had no incriminating material, concerning, M/s Dishman Carbogen Amies Ltd, and hence the explanation of the assessee was rightly accepted and no addition on the point of alleged fictitious loans, from M/s Dishman Carbogen Amies Ltd, was made, hence even on merits, the PCIT has erred in directing the assessing officer for fresh assessment. Even the ld. PCIT has not pointed out any such incriminating material against the assessee, in assessee`s name. Further, on merits, section 68 of the Act is not applicable to the impugned loan obtained by the assessee as it was duly repaid in the subsequent year and that identity, creditworthiness and genuineness was also established by the assessee.We note that section 263 of the Act, speaks of revision of orders prejudicial to revenue. As per the said section and various judicial precedents including those of Hon’ble (AY : 2014-15) 14 Apex Court in the cases of Malabal Industrial Co. Ltd. vs. CIT (243 ITR 83) and CIT vs. Max India Ltd. (295 ITR 282), in order to invoke provisions of section 263 of the Act, twin conditions need to be satisfied exhaustively, viz. first, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. Such occasions arise when the A.O. while passing assessment order u/s. 143(3) of the Act, did not have called for such information/ documents from the assessee to frame the assessment and did not consider the same before completing the assessment. Once the A.O. conducts enquiry as deem fit to complete the assessment u/s. 143(3) of the Act and takes a possible view on such enquiry and consideration of facts and explanation of the assessee, in that case, jurisdiction to invoke provisions of section 263 does not arise.

The Ld. PCIT has exercised jurisdiction u/s.263 of the Act on the ground that the assessing officer failed to make proper enquiry which he ought to have made before completing the assessment. There is a distinction between "lack of enquiry" and "inadequate enquiry”. If there is an enquiry, even inadequate, that would not by itself give occasion to the PCIT to pass order under section 263, merely because he has a different opinion in the matter. Such a course of action is open only in cases of "lack of enquiry". In the assessee`s case, sufficient enquiry was conducted by the assessing officer, as we have noted above. Thus, it cannot be said that it is a case of 'lack of enquiry'. Therefore, the view taken by the assessing officer was one of the plausible views and the assessment order passed by the assessing officer could not be held to be prejudicial to the Revenue. The grievance of the ld.PCIT was that the assessing officer should have made further inquiries as to whether any addition has to be made on account of loan transaction,with M/s Dishman Carbogen Amcis Limited. In this regard, we note that the Co-ordinate Bench of ITAT, Rajkot, in the case of Kutch District Co- (AY : 2014-15) 15 op. Milk Producers' Union Ltd. (2024) 159 taxmann.com 347 (Rajkot Trib) held that there is no law which provides the extent of inquiries to be made by the assessing officer. We also derive support for our conclusions, as above, from the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. 332 ITR 167 (Del.).

For reasons stated above, we are of the view that the jurisdiction u/s.263 of the Act was not properly exercised by the ld. PCIT, as the condition precedent for invoking the same viz., that the order of the assessing officer is erroneous and prejudicial to the interest of the revenue, is not shown to be present in the assessee`s case, under consideration. We, therefore, quash the order u/s.263 of the Act, and allow the appeal of the assessee.

In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 02/06/2025