CHINTAMANI COMMODITIES,JHILMIL INDUSTRIAL AREA vs. PCIT, DELHI

The assessee on 01.03.2024 duly replied to the said show cause notice under Section 263 of the Act by PCIT, Delhi-20 in relation to the said assessment order under Section 147 of the Act dated 22.03.2022 to this effect that the reassessment order under Section 147 is beyond jurisdiction and there was no case of unexplained cash credit in respect of purchases made by the assessee from the above two parties mentioned hereinabove and the provision of Section 68 are inapplicable to the said case. Moreso, in the show cause the addition has been mentioned as made under Section 69C of the Act towards alleged bogus purchases whereas the addition was made by the Assessing Officer was under Section 68 of the Act. Therefore, the observation made by the Ld. PCIT in the show cause notice under Section 263 of the Act is also factually Chintamani Commodities incorrect. Further that the fact of pending of the appeal before the CIT(A) against the said assessment order dated 22.03.2022 passed by the Ld. AO under Section 147 r.w.s 144B of the Act has also been mentioned in the said reply filed by the assessee, supporting documents whereof being form No. 35 was also enclosed raising the issue that since principle issue of reopening of assessment as well as addition on merits is the subject matter of appeal pending before the Ld. CIT(A), assumption of jurisdiction under Section 263 of the Act in respect of such assessment order is invalid and total disregard to the scheme of the Act.

At the time of hearing of the instant appeal, the Ld. Counsel appearing for the assessee vehemently argued reiterating the above contention made before the PCIT. It was submitted by him that the issue of notional commission is directly arising from the addition on account of alleged accommodation entries and the same being under challenge before the Ld. CIT(A), the revisionary proceeding under Section 263 should not be exercised in respect of the said issue which has direct nexus with the issue in appeal as per Clause (c) of Explanation 1 of Section 263 of the Act. Further that the First Appellate Authority is vested with co-terminus power with AO and such issue raised in the revisionary proceeding being directly connected and consequential to the addition of accommodation entry, the same falls well within the scope of appellate proceeding before the Ld. CIT(A). In that view of the matter, the exercise of power under Section 263 by the PCIT in respect of the issue of addition of notional commission is without jurisdiction, not maintainable and therefore, liable to be quashed. In this regard, he has relied upon the judgment passed by the Coordinate Bench in the case of M/s Uma Glass Work Vs. PCIT, Agra in & 18/Agra/2021 a copy whereof has been duly submitted before us by the Ld. A.R.

We have heard rival submissions made by the respective parties, and we have also perused the relevant material available on record. It appears from the order passed by the Ld. PCIT that the main contention raised by him is the expenditure incurred on account of consequential commission paid in obtaining the bogus purchases by the assessee being undisclosed expenditure under Section 69C of the Act which according to the PCIT ought to have been added in the hands of the assessee. On the contrary, addition had been made in the hands of the assessee only in regard to the accommodation entry in the form of bogus purchases made by the assessee from the two parties namely M/s Moral Alloys Pvt. Ltd. and M/s Brilliant Metals Pvt. Ltd. wherein, it is evident that the provision invoked while making addition though was under Section 68 of the Act, the PCIT wrongly mentioned the same under Section 69C of the Act which is factually incorrect as rightly pointed out by the Ld. Counsel for the assessee appearing before us. Furthermore, the submission made on the legal ground that once the order passed by the Ld. AO under Section 147 r.w.s 144B of the Act is under challenge and pending before the Ld. First Appellate Authority, assumption of jurisdiction under Section 263 in respect of such assessment order is invalid and in total disregard to the scheme of the act particularly when the alleged expenditure incurred Chintamani Commodities by the assessee in obtaining the accommodation entry by way of alleged bogus purchase made by the assessee from the two parties mentioned hereinabove is connected and consequential to the issue of addition made by the Ld. AO under Section 147 of the Act is found to be acceptable as the First Appellate Authority vested with the co-terminus power with AO, the same falls well within the scope of Appellate proceedings before the Ld. CIT(A). In this regard, we have considered the judgment passed by the Coordinate Bench in the case of M/s Uma Glass Work (supra). The provision of law particularly clause (c) of Explanation 1 to Section 263 of the Act when provides that in the event the appeal is pending before the CIT(A), the exercise of jurisdiction invoking the provision of Section 263 of the Act by the CIT(A) is barred. In that view of the matter, in the case of CIT Vs. Van Resorts & Hotels Pvt. Ltd. reported in (2019) 111 taxmann.com 62 (All) exercising jurisdiction under Section 263 of the Act by the PCIT in remanding the matter to the Assessing Officer has found to be not sustainable in the eyes of law as held by the ITAT and confirmed by the jurisdictional High Court was considered by the Coordinate Bench.

On identical situation of fact, the order passed by the DCIT Vs. Jyoti Foundation reported in (2018) 38 taxmann.com 180 (Delhi) was also duly considered by the Coordinate Bench in the said judgment and finally the assumption of jurisdiction under Section 263 of the Act by the PCIT during the pendency of the appeal against the said assessment order which has been found to be erroneous, so far as, it is prejudicial to the interest of revenue was also found to be bad in law and therefore, set aside.

Thus, considering the entire aspect of the matter, the appeal preferred by the assessee challenging the order passed by the Ld. AO since pending before the Ld. CIT(A), the exercise of jurisdiction under Section 263 of the Act in terms of clause (c) of Explanation 1 of Section 263 of the Act is found to be without jurisdiction; such proceeding could not be exercised in respect of the said issue which has direct nexus with the issue in appeal. Needless to mention, that the CIT(A) is vested with co-terminus power with AO and the issue raised in the revisionary proceeding being directly connected and consequential to the addition on accommodation entry, the same falls well within the scope of appellate proceeding pending before the Ld. CIT(A). The ratio laid down by the

Further that while holding the assessment order erroneous, without making independent inquiry by the PCIT to record such finding which ought to have been done by him setting aside the issue to the file of the AO is not sustainable as held by the jurisdictional High Court in the case of M/s Jyoti Foundation (supra) is rightly relied upon by the Ld. AR. Relying upon the ratio laid down by the jurisdictional High Court, the order impugned passed by the Ld. PCIT is found to be without jurisdiction and therefore, quashed.