V.S. NATARAJAN,THANJAVUR vs. ACIT, CC-3(2), CHENNAI

आयकर अपीलीय अिधकरण, ‘ए’ �यायपीठ, चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI �ी मनु कुमार िग�र, �याियक सद�य एवं �ी एस. आर. रघुनाथा, लेखा सद�य के सम� BEFORE SHRI MANU KUMAR GIRI, HON’BLE JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 1603 & 1604/Chny/2024 िनधा�रण वष� / Assessment Years: 2019-20 & 2020-21 Valikaramuthu Subramanian Assistant Commissioner of Natarajan, v. Income-tax, No. 104-B, 3rd Street, Central Circle -3(2), Mangalapuram, Medical College Chennai. Road, VOC Nagar, Thanjavur – 613 007. [PAN: ACYPN-0616-R] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Shri. Y. Sridhar, FCA ��यथ� क� ओर से/Respondent by : Shri. Nilay Baran Som, CIT सुनवाई की तारीख/Date of Hearing : 26.09.2024 घोषणा की तारीख/Date of Pronouncement : 18.10.2024 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:

These two appeals by the assessee are filed against the separate orders of the Principal Commissioner of Income Tax (Central -1), Chennai, for the assessment years 2019-20 & 2020-21, vide order dated 31.03.2024. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order.

:-2-: ITA. No: 1308/Chny/2024 2. The assessee has raised the following grounds of appeal: 1. The order of the Ld.. PCIT is contrary to law, facts and opposed to the principles of natural justice and fair procedure. 2. The ld. PCIT has failed to appreciate the fact that as per Explanation 2 (a) to Section 263, "...an order passed by the A0 shall be deemed to be erroneous, if the order is passed without making inquiries or verification which should have been made". In the instant case, a thorough scrutiny has been carried out by the Ld.AO, being a search assessment, after giving enough opportunities to the appellant to appear and explain the case during the assessment proceedings. Hence, invoking Section 263 is not justified. 3. The Ld. PCIT has erred in passing the order without considering the detailed submissions filed by the appellant in response to notice u/s 142(1) dated 09/07/2021. 4. Where AO has carried out adequate enquiries in original assessment proceedings after considering the seized materials unearthed from the premises of M/s Pechis Castle LLP and accepted the contentions of the assessee by accepting the additional income, and passed a well-reasoned order, revision proceedings u/s 263 merely based on audit objection on similar subject, could not be invoked. 5. If two views are legally possible and the AO adopts one of the plausible views assessment order can't be said to be erroneous for the CIT to invoke jurisdiction u/s 263 of the IT Act. 6. If the AO has not provided detailed reasons with respect to each and every item of transaction in the order, that by itself would not reflect a non-application of mind by the AO. 7. The Ld. PCIT has erred in passing the order without considering the detailed Submissions filed by the appeal ant in response to notice u/s 263 along with Supporting documents filed at the stage of investigation itself and deposed in the Sworn statements in the search proceedings with respect to the issues that are presently considered in the notice u/s 263. 8. Even assuming without accepting that there is inadequate enquiry, still that Would not confer the power of revision u/s 263 of the act on the Commissioner.

:-3-: ITA. No: 1308/Chny/2024 9. For the above grounds and such other grounds that may be adduced at the time of hearing, the appellant prays that the appeal be allowed by quashing the order of the ld. PCIT and to meet justice. 10. The appellant craves leave to amend alter or delete any of the above grounds of appeal.”

- Setting aside the assessment order passed u/s.153C by the AO for verification in regard to cash loans as evidenced by the seized materials has not been considered in the order and did not make any enquiry. Since, the facts are identical in both the appeals, we will take up the appeal of the assessee for the Asst. year 2019-20 as a lead case and adjudicate thereon;

:-4-: ITA. No: 1308/Chny/2024 total income of Rs.1,12,76,390/-. The assessee is the founder of Devi Bottles group of concern functioning from #169A, Sundaram Nagar, Medical college road, Tanjavur – 613 004. The assessee was searched u/s.132 of the Act, on 06/08/2019 in connection with the search in the case SNJ Distillery Pvt Ltd. company filed its return of income declaring a loss of Rs.62,76,779/- on 04.10.2018. Consequent to search the assessee agreed to offer additional income towards profit at 8% of cash sales of ‘spent malt’ and to cover up the profits of 10 paise per bottle sold to M/s.Golden Vats Pvt Ltd by M/s.SNS Bottles pvt ltd, a group concern of the assessee, by filing return of income declaring an income of Rs.3,19,01,632/- in response to notice U/s.153C of the Act. The AO completed the Assessment by accepting the return of income on 29/09/2021. Subsequently, the PCIT issued show-cause notice dated 13.03.2024 for revising the assessment u/s.263 of the Act to examine the following issue:-

“7. Whereas during the course of assessment completed u/s. 153C in September 2021, the details of cash loans taken by the assessee (you) have not been called for by the Assessing Officer despite the receipt of cash loans is evidenced by the seized material as mentioned above and you also did not disclose the identity of these persons. In such a case, the Assessing Officer should have assessed the amount of cash amounts claimed to have been received from these persons as unexplained income in

:-5-: ITA. No: 1308/Chny/2024 your hands and should have taken steps for initiating penalty proceedings u/s. 271D of the Act. 8. You have taken the cash loans as above in order to return inflated amounts of sales invoices to Kals Group an others. Since you are the controlling head of the entire Devi Bottle Group and since you have borrowed the cash loans, the same has to be held to be pertaining to you and assessable in your hands in the absence of proper explanation as to the source for the same. 9. Since the above amount of cash loans as evidenced by the seized material has not been considered by the Assessing Officer in the assessment order u/s. 153C dated 29.09.2021, the assessment is considered to be erroneous in so far as the same is prejudicial to the interest of Revenue.”

The PCIT accordingly passed revision order u/s.263 of the Act dated 31.03.2024 directing the AO to verify the following issue:

- for verification in regard to cash loans as evidenced by the seized materials has not been considered in the order and did not make any enquiry.

Aggrieved, the assessee preferred an appeal before the Tribunal.

:-6-: ITA. No: 1308/Chny/2024 6. The Ld.AR filed a paper book consisting of 118 pages as detailed below: Sn Particulars From To 1 Notice for hearing dated 13.02.2024 1 12 2 Response to show cause notice filed on 13 50 28.02.2024 3 Submission before DDIT dated 51 58 09.10.2019 4 Sworn statement from Shri V S 59 66 Natarajan 5 Assessment order of M/s of Devi Bottles 67 78 LLP u/s. 153(C) dated 29.09.2021 6 Assessment order of M/s of 79 92 Subramanian Bottles LLP u/s. 153(C) dated 29.09.2221 7 Assessment order of SNS Bottles 93 106 Private Limited u/s. 153(C) dated 29.09.2021 8 Notice u/s. 142(1) for hearing dated 107 110 07.07.2021 9 Notice u/s. 153(C) for hearing dated 111 112 14.02.2021 of Mr V S Natarajan 10 ITR Acknowledgement dated 113 118 31.03.2020 and computation of income

:-7-: ITA. No: 1308/Chny/2024 group of concerns vide letter dated31.01.2020, Shri V.S. Natarajan has quantified the commission income in the case of SNS Bottles Pt. Ltd, for the FY 2018-19 at Rs.72,68,973/- and had accepted the same as undisclosed income. It appears from the perusal of the return filed on 16.03.2021 in response to the Notice u/s 153C, additional income of Rs.72,68,967/- appears to have been included. You are requested to clarify with memo of total income whether the said amount of income admitted is included therein. 7. Bogus Purchases Evidence was found during the course of search in the premises of Devi Bottle Group of concerns for booking bogus purchases by Devi Bottle Group of concerns in the form of bogus bought notes in order to match the inflated sales made to Kals Group of concerns. As per the reconciliation submitted vide letter dated 31.01.2020, the total amount of inflated sales in the case of M/s SNS Bottles Pvt. Ltd, made to M/s Kals Beverages during the FY 2018-19 has been worked out.at Rs.25,77,85,497/- (old bottles) and Rs.5,28,31,575/- (new bottles). Commission income has been worked out at the rate of 2% and 4% on inflated sales value of old bottles and new bottles respectively. The amount of commission as mentioned above has been worked out at Rs.72,68,973/-. Since Kals Group of concerns is not accepting the inflation in purchases, you are requested to explain why the inflated purchases of Rs.31,06,17,072/- should not be disallowed and added back to the returned income in your case as below: Total inflated sales value as per reconciliation submitted Rs.31.06,17,072 Less: Commission income admitted Rs. 72,68,973 Amount of bogus purchases proposed to be added Rs.30,33,48,099 You are requested to show cause why the addition should not be made in your hands considering Kals Group of concerns is denying having resorted to any inflation of purchases from Devi Bottles group of concerns. 8. Unaccounted commission income earned from over invoicing of sale of empty old and new bottles to M/s Golden Vats Pvt. Ltd. During the course of search and seizure in the premises of Devi Bottle group of concerns, loose sheets and books & documents were seized vide ANNIMKNSN/B&D/S & ANN/MKNSN/LS/S dt.06.08.2019 from the premises of M/s Pechis Castle at 69/5, 3rd Floor, Sterling Road, Nungambakkam, Chennai 34. These seized materials contain evidence for supply of inflated sales invoices in respect of sale of empty bottles by Devi group of concerns to M/s Golden Vats Pvt. Ltd. The seized material

:-8-: ITA. No: 1308/Chny/2024 ANNIMKWSN/B&D/S contained notings of cash payments made to Golden Vats Pvt. Ltd. Shri S. Selvaraj, in the sworn statement u/s 132(4) of the Income Tax Act recorded from him on 06.08.2019, accepted that the entries in the note books represented cash payments made to M/s Golden Vats Pvt. Ltd. Shri V.S. Natarajan also in the sworn statement recorded from him u/s 132(4) during the course of search from 06.08.2019 to 11.08.2019 has concurred with the sworn statement given by Shri S. Selvaraj in this regard. In his answer to Qn.No,31 of the sworn statement, Shri V.S, Natarajan has admitted that Devi group of concerns was making over invoicing of sales to Golden Vats Pvt. Ltd. also and the excess amount paid by them over and above the actual sale value was returned in the form of cash, He also stated that he was receiving commission at the rate of 2% for inflated sales value of old and bottles and at the rate of 4% on the inflated sales value of new bottles. In the sworn statement recorded from Shri V.S. Natarajan u/s 132(4) of I.T. Act, 1961, on 19.09.2019 and 20.09.2019, he has stated in his answer to Qn,No.23 that M/s SNS Bottles Pvt. Ltd, has supplied old bottles to M/s Golden Vats Pvt. Ltd. during the FY 2018-19 and 2019-20, He also stated that no commission was received in respect of the inflated sales made and excess amount returned to Golden Vats Pt. Ltd, and that profit of only 10 paise Per bottle was received. He has quantified the excess amount of cash returned at Rs.35,00,00,000/- out of the total sales made of Rs.75,00,00,000/- during the period from April 2018 to July 2019. The break up given in Annexure C to the said sworn statement is as below: Year Description Qty Sales Value Tax Total value 2018-19 Golden Vats 180 ml 130582481 540947778 5406115 546353893 375 ml 144048 1246015 25929 1271944 Total 130726529 542193793 5432044 547625836 2019-20 Golden Vats 180 ml 47518720 204263969 1967275 206231244 Grand Total 178245249 746457761 7399319 753857080 In this regard, you are requested to furnish the following details: i) Break up of quantity and value of new bottles and old bottles supplied during the FY 2018-19 and corresponding inflated value of sales. i) Why commission at the rate of 2% on the inflated sale value of old bottles and commission at the rate of 4% on the inflated sale value of new bottles should not be added to the returned income. 9. It is seen that 'interest on income tax' amounting to Rs.2,98,652/- debited to P&L account has not been disallowed in the computation of total income. Please reconcile the same and

:-9-: ITA. No: 1308/Chny/2024 explain why the same should not be disallowed and added back to the returned income. 10. Nature and break up of other current liabilities of Rs.9,00,00,000/- as at 31.03.2019. 11. It is seen that under loans and advances, Rs.16,97,61,4641- is shown outstanding as at 31.03.2019, which appears to be loan paid to Devi Bottles LLP which is a group concern. From this loan amount, no interest income has been offered. It is also seen that the company is paying interest on borrowed funds from bank, amounting to Rs.79,20,446/-. You are requested to explain why proportionate interest should not be disallowed when you are paying interest on borrowed on funds and not charging interest on loan given to sister concern.

:-10-: ITA. No: 1308/Chny/2024 evident from the respective assessment orders have been ignored by the Ld.PCIT, while setting aside the assessment order looking it in isolation.

:-11-: ITA. No: 1308/Chny/2024 11. We have heard the rival contentions and perused the orders of the AO and that of the PCIT along with the various case laws referred by the ld.AR to claim that the order u/s.263 of the Ld.PCIT is against the law and facts. The jurisdiction u/s.263 can be exercised only when both the following conditions are satisfied: (i) the order of the Assessing Officer should be erroneous and (ii) it should be prejudicial to the interest of the revenue,

These conditions are conjunctive. In the instant case, there was nothing erroneous and prejudicial. An order of assessment passed by the Assessing Officer should not be interfered with only because another view is possible as held in the case of Malabar Industrial Company Ltd Vs. CIT (243 ITR 83)(SC) and CIT Vs. Green World Corporation (314 ITR 81)(SC).

:-12-: ITA. No: 1308/Chny/2024 opinion, an alternate view is possible referring into the same material existing in the assessment records. The PCIT, cannot substitute his view in place of that of the Assessing officer merely because the Principal Commissioner of Income Tax thinks that the assessment should have been completed in another way. It has been held by the Bombay High Court in the case of Gabriel India Ltd. (203 ITR 108)(Bom) as to when an order can be termed as erroneous: "From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the 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. This section does not visualise a case of 'substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous……………… . There must be some prima facie decision is held to be erroneous material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statue on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed...”

:-13-: ITA. No: 1308/Chny/2024 However, these materials have been considered at the time assessment of entire group M/s.DEVI BOTTLES GROUP, which is evident from the questionnaires issued, assessment orders passed by the same AO u/s.153C of the Act. We note that a revision order cannot be passed against an order of assessment merely on the basis that in his opinion, an alternate view is possible referring into the same material existing in the assessment records. The PCIT, cannot substitute his view in place of that of the Assessing officer merely because the Principal Commissioner of Income Tax thinks that the assessment should have been completed in another way.

:-14-: ITA. No: 1308/Chny/2024 the jurisdiction of Section 263 in isolation to the present assessee. Hence the AO’s action of accepting the return of assessee filed u/s.153C cannot be disapproved under the garb of Section 263 of the Act. Therefore, the view taken by the AO, after considering the entire details furnished by the assessee sought, obtained and duly considered during the assessment proceedings, cannot be termed as erroneous to invoke the powers u/s.263 of the Act.

:-15-: ITA. No: 1308/Chny/2024 PCIT to resort to exercise the powers u/s.263 of the Act. Where the factual matrix shows that it is a marginal situation and when by a careful and cautious judgment the AO has considered the issue in hand, the exercise of the power u/s.263 of the Act by the PCIT is not proper. Though the provisions of section 263 of the Act vests power in PCIT in subjective terms, the PCIT has blindly considered the particular seized material, which has already been a subject matter of verification in the assessment of the searched group. In view of this discussion and respectfully following the various judicial decisions of hon’ble courts(supra), we are of the view that the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Thus, we set aside the order of the PCIT. Hence, we quash the revision order passed by the PCIT and allow the appeal of assessee.

:-16-: ITA. No: 1308/Chny/2024 decision thereon applicable mutatis mutandis and hence the appeal of the assessee is allowed.

चे�ई/Chennai, �दनांक/Dated, the 18th October, 2024 JPV आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3.आयकर आयु�/CIT - Chennai 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF