SRI VARALAXMI PROJECTS PRIVATE LIMITED,HYDERABAD vs. ITO., WARD-3(1), HYDERABAD

2.1 In response to the queries raised by the Assessing Officer in respect of the source of the payments made to creditors, the assessee filed a reply before the Assessing Officer regarding the source of the payments made to sundry creditors. In a nutshell, the assessee replied that the assessee has received payment from its sundry debtors and these payments have been utilised by the assessee for making the payment to the sundry creditors. Assessee also explained that as and when the assessee was receiving funds it was discharging its liabilities. Finding force in the arguments of the assessee as well as in the light of evidences produced by the assessee, the Assessing Officer could not make any addition in reassessment proceedings.

Aggrieved with the order of the PCIT-I, the assessee has come up in appeal before us and contended that the PCIT-I has erred in assuming jurisdiction over the assessee u/s.263 of the Act for the following reasons – (a) no fresh sundry creditors were there in the books of the assessee during the year under consideration. (b) view of the PCIT-I that source of payments made to creditors remain unexplained as factually incorrect and contrary to the records. (c) view of the PCIT-I that provisions of section 69A ought to have been applied by the Assessing Officer vis-à-vis repayment to sundry creditors is also not correct because all the transactions were duly recorded in the audited books of account. (d) learned counsel for the assessee has also challenged the legality of action u/s.148 notice collateral proceedings.

The Ld. DR appearing on behalf of revenue vehemently argued that the assessee has failed to establish the source of the payments and hence the PCIT-I is correct in holding that the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue.

After considering the rival submissions, we observe that in this case it is an admitted position of facts, as coming out from the relevant extracts of ledger accounts, placed at page 100-121 of the paper book, that the assessee had duly explained the source of payments made to the sundry creditors. We further observe that there are no fresh sundry creditors in the current year and hence there was no question of examining the genuineness of such sundry creditors in the year under consideration. Similarly, it is observed that in this case before passing of final assessment order, the National Faceless Appeal Centre unit has also passed a draft assessment order on 26.03.2022. Perusal of this draft assessment order, copy of which is placed in paper book at pages 126 to 130, would show that an addition of Rs.10.3 Crores was proposed to be made in the hands of the assessee u/s. 69A of the Act. Thereafter, the assessee vide its letter dated 26.03.2022 filed its objections to the draft assessment order inter alia contended that provisions of section 69A of the Act cannot be applied to those entries which are recorded in the books of account. We observe that finding merit in the explanation of the assessee, the NFAC could not make any addition in final assessment order. It is pertinent to note here that before the reopening of the case of the assessee the investigation unit of the department had also issued summons to assessee on 11.01.2021 and asked the assessee to justify the payments made to the sundry creditors. In response the assessee had duly responded therefore it is not a case where there is lack of enquiry at all. In these circumstances, we are of the view, it cannot be said that the Assessing Officer while acting as an investigator could not conduct proper enquiry and it is also not a case where while acting as an adjudicator, the Assessing Officer has not taken one of the plausible views. Therefore, we are of the view that the impugned assessment order is neither erroneous nor prejudicial to the interest of revenue and hence the PCIT- 1 is not justified in assuming the jurisdiction of 263 of the Act, hence the order of 263 is here by quashed. Since we have already decided the appeal of assessee on merits, the arguments of the assessee that in this case action of 147 itself bad in law and hence 263 is also bad in law would become academic and hence we are not deciding that issue.