M/S DIN DAYAL PURSOTAM LAL,SIRSA vs. PR.CIT, ROHTAK

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

These are three appeals of the assessee against the

separate orders of the ld. Principal Commissioner of Income

Tax, Rohtak (in short ‘ld. PCIT’) dated 20.03.2021 for

assessment years 2011-12, 2015-16 and 2017-18.

ITA 146/CHD/2021

assessee has raised the following grounds of appeal :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 2 1. That order dated 20.3.2021 u/s 263 of the Act by learned Principal Commissioner of Income Tax, Rohtak has been made without satisfying the statutory preconditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such. 2. That the conclusion of learned Principal Commissioner of Income Tax that "the assessment order dated 21.12.2018 passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue to the extent of verification of purchases and examining of applicability of section 40A(3) against cash purchase" is based on fundamental misconception of facts and provisions of law and thus not in accordance with law and, therefore untenable. 2.1 That the finding that "purchases from M/s Gaja Nand Pardeep Kumar of Rs.58,42,492/- should have been disallowed as/bogus purchases']and also the observation that "assessee has made cash purchases from open market as the sales have been confirmed; However AO has failed to acknowledge this fact and no disallowance were made as per provision of section 40A(3) of the Act" are factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable. 2.2 That the learned Principal Commissioner of Income Tax has erred in holding that it is a case of "lack of enquiry" and, further failing to appreciate that alleged inadequate enquiry in the manner, suggested without any independent evidence and, without any further enquiries by him, cannot be a basis for assumption of jurisdiction u/s 263 of the Act. 2.3 That the learned Pr. Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries, had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Pr. Commissioner of Income Tax had a different opinion and that too, without having established in any manner that the view adopted by the learned Assessing Officer was an impossible view. 2.4 That the learned Pr. Commissioner of Income Tax has also failed to appreciate that, u/s 263 of the Act, an order of assessment cannot be set-aside to simply to make further enquiries and thereafter pass fresh order of assessment, and as such, impugned order is contrary to law and hence, unsustainable. 2.5 That the learned Principal Commissioner of Income Tax has failed to appreciate that surmises, conjecture and suspicion could not be a basis much less a valid basis to invoke section 263 of the Act.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 3

2.6 That while passing the order u/s 263 of the Act the learned Principal Commission of Income Tax cannot travel beyond the show cause notice and. therefore, findings and observations and also the material relied upon not referred in the show cause notice but made part of the order could not neither in law and nor on tact be made a basis to assume jurisdiction u/s 263 of the Act; and thus order on this ground alone deserve to be quashed as such. 2.7 That various other adverse findings recorded in the notice u/s 263 of the Act and, also in impugned order are factually incorrect, vague, legally misconceived and untenable. 3. That the learned Principal Commissioner of Income Tax has framed the impugned order without granting sufficient opportunity to the appellant and therefore the order made is illegal, invalid and, vitiated order. 4. That since neither the initiation of proceedings u/s 147 of the Act and, nor order of assessment u/s 147/143(3) of the Act was in accordance with law, therefore the impugned order made u/s 263 of the Act is also void-ab-initio. 4.1 That since the notice u/s 148 of the Act had been issued mechanically without application of mind much less independent application of mind and without having any tangible, relevant credible material to form a reason to believe that income of the appellant has escaped assessment therefore the order of assessment u/s 147/143(3) of the Act was without jurisdiction and as such the impugned order is also without jurisdiction.

the present appeal by 19 days. In this regard, the assessee

has filed an application seeking condonation of delay stating

that the period of delay is covered by the decision of the

Hon'ble Supreme Court wherein the period of Covid-19

Pandemic was directed to be excluded for the purpose of

limitation. It was, accordingly, submitted that the delay in

filing the present appeal may be condoned.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 4 5. In view of the submissions made by both the parties,

the delay is hereby condoned and appeal of the assessee is

admitted for adjudication.

these grounds are rejected.

PCIT issued a Show Cause Notice dated 06.08.2019 to the

assessee u/s 262 of the Income Tax Act as follows :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 5 3. The sales have been confirmed meaning thereby you have purchased cotton from the open market in cash. The purchases being made in cash from open market, the applicability of provision of Section 40A(iii) of the Income Tax Act, 1961 should have been examined. Therefore, AO has not carried out proper investigation and enquiry to unearth the facts involved in the case which should have been made.

been reproduced at pages 2 to 4 of the impugned order. The

assessee stated, inter-alia that in pursuance of proceedings

u/s 148 of the Act, the assessee had filed detailed reply; a

copy of which was being enclosed; that all the purchases

from M/s Gaja Nand Pardeep Kumar were duly accounted

for; that all the purchases from M/s Gaja Nand Pardeep

Kumar were duly supported by bills, transport bilty, C-Form

etc.; that all the payments made to M/s Gaja Nand Pardeep

Kumar were through banking channels; that there was one

to one link of purchases made from M/s Gaja Nand Pardeep

Kumar and sold to other parties; that after considering the

detailed reply, filed by the assessee and after summoning the

issue in detail, the AO had applied his mind and had taken a

conscious decision and after taking a reasonable view, he

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 6 had made an addition of Rs.1,86,110/- towards the taxable

income of the assessee; that the proposed revision was on a

difference of opinion, where the ld. PCIT intended to

substitute his opinion in place of the decision taken by the

AO, and revision u/s 263 is not permitted on a difference of

opinion; that this view is supported by the decision of

“Spectra Shares and Scrips (P) Ltd.”, 2013 (6)………..173

Andhra Pradesh High Court (sic-incomplete citation was

given), in which, it was held that merely because of

difference of opinion, the Pr. CIT cannot invoke his power

u/s 263 once the AO had taken a conscious decision and

had acted in accordance with law and had made assessment,

the same could not be branded as erroneous by the

Commissioner, as simply according to him, the AO should

have made further enquiries. The assessee placed reliance

on the decision of the Hon'ble Supreme Court in the case of

“Quality Steel”, 395 ITR 1 (S.C), wherein, it has been held

that where two views are possible and the AO had taken one

view and the CIT revised the said order on the ground that

he did not agree with the view taken by the AO, the

assessment order could not be treated as an erroneous order

or prejudicial to the interests of the Revenue; that the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 7 reason is simple, i.e., that while exercising the revisionary

jurisdiction, the CIT is not setting in appeal. The assessee

also relied on “Malabar Industries Co. Ltd. Vs CIT”, (2000)

243 ITR 83 (S.C), wherein it was held that jurisdiction u/s

263 of the Act cannot be assumed in respect of a debatable

issue. As per the assessee, this was reiterated in “CIT Vs

Max India Ltd.” (2007) 295 ITR 282 (S.C); “Mohammad Haji

Adam &Co.”, (2019) 2 TMI 1632 Bombay High Court;

“Paramshakti Distributors Pvt. Ltd.” (2019) 7 TMI 832

Bombay High Court.

9.1 The ld. PCIT, however, was not satisfied with the

reply of the assessee. He observed that it had been noticed

that the assessee had submitted documents which had

already been filed during the assessment proceedings in his

reply; that no additional document had been submitted by

the assessee to prove the genuineness of the firm, M/s Gaja

Nand Pardeep Kumar; that during the assessment

proceedings, summons u/s 131 of the Income Tax Act, 1961

were issued on 31.10.2018 to ascertain the genuineness of

the firm but on the given address, no such firm was found

existing; that also, in third party enquiry, i.e., Market

Committee, Dabwali, vide letter dated 14.11.2018, it had

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 8 been found that there was no firm registered in the name of

M/s Gaja Nand Pardeep Kumar, Shop No. 209, NGM,

Dabwali during the year 2010-11; that from this, it was very

clear that there was no firm existing at the given address

and the assessee had shown bogus purchases from the

mentioned party; that the AO had failed to acknowledge this

fact; that the purchases from the said party, of

Rs.58,42,492/- should have been disallowed as bogus

purchases; that the assessee had made cash purchases from

the open market, as the sales had been confirmed; that

however, the AO had failed to acknowledge this fact and no

disallowed had been made as per the provisions of Section

40A(3) of the Act; that hence, it was a clear case of lack of

enquiry and, therefore, the assessment order was erroneous

and prejudicial to the interests of the Revenue; that the AO

should conduct detailed enquiries on the said issues, on the

basis of documentary evidences; that purchases should be

examined in detail; that the applicability of the provisions of

Section 40A(3) with respect to the purchases should also be

considered. The ld. CIT(A) placed reliance on the “Malabar

Industries Ltd. Vs CIT” 243 ITR 83 (S.C); “Ram Pyari Devi

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 9 Saraogi Vs CIT”, 67 ITR 84 (S.C) and “Smt. Tara Devi

Aggarwal Vs CIT”, 88 ITR 323 (S.C).

9.2 It was held that evidently, the assessment order was

erroneous and so far as it was prejudicial to the interests of

the Revenue to the extent of verification of purchases and

examination of the applicability of Section 40A(3) against

cash purchases. The AO was directed to decide this issue

afresh as per law.

9.3 The ld. Counsel for the assessee has contended that

the ld. PCIT has erred in passing the impugned order since

the AO had accepted the claim of the assessee only on

examination of the facts on record and after making possible

enquiries, due to which the assessment order could not be

termed as either erroneous or prejudicial to the interests of

the Revenue; that it was only because the ld. PCIT had an

opinion different from that held by the AO, that the

impugned order was passed illegally, without establishing as

to how the view of the AO was an impossible view in any

manner; that the ld. PCIT has failed to appreciate that under

the provisions of Section 263 of the Act, an order of

assessment cannot be set aside simply to make further

enquiries and to thereafter pass a fresh order; that the ld.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 10 PCIT has failed to appreciate that surmises, conjectures and

suspicion could not be a valid basis to invoke the provisions

of Section 263 of the Act; that the ld. PCIT has erred in

acting beyond the Show Cause Notice issued u/s 263 of the

Act and, therefore, findings, observations and material relied

on but not referred to in the Show Cause Notice, but made

part of order, could not have been made the basis for

assumption of jurisdiction u/s 263 of the Act.

9.4. The ld. DR, on the other hand has placed strong

reliance on the impugned order. It has been contended that

the ld. PCIT has correctly observed that the assessee did

not produce on record any documents other than those

submitted during the assessment proceedings, to prove the

genuineness of the firm, M/s Gaja Nand Pardeep Kumar ;

that it remains undisputed that when summons were issued

during the assessment proceedings to ascertain the

genuineness of the firm, no such firm was found existing at

the given address; that even in third party enquiry of the

Market Committee, Dabwali, it was found that there was no

firm registered in the name of M/s Gaja Nand Pardeep

Kumar, Shop No. 209, NGM, Dabwali during the year 2010-

11; that from this, clearly, no firm was found existing at the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 11 given address and the purchases shown by the assessee to

have been made from the said firm, were bogus purchases,

which purchases, amounting to Rs.58,42,492/- should have

been disallowed by the AO as bogus purchases, which was

not done; that the ld. PCIT has also correctly observed that

though the assessee made cash purchases from the open

market, since the sales had been confirmed, no disallowance

was made by the AO under the provisions of Section 40A(3)

of the Act; that therefore, the assessment order was an

erroneous order prejudicial to the interests of the Revenue,

which was rightly set aside by the ld. PCIT, remitting the

matter to the AO for fresh assessment.

9.5. The first issue is as to whether it is a case of lack of

enquiry, as held by the ld. PCIT, or whether there was

adequate enquiry conducted by the AO, as contained on

behalf of the assessee. The assessee is a partnership firm

engaged in the business of trading of cotton, guwar and

other commodities. It filed its return of income on

25.09.2011, declaring income of Rs. 33,78,180/- for the year

under consideration. Vide order dated 21.02.2024 (APB 34-

42), the assessee's income was assessed at Rs.65,15,880/-,

by making addition of Rs.31,37,700/-, u/s 143(3) of the Act

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 12 on 22.03.2018, a notice (APB 50) was issued to the assessee

u/s 133(6) of the Act, asking the assessee to furnish copies

of cash book, ledger account and bank statement for the

Financial Year 2010-11, relevant to assessment year 2011-

12, copy of account with M/s Gaja Nand Pardeep Kumar,

Proprietor Shri Pardeep Kumar for the said party and details

of assets purchased/sold alongwith documentary evidences

during the said party. The assessee filed reply (APB 51),

stating that the assessee had made payment of

Rs.15,50,000/- on 01.11.2010, vide cheque No. 009050 of

State Bank of Patiala towards purchase of cotton made on

23.10.2010 from M/s Gaja Nand Pardeep Kumar. Copies of

account of M/s Gaja Nand Pardeep Kumar and bank

statements were enclosed. On 30.03.2018, a notice (APB 57)

u/s 148 of the Act was issued to the assessee. Then, notice

u/s 142(1) was issued on 27.08.2018 (APB 64). On

31.10.2018, a summon (APB 65) was issued to Shri Pardeep

Kumar, Proprietor M/s Gaja Nand Pardeep Kumar u/s 131 of

the Act. On 26/31.10.2018, notice (APB 66-67) was issued

to the Market Committee, Dabwali, u/s 133(6) of the Act.

On 14.11.2018, a reply (APB 68) was filed by the Market

Committee, Dabwali, before the AO, stating that as per their

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 13 office record available, there was no firm registered as M/s

Gaja Nand Pardeep Kumar, Shop No.209, New Grain Market,

Dabwali during the year 2010-11. On 11.12.2018, a reply

(APB 69-78) was filed by the assessee before the AO

alongwith copies of ledger (APB 110) of M/s Gaja Nand

Pardeep Kumar in the audited books of account, purchase

bill and transportation bilty of tansporter (APB 111-125) and

C-Form issued to M/s Gaja Nand Pardeep Kumar. Vide

order dated 21.12.2018, the AO made a further addition of

Rs.1,86,110/-, to the already assessed income of

Rs.65,15,880/- u/s 143(3) of the Act.

9.6 As correctly submitted on behalf of the assessee, the

claim made representing the purchases could have been

added to the income of the assessee and only the profit

margins embedded therein could be subjected to tax. The

AO did precisely this by disallowing the higher purchase

cost, as alleged, on purchases made from M/s Gaja Nand

Pardeep Kumar, as compared to other independent parties.

The assessee had made purchase of Rs.58,42,590/- during

the year from M/s Gaja Nand Pardeep Kumar. It had made

payment of Rs.58,29,620/-, availing a trade discount of

Rs.12,970/-, as available from the ledger (APB 110) of the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 14 account of M/s Gaja Nand Pardeep Kumar for the period

from 01.04.2010 to 31.03.2011.

9.7 Now notice (APB 50) dated 22.03.2018, issued u/s

133(6) of the Act to the assessee, the assessee was asked to

furnish copies of cash book, ledger account and bank

statement for the Financial Year 2010-11, relevant to

assessment year 2011-12, copy of account with M/s Gaja

Nand Pardeep Kumar, for the said period and details of

assets purchased/sold alongwith documentary evidences,

during the said period. Vide reply (APB 51) dated

26.03.2018, the assessee stated that it had made payment of

Rs.15,50,000/- on 01.11.2010, vide cheque No.009050 of

State Bank of Patiala towards purchase of cotton made on

23.10.2010 from M/s Gaja Nand Pardeep Kumar. A copy of

account of M/s Gaja Nand Pardeep Kumar, copy of bank

statement and copy of assessment order (APB 110, 127-132

and 79-92 respectively) were enclosed. On 26.03.2018, the

AO recorded his reasons (APB 53) to believe escapement of

income, stating that (relevant portion) “……….para 2…after

the completion of the assessment u/s 143(3) in this case,

this office is in possession of certain information that during

the Financial Year 2010-11, relevant to assessment year

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 15 2011-12, the assessee has carried out unaccounted

purchase of Rs.15,50,000/- from M/s Gaja Nand Pardeep

Kumar, NGM-209, Dabwali, District – Sirsa. Vide this (sic)

office letter dated 22.03.2018, the assessee was specifically

required to explain the details of purchases made from the

abovesaid party. In response thereto, the assessee has

intimated that he made purchases from M/s Gaja Nand

Pardeep Kumar, Proprietor Pardeep Kumar amounting to

Rs.58,42,590/-. As per information received from ITO

(Investment), Gurugram, the DDIT (Investigation), Hissar

afforded too many opportunities to Shri Pardeep Kumar to

appear or file any written reply as regard to purchase made

with the parties, but he has neither appeared nor filed any

written reply. A letter was sent to him by Registered Post on

his residential address i.e., ……..2875, Gandhi Memorial

Vidhalya, Abohar by specifically mentioning that the entries

in the account will be treated as his income from other

sources and action will be initiated against him as per

provisions of Income Tax Act, but no reply furnished by him.

As Shri Pardeep Kumar has not submitted any reply or

clarified his credit entries in his bank account, it is clear

that he is not doing any business activity but merely an

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 16 entry provider. As per reply submitted by the counsel of the

assessee on 26.03.2016 stated that they have made

purchases from M/s Gaja Nand Pardeep Kumar, Dabwali to

the tune of Rs.58,42,590/-. As M/s Gaja Nand Pardeep

Kumar, is found to be a non existing entity, total purchases

of the assessee are bogus purchases and only bills have been

raised. The assessee thus, found to have concealed its

income by booking bogus expenses. From perusal of the

records, it has been noticed that the case of the assessee

already assessed at an income of Rs.65,15,880/- u/s 143(3)

of the Income Tax Act, 1961 previously, hence it covers

under Explanation 2(c) to Section 147 of the Act where the

assessee has under stated his income.

9.8 Owing to failure on the part of the assessee to explain

the reason carrying out aforementioned unaccounted

business transactions, in support of which the Department

is having tangible information which is not accounted in the

books of the assessee. I have reasons to believe that an

income of Rs.58,42,590/- chargeable to tax for the

assessment year 2011-12, besides any other income which

comes to notice subsequently during the course of

assessment proceedings under this Section, has escaped

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 17 assessment within the meaning of Section 147 of the Act.

Although the case has already been finalized u/s 143(3) of

the Income Tax Act, 1961, yet it is not covered under first

proviso to Section 147 of the Act as income chargeable to tax

for the assessment year 2011-12 as escaped assessment for

the reason of failure on the part of the assessee to disclose

all the material facts fully and truly, which are necessary for

the assessment in the case of the assessee on the issue

involved……….”

9.9 Then, in the notice (APB 64) dated 27.08.2018, issued

to the assessee u/s 142(1) of the Act, it was stated that

“assessment u/s 143(3) of the Income Tax Act, 1961 was

completed on 21.02.2014. Now, as per information available

with this office, you have made unaccounted business

transaction of Rs.58,42,590/- with M/s Gaja Nand Pardeep

Kumar, NGM-909, Dabwali, District-Sirsa. Further it

appears that M/s Gaja Nand Pardeep Kumar is found to be a

non existing entity, total purchases from this firm are bogus

purchases and only bills have been raised. Please furnish

complete documentary evidence to prove the transaction

made with M/s Gaja Nand Pardeep Kumar is genuine and

duly accounted for in the books of account……….”

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 18

9.10. In its reply (APB 69-78) dated 11.12.2018, the

assessee submitted relevant portion at APB 69-70) that;

9.11 Details of purchases made by the assessee from M/s

Gaja Nand Pardeep Kumar, with copies of purchase bills

have been filed at APB 111-125.

9.12 Copies of transportation bilty of the transporter who

had lifted the goods from M/s Gaja Nand Pardeep Kumar,

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 19 have been filed at APB 111-125. Copies of sale bills have

also been enclosed. Copy of ledger of M/s Gaja Nand

Pardeep Kumar in the books of the assessee, for the period

from 01.04.2010 to 31.03.2011, has been filed at APB 110.

9.13 Copies of relevant pages of bank statement of the

assessee, pertaining to State Bank of Patiala has been filed

at APB 127-128 and that concerning Punjab National Bank,

has been filed at APB 129-132. These bank statements show

payments made by the assessee to M/s Gaja Nand Pardeep

Kumar against purchases made from M/s Gaja Nand Pardeep

Kumar/

9.14 The copy of C-Form issued by the assessee to M/s

Gaja Nand Pardeep Kumar has been filed at APB 126.

9.15 Details of purchases made from M/s Gaja Nand

Pardeep Kumar, in the form of bilty number, have been

placed at APB 111, 114, 117, 123 and 120. The details with

regard to the sales, in the shape of ledger account of the

party, are at APB 137-138 concerning Fertichem Cotspin

Ltd. and at APB 136, concerning Cheema Spintex Ltd. The

respective bills have been placed at APB 113-116, 119, 125

and 122. The relevant pages of the Purchase Book and Sale

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 20 Book have been filed at APB 133-135, showing a direct one

to one nexus between the respective purchases and hence,

the purchases and sales have been depicted in a tabular

form, as above.

9.16 As correctly contended on behalf of the assessee, it is

seen that it was on having considered the aforesaid detailed

reply filed by the assessee alongwith the concerned

evidences, that the AO, vide order (APB 79-92) dated

21.12.2018, passed under Sections 147/143(3) of the Act,

the AO made addition on account of difference of purchase

price concerning purchases made by the assessee from M/s

Gaja Nand Pardeep Kumar, in comparison to purchases

made from other entities, on the same day. It would be

appropriate to here reproduce, for ready reference, the

relevant portion of the said assessment order :

“………………..Para (3). To ascertain the genuineness of the existence of firm M/s Gaja Nand Pardeep Kumar, summon u/s 131 of the Income Tax Act, 1961 was issued on 31.10.2018, but on the given address of the firm, no such firm was found. On enquiry, whereabouts of Shri Pardeep Kumar are also not known to anybody in the market. Further, Information u/s 133(6) of the Income Tax Act, 1961 was called for vide letter No. 276 dated 26/31.10.2018 from the Market Committee,

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 21 Dabwali to furnish the auction records of godown in respect of M/s Gaja Nand Pardeep Kumar appearing in their records.The said authority, in compliance thereto, vide his letter No. 1524 dated 14.11.2018 has reported that as per their record, no such firm is registered in their record.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 22 of cotton @ Rs.9872.85 from M/s Neelkamal Industries, Jaitsar on the same day i.e., 01.11.2010. Therefore, it is clear that assessee has purchased cotton on higher rate of Rs.1058.29 from M/s Gaja Nand Pardeep Kumar in comparison to the other party. 5. The matter was discussed with the counsel of the assessee on the above issues and after discussion and taking a reasonable view, difference on account of above discrepancy has been worked out (sic) Rs.186110 [cotton 175.86 qtl. X Rs.1058.29 {10931.14 – 987285}]. Therefore, an addition of Rs.1,86,110/- is made towards the taxable income of the assessee…………….”

9.17 The application of mind on the part of the AO in the

aforesaid assessment order is evident from the fact that the

AO clearly held that in the enquiry conducted by issuance of

summons and by calling for information from the Market

Committee, Dabwali, the stated firm of M/s Gaja Nand

Pardeep Kumar, Dabwali was found to be non existent. It

was on these basis, that the AO held that it appeared that

the assessee had made purchases from the grey market at

prices much lower than that recorded in the books of

account and that the assessee had obtained bogus higher

rate purchase bills from the said party, in order to suppress

gross/net profit. The AO, therefore, made addition on

account of difference of purchase price and added an

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 23 amount of Rs.1,86,110/- further to the income of the

assessee, i.e., further to the addition of Rs.31,37,700/-

which stood already made in the original scrutiny

assessment order dated 21.02.2014.

9.18 To reiterate, under the facts and circumstances, it was

only the profit margin embedded in the entire stated

purchases, which could have been brought to tax. It was

exactly this that was ordered by the AO, by disallowing the

alleged higher purchases caused on the purchases claimed

by the assessee could have been made from M/s Gaja Nand

Pardeep Kumar, as compared to the other independent party.

9.19 In this regard, reliance has also been placed on the

decision of the Hon'ble Gujrat High Court in the case of “CIT

Vs Bhola Nath Poly Fab pvt. Ltd.”, 355 ITR 290 (Guj),

holding that purchases worth Rs.40,69,546/- were

unexplained, the AO in that case disallowed the expenditure

claimed by the assessee. The total income of the assessee

was computed at Rs.41,10,187/-. The stand of the Revenue

that the purchases had been made from bogus parties, was

concurred with by the Tribunal. It was observed that the AO

had issued notices to all the parties from whom such

purchases had allegedly been made; that these notices had

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 24 been returned unserved by the postal authorities with the

remark that the addresses were incomplete. Even the

Inspector deputed by the Department could not find any of

the parties available at the given addresses. The assessee

had not been able to produce any confirmations from any of

the parties. The assessee had claimed payment by Account

Payee Cheques, qua which, on verification, it was found that

the cheques were encashed by parties and not by the alleged

sellers. Despite these facts, the Tribunal opined that even

the parties from whom the purchases had been statedly

made were bogus. The purchases themselves were not

bogus. It was concluded that the entire quantity of opening

stock, purchases and the quantity manufactured during the

year had been sold by the assessee, and that therefore, the

entire 102514 meters of cloth purchased were sold during

the year. Thus, the Tribunal accepted the assessee's

contention that the finished goods were, in fact, purchased

by the assessee, though not from the parties shown in the

accounts. The Tribunal held that it was not the entire

amount of purchases, but the profit margin embedded

therein, which would be subjected to tax. On appeal, the

Hon'ble Gujrat High Court held that the Tribunal had

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 25 committed no error; that whether the purchases themselves

were bogus or whether the parties from whom such

purchases were allegedly made were bogus, was essentially a

question of fact; that the Tribunal, having examined the

evidence on record, had come to the conclusion that the

assessee did purchase the cloth and sold the finished goods;

that as a natural corollary, it was not the entire amount

covered under such purchase, but the profit element

embedded therein, which would be subject to tax.

9.20 Reliance has also correctly been placed on behalf of

the assessee, on “Pr. CIT Vs Jagdish H Patel”, 84

taxmann.com 259 (Guj). Therein, the Tribunal while

sustaining the findings of the ld. CIT(A) regarding bogus

purchases, reduced the addition to 8% from that of 25%, as

made by the ld. CIT(A). The Tribunal confirmed the action of

the ld. CIT(A) in not separately taxing the sum of Rs.61.05

lacs as admitted by the assessee in the statement recorded

during the survey. The Hon'ble High Court held that both,

the ld. CIT(A) and the Tribunal had accepted the assessee's

contention that adopting the entire amount of bogus

purchases would give a completely distorted figure and the

gross profit would end up being higher than the total

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 26 turnover; that such bogus purchases were for off-setting the

purchases from producers and agriculturists who would not

have the billing facility; that the only question seriously

posed was as to whether the Tribunal was justified in

adopting the gross profit rate of 8% as against that of 25%

adopted by the ld. CIT(A); that when additions are made on

the basis of gross profit rates, a limited amount of

estimation and guess work is always inbuilt; that the

assessee had pointed out that when the additions, the gross

profit for the year under consideration was approximately

7%; that the Tribunal, therefore, did not commit any error in

accepting the gross profit rate of 8% on the purchases,

which were otherwise found in-genuine; that the disclosure

of Rs.61.05 lacs made by the assessee in his statement

pertained to the bogus purchases and was, therefore, rightly

assessed by the ld. CIT(A) and the Tribunal; that no question

of law arose; and that the appeals were being dismissed.

9.21 The situation, mutatis-mutandis, is exactly similar in

the case at hand, as discussed. To reiterate, it was only the

profit element embedded in the entire purchases made, that

could have been brought to tax, which is exactly what has

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 27

been done by the AO. To the same effect, under similar facts

and circumstances, the decisions in the following cases :

i) 351 ITR 150 (Guj) C1T vs. Sathyanarayan P. Rathi ii) ITA No. 2826/Mum/2013 dated 5.11.2014 Shri Ganpatraj A Sanghavi vs. ACIT iii) 221 Taxman 436 (Guj) CIT vs. Pradeep Shantilal Patel (section 44AF) iv) ITA No. 116/Ahd/2011 dated 30.5.2014 Narpat Singh vs. 1TO v) 355 ITR 290 (Guj) CIT vs. Bholanath Poly Fab (P) Ltd. vi) 152 ITD 874 (Ahd) Dineshbhai Dhansukhlal Mithaiwala vs. ITO vii) ITA No. 2446 & 2447/Mum/2015 DCIT v. Allied Blende.s and Distillers (P) Ltd. viii) ITA NO. 5313/Mum/2013 Vishal P. Mehta v. DCIT

9.22 Further, in “Vaghasiya Exports”, order dated

27.07.2021 passed by the Mumbai Bench of the Tribunal in

ITA No.2288/Mum/2019, it was found that the only addition

made was with regard to suspicious purchases made by the

assessee from various entities of a tainted group. Specific

queries had been raised by the AO requiring the assessee to

substantiate the purchased under suspicion. The assessee

furnished their requisite details and documentary evidences

before the AO. Such evidence included stock record and

quantitative details of opening stock, closing stock,

purchase, sale etc. The assessee also demonstrated before

the AO, the corresponding sales made against the purchases.

In support of the purchase transaction, copies of purchase

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 28 invoices sales ledger extracts were furnished. It was on

considering all these evidences, that the AO came to a

conclusion that since sales had been offered and adequate

quantitative details had been produced by the assessee, the

conclusion to be drawn was that the goods were purchased

from the grey market, whereas the bills were obtained from

accommodating suppliers. The AO exercised the only option

available, that was, to estimate the suppressed profits on

these transacstions. Considering the applicable VAT rate,

the AO estimated a further addition of 1.6% against the

purchases. The ITAT observed that these facts showed that

the AO had taken one of the possible views with due

application of mind, which termed as perverse, could not, in

any manner, be termed as ‘perverse’; that there could be no

sale without actual purchase of goods, considering the

nature of the assessee’s business; that the action of the AO

was in conformity with numerous decisions, as quoted in the

assessment order; that it could thus, well be said that the

view of the AO was a possible view which was not contrary to

law or unsustainable in law; that merely because the Pr. CIT

held a view that the estimation should have been at higher

rates, or that the entire purchases should have been

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 29 disallowed, this would not make the assessment order

erroneous, unless it was found that the action of the AO was

not in accordance with law or perverse; that therefore, the

revision could not be held to be justified as per the decision

in “Grasim Industries Ltd. Vs CIT”, 321 ITR 92 (Bom); that

further, it was seen that in the assessee's own case, for

assessment year 2009-10 also, revisional jurisdiction had

been exercised in similar facts; that in that case, the

revision had been quashed by the Tribunal, holding that a

similar factual matrix existed in the year under

consideration and the ratio in “Grasim Industries Ltd.” was

applicable to the said year also. The Tribunal held the

revisional jurisdiction to have been invalidly exercised and it

was, accordingly, set aside.

the assessment proceedings, the AO had made necessary

enquiries and it was on having considered the stand put

forward by the assessee and the evidence produced in

support of such stand, that the assessment order was

passed. The assessment order expressed the AO’s view which

was a possible view, taken by the AO with due application of

mind. The same has not been shown to be perverse, in any

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 30 manner. Therefore, “Vaghasiya Exports (supra) is squarely

applicable to the facts of the present case.

10.1 In “Rakesh Prabhu Das Doshi Vs PCIT”, vide order

dated 02.11.2018, passed by the Mumbai Tribunal in ITA No.

4056/Mum/2018, the Tribunal observed that it had been

found from the record that while passing order u/s 143(3)

read with Section 147 of the Income Tax Act, the AO had

considered the factual position with regard to the assessee

having made purchases from different persons, who had

made additions of Rs.6,26,847/-. It had been found that the

completed assessment had been reopened on the ground of

information received from the Investigation Wing of the

Department that the assessee had made purchases from

alleged bogus suppliers. The AO, after having made detailed

enquiry and investigation, found that the corresponding

sales had been duly accounted for by the assessee in its

books. The AO found that accordingly, the entire purchases

could not be added. He, as such, estimated extra profit of

6% on such purchases and added the same to the assessee's

income. The Tribunal held that it had also considered the

various decisions wherein under identical facts and

circumstances, 2% additions on bogus purchases had been

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 31 made; that since the additions in such type of cases depend

on the facts of each case, the provisions of Section 263 of

the Act could not have been invoked by the ld. CIT. The

grounds raised by the assessee were, accordingly, allowed.

10.2 In ‘Raj Lakshmi B Vs PCIT”, the Mumbai Bench of the

Tribunal, vide order dated 18.03.2019, passed in ITA

No.6188/Mum/2018, it was observed that the facts on

record revealed that the assessee had been subjected to re-

assessment proceedings and the assessee had been saddled

with an estimated addition of 12.5% on account of certain

alleged bogus purchases. While doing so, the AO relied on

the decision of the Hon'ble Gujrat High Court in the case of

“Simit P. Sheth”, 356 ITR 451 (Guj). Subsequently, however,

on perusal of record, the ld. PCIT noted that the assessee

had not been maintaining any quantitative register and it

could not substantiate the delivery of the material; and that

as such, the entire amount was required to be disallowed

and not restricted to 12.5%, as estimated by the AO.

Keeping in view the decision of the Hon'ble Supreme Court in

“N.K. Proteins Ltd. Vs DCIT”, 84 taxmann.com………Applying

clauses (a) (d)of Explanation 2 to Section 263(1) of the Act,

the assessment order was treated as erroneous and

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 32 prejudicial to the interests of the Revenue . The Tribunal

quashed the revisional order and restored the order of the

AO, following the Co-ordinate Bench decision in “Rajal

Enterprises Vs Pr. CIT”, order dated 31.10.2018, passed in

ITA No. 2273/Mum/2018, wherein, the Tribunal held that

the AO had reopened the completed assessment on the basis

of specific information received indicating that the

purchases made by the assessee were bogus; that in the

assessment proceedings, the AO had conducted necessary

enquiry by calling for information from the assessee and also

making enquiries independently to ascertain the

genuineness of the purchases made by the assessee; that on

examining the material made available on record, though the

AO was of the opinion that the assessee had failed to prove

the genuineness of the purchases made, he found that not

only the assessee shown the purchases made in the books of

account, the assessee had also recorded the corresponding

sales effected; that thus, the AO proceeded to make addition

of the profit element embedded in the bogus purchases by

estimating the same at 10%; that thus, the AO proceeded to

make addition not only having conducting due enquiry to

ascertain the genuineness of the purchases made by the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 33 assessee, but had also made addition on account of bogus

purchases in accordance with the judicial proceedings; that

the PCIT had held the assessment order to be erroneous and

prejudicial to the interests of the Revenue, primarily for two

reasons; firstly, due to non consideration of the decision of

the Supreme Court in the case of “N.K.Proteins” (supra) and

secondly due to lack of proper enquiry ; that the Tribunal

did not agree with the view of the PCIT that it was a case of

lack of proper enquiry to find out the genuineness of the

purchases; that as regards the PCIT’s allegation of non

consideration of the decision in “N.K. Proteins” (supra), the

said decision had been rendered by the Hon'ble Supreme

Court on 16.01.2017, much after the date of the passing of

the assessment order, i.e., 02.03.2016; that this being so,

there was no occasion for the AO to consider “N.K. Proteins”

(supra); that this being the case, exercise of power u/s 263

of the Act for the alleged non consideration of the Supreme

Court decision in “N.K.Proteins”, was wholly misconceived;

that in any case, addition to be made on the basis of bogus

purchases is a purely factual issue and varies from case to

case, depending on the facts of each case; that in the case of

“N.K.Proteins” (supra), there had been a search & seizure

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 34 operation carried out in the case of “N.K.Proteins”, during

which, various incriminating documents including blank

“check books in the name of different entities” were found

which conclusively proved that the assessee had not made

any purchases; that it was in the context of these facts that

100% addition on account of bogus purchases was upheld;

that on the other hand, in the case of the assessee in “Raj

Lakshmi B”, no such facts were involved; that rather, when

the assessee was able to link the purchases with

corresponding sales, the logical conclusion which could be

arrived at was that the assessee might not have purchased

goods from the declared source, but from some other parties;

that in such an event, only the profit element embedded in

the bogus purchases could be considered for addition, and

not the entire purchases; and that therefore, the AO’s

decision to restrict the addition to 10% of the bogus

purchases was in tune with the consistent view of the

Tribunal and different High Courts in cases of similar

nature; that therefore, the exercise of power u/s 263 of the

Act was invalid. The Tribunal, on these observations, had

quashed the order passed u/s 263 of the Act and the

assessment order had been restored.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 35 10.3. The facts and circumstances at hand are exactly

in pari materia with those in “Raj Lakshmi B Vs PCIT”

(supra), wherein the Tribunal had quashed the revisional

order, following “Rajal Enterprises” (supra).

10.4 Similar is the position in “PCIT Vs Rishabh

Development Techno”, 424 ITR 338 (Bom) and “Subhash

Chander Gupta Vs ITO”, order dated 23.03.2023 passed by

the Chandigarh Bench of the Tribunal in ITA No.

362/CHD/2022.

had made cash purchases from the open market, as the sales

had been confirmed, but the AO had failed to acknowledge

this fact and no disallowance had been made under Section

40A(3) of the Act. According to the ld. PCIT, it was, thus, a

clear case of lack of enquiry due to which the assessment

order was erroneous and prejudicial to the interests of the

Revenue. We find that as correctly contended, the ld. PCIT’s

finding that the assessee had made cash purchases from the

open market does not have anything on record to support it.

Such finding is based merely on surmises and conjectures.

This being so, there was no occasion for the ld. PCIT to

conclude that the AO had not made disallowances as per the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 36 provisions of Section 40A(3) of the Act. In this regard, in

“Shri Ganapat Raj A Sanghavi Vs ACIT”, vide order dated

05.11.2014, passed in ITA No. 2826/Mum/2013, the Mumbai

Bench of the Tribunal held that the copies of bank account

collected by the AO showed the assessee to have made the

payments to the stated parties by way of account payee

cheques, showing that the transactions had been routed

through bank accounts; that also, it was not the case of the

AO that the assessee had indulged in accounting of bogus

purchases; that when the assessee submitted that he could

not effected the sales when making corresponding

purchases, the AO took the view that the assessee could

have effected purchases from the grey market; that such a

conclusion was, in fact, not supported by any material; that

it was under this impression only, that the AO had further

expressed the view that the assessee would have purchased

the materials by paying cash, thus, violating the provisions

of Section 40A(3) of the Act; that this occasion, was based

only on surmises; that in the absence of any material to

support this view, such view taken by the taxing authorities,

that the purchases amount was liable to be disallowed under

the provisions of Section 40A(3)of the Act, could not be

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 37 agreed with; that it was on the same expression, that in the

remand report, the AO had expressed the view that the

purchases amount was also liable to be assessed u/s 69C of

the Act, as the sources of the purchased had not been

proved; that again, such a conclusion was based only on

surmises, which could not be sustained; that it had also

been seen that the AO had accepted the fact that the

quantity details of purchases and sales had been reconciled

by the assessee; and that various decisions relied on by the

assessee also supported his case; and that therefore, the

CIT(A) was not justified in confirming the disallowance of

purchases. It was on this basis, that the order of the ld.

CIT(A) was set aside and the AO was directed to delete the

disallowance of the purchases.

11.1 Likewise in the case at hand, the conclusion arrived at

by the ld. PCIT, that the AO had erred in not making

disallowance under the provisions of Section 40A(3) of the

Act is unsustainable. As in the cited case, here also, there is

no evidence worth its name to incriminate the assessee and

this conclusion has been arrived at only on premises and

conjectures, rendering it unsustainable in the eye of law.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 38 12. Then, it is patent on record that the assessee is a duly

registered partnership firm engaged in the business of

trading of cotton, guwar and other commodities, since 1971.

Proper books have been maintained. They were examined by

the AO in both, the original assessment proceedings as well

as the re-assessment proceedings. These books are duly

audited under the provisions of Section 44AB of the Act. As

per the books, there was sale of Rs.5,17,05,63,370/- and

purchase of Rs.5,18,27,26,557/-. There is no evidence to

dispute or controvert any of these transactions. The total

purchases of Rs.5,18,27,26,557/-, includes purchases of

Rs.58,42,590/- made by the assessee from M/s Gaja Nand

Pardeep Kumar, Dabwali. Corresponding sales were made,

as reflected in the books of account. The books of account

maintained by the assessee were not doubted, much less

rejected either by the taxing authorities in the assessment

and re-assessment, nor were they called into question by the

ld. PCIT in the revisional proceedings. The assessee

produced the relevant bank statements depicting the

payments made to M/s Gaja Nand Pardeep Kumar (APB 127-

132) against purchases made from M/s Gaja Nand Pardeep

Kumar. The assessee had shown delivery of the goods and

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 39 payment of consideration for such delivery, which are the

two things required to establish the purchases made. In the

absence of any evidence on record to the contrary, purchases

amounting to Rs.58,42,492/- could not be said to be bogus

purchases calling for disallowance. In fact, neither the AO,

nor the PCIT disputed either the delivery of goods, or the

payment of the consideration for such delivery. Rather,

remarkably, the sales and closing stock had been accepted

in the assessment proceedings, both in the original

assessment proceedings as well as the re-assessment

proceedings. It is also not in question that the

consideration paid as flowed from the bank account of the

assessee. It has also not even been contended, much less

proved that the amount of the consideration had been

ploughed back to the bank of the assessee. It being a

transaction of sale and purchase, the factum of delivery of

goods and payment of consideration therefore having not

been questioned, the manner and mode thereof and the

alleged misconduct of the supply cannot be held to be

attributable to the assessee, in any manner, so as to decline

the claim of such expenditure by the assessee.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 40 12.1 Further, so far as regards the assessee, the burden

caused on the assessee stood duly and amply discharged,

since the assessee had furnished before the AO,

documentary evidence in the shape of copies of audited

financial statements, copies of invoices issued by the sellers

alongwith transport bilties, copies of corresponding sales

bills issued by the assessee and audited books of account

and payment and proof of payment through banking

channels. Moreover, to reiterate, in the assessment order,

the books of account having been challenged by the AO.

12.2 In this regard, in “ACIT Vs Mahesh K Shah”, 184 TTJ

702 (Mum), it was held that it was evident from the

assessment order that it was primarily on the basis of

information/details obtained from the Sales Tax Department,

Government of Maharashtra that the AO had issued Show

Cause to the assessee, to explain the purchases and had

issued notices u/s 133(6) of the Act to the 12 parties from

whom the said purchases had been made, to which , there

was no response; that the AO had relied on, primarily, the

information obtained from the Sales Tax Department to hold

purchases amounting to Rs.96,45,645/- to be bogus. Such

information comprised of statements/affidavits given before

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 41 the Sales Tax Department by the parties. The Tribunal

noted that whereas it might be true that the parties did not

appear before the AO, for whatever reason, the fact remained

that the assessee had filed copies of purchase invoices and

matrix of stock ledger showing entry exit of materials, copies

of bank statements, showing that payments for these

purchases had been made through normal banking channels,

to establish the genuineness of the purchasers. It was

observed that from the record, it was evident that the AO h

addition not doubted the sales affected by the assessee and,

therefore, it was logical to conclude that when corresponding

purchases have been made, the assessee could not have

effected sales; that the AO had not brought any evidence on

record to conclusively prove that the purchases were bogus;

that mere reliance on the information obtained from the

Sales Tax Department, or on the statements/affidavits of the

twelve parties before the Sales Tax Department, or on the

fact that these parties did not respond to notices issued u/s

133(6) of the Act, would not, by itself lead to the conclusion

that the purchases were to be treated as bogus, making

addition u/s 69C of the Act; that in case the AO doubted the

genuineness of the purchases, it was incumbent upon him to

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 42 cause further enquiries so as to ascertain the genuineness

or otherwise all these transactions; that in the absence of

further enquiries in respect of the purchases, the AO could

not make addition u/s 69C of the Act by merely relying on

the information obtained from the Sales Tax Department, the

statements/affidavits of the third party without affording

opportunity of cross-examination of these persons to the

assessee, for not having responded to the requirements of

providing of information u/s 133(6) of the Act. It was

observed that the AO had failed to make any enquiry to

establish his suspicion that the purchases were bogus,

whereas the assessee had produced on record documentary

evidence to establish the genuineness of the purchase

transactions; that the AO had brushed aside these

evidences, which could not be accepted; that in “CIT Vs

Ashish International”, in ITA No.4299 of 2009, the Hon'ble

Bombay High Court had held that the genuineness of the

statements relied on by the Revenue was not established

when the assessee disputed the correctness thereof and had

not been provided opportunity to cross examine the parties;

that moreover, when the payments for the purchases had

been made through proper banking channels and nothing

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 43 had been brought on record by the AO to establish that

these payments were routed back to the assessee, the

addition made by the AO was unsustainable and that

therefore, no interference was required in the order of the ld.

CIT(A) and the deletion of the addition of Rs.96,45,645/-

made u/s 69C of the Act, as unexplained expenditure in

respect of the purchases, was to be upheld.

12.3 Again, the facts are exactly similar. To reiterate, here

also, the AO made the addition merely on the basis of

conjectures and surmises, without bringing on record

anything to prove the purchases to be bogus. In

contradistinction, the assessee had furnished on record

voluminous documentary evidence establishing that the

delivery of the purchases had been made and that the

payment for the same had been made through banking

channels. The Department has also not made out any case

that the payments made for the purchase by the assessee

were routed back to the assessee. “Mahesh k Shah (supra)

is, therefore, squarely applicable.

12.4 In “Maruti Impex Vs JCIT” order dated 09.03.2016

passed by the Mumbai Tribunal in ITA 3823/Mum/2014,

again, it was held, under similar circumstances, following

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 44 the decision of the Hon'ble Bombay High Court in the case of

‘CIT Vs Nikunj Eximp Enterprises P. Ltd.”, 372 ITR 619

(Bom), that in a case of alleged bogus purchases, the theory

that the transaction defies human probability cannot be

applied to purchases in isolation, but has to be applied to

the entire transaction in the light of documentary evidences

produced by the assessee; and that where the sales are

accepted as genuine, the purchases cannot be disallowed.

12.5 The decision of the Delhi Bench of the Tribunal in the

case of “Paramount Residency (P) Ltd. Vs DCIT” rendered in

ITA 49707/Del/2014 and that of the Calcutta Bench of the

Tribunal in “Ghanshyam Das Agarwal Vs ACIT” passed in ITA

No. 1459/Kol/2010, are to the same effect.

12.6 In the case of “Tejua Rohit Kumar Kapadia”, the

Hon'ble Gujrat High Court, in ITA No. 691 of 2017,

dismissed the appeal of the Department as bearing no

question of law, holding that the purchases made by the

assessee were duly supported by bills and payments were

made by account payee cheque and there was no evidence to

show that the amount was recycled back to the assessee,

particularly when it was found that the assessee, the trader,

had also shown sales out of purchases made which also were

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 45 accepted by the Department. The SLP filed by the

Department was dismissed vide theory No. 12670/2018.

where purchases are duly recorded in the books of account,

payment has been made through account payee cheques and

the sales/closing stock are accepted, no disallowance can be

made :

i) M/s Fancy Wear Vs ITO, 167 ITD 621 (Mum)

ii) CIT Vs Oswal Chemical & Fertilizers Ltd. 200 taxman 170 (Del) iii) CIT Vs Nikunj Exim P. Ltd. 372 ITR 619 (Bom) iv) Ramanand Sagar Vs DCIT 256 ITR 134 (Bom) v) Babulal C Borana V ITO 282 ITR 251 (Bom) vi) CIT Vs M.K.Brothers 163 ITR 249 (Guj) vii) CIT V Nangalia Fabrics (P) Ltd. 220 taxman 17 (Guj) viii) CIT V Famish Enterprises 276 CTR 89 (Cal) ix) CIT V Precious Jewels Corporation 205 taxman 22 (Raj( (MAG) x) E-land International P.Ltd. V DCIT 124 TTJ 554 (Del)

13.1 Particularly, in “Precious Jewels Corporation Ltd.”

(supra) it was held that on the one hand, the assessee had

furnished all the necessary information supported with

documents to establish the genuineness of the claimed

purchases made from the parties, whereas, there was no

positive evidence on record to support the allegation of the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 46 AO that the stated parties were not genuine; that the AO

had not come with any positive evidence to establish that the

goods were not purchased from those parties, but from some

one else and that the amount paid by the assessee in

consideration against the supply of goods to them was

ultimately returned by them to the assessee; that merely

because the assessee could not produce the suppliers or, in

some cases the parties did not respond to the summons

served on them, it could not be concluded beyond doubt that

the purchases claimed and the suppliers were not genuine,

especially when the export of the goods had not been denied

by the AO.

13.2 Further, it is well settled that once the quantity

details are accepted and the books of account are accepted,

and the payments are made through banking channels, non

compliance by the suppliers is no basis of disallowance.

13.3 In cases where sales are accepted by the Revenue, as

a natural corollary by reverse logic, the purchases have to be

treated as genuine, since once there are sales, there would

be purchases also.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 47 13.4 In “ITO Vs Rajpal Singh” 91 TTJ 993 (Mum), it has

been held that if sales are disputed, purchases cannot be

disallowed. The following decisions are also to the same

effect :

i) M/s Beauty Tex ITA 508/JP/2016

ii) Shri Heera Lal Chuni Lal Jain V ITO, order dated 01.01.2016, passed in ITA No.4547/Mum/2014

iii) M/s Imperial Imp & Exp V ITO, order dated 18.03.2016, passed in ITA No. 5427/Mum/2015

iv) ITO V Shri Sanjay V Dhruv, order dated 29.02.2016, in ITA No. 5089/Mum/2014

v) ITO Vs M/s Vaman International P Ltd. order dated 16.11.2016 in ITA No. 794/Mum/2015

vi) CIT Vs M/s Ashish International, order dated 22.02.2011, passed in ITA No. 4299/2009 (Mum)

vii) J.R. Solvent Industries (P) Ltd. V ACIT 68 ITD 65 CHD, and

viii) Rupesh Chiman Lal V ITO, order dated 30.01.2017 in ITA Nos. 6179-6182/Mum/2016

13.5 Then, it is well settled that the assessee cannot be

expected to be after the person with whom he has entered in

the business transactions and the assessee's onus is to

establish the identity of the party and once the payment has

been made through account payee cheque, that identity is

well established.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 48 13.6 The following decisions are eloquent on this issue :

i) Addl.CIT, Bihal Vs Hanuman Agarwal 151 ITR 150 (Patna)

ii) Mather & Platt (I) Ltd. V CIT 168 ITR 493 (Cal)

iii) Addl. CIT V Bahri Bros P.Ltd. 154 ITR 244

iv) Order of the Mumbai Bench of the Tribunal in the case of Prabhat Gupta V ITO in ITA No. 271/Mum/2017 and in M/s Vision Advertising P Ltd. V CIT, order dated 12.08.2018, in ITA No. 890/Mum/2015

13.7 Then, it has rightly been contended that the AO has

passed the order after making all possible enquiries and the

ld. PCIT has gone wrong in holding it to be a case of lack of

enquiry, attracting the provisions of Section 263 of the Act.

13.8 As discussed, it is patent that during the assessment

proceedings, the AO had made all possible enquiries into the

matter of purchases. The ld. PCIT, on the other hand erred

in not repeating the categorical response made by the

assessee by way of its reply (APB 50-52).

13.9 In this regard, it is settled that there is a distinction

between lack of enquiry and inadequate enquiry and as that

it is only not case of lack of enquiry that revisional power

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 49 can be exercised. This proposition stands settled, inter-alia

in the following decisions :

i) CIT V Vikas Polymers 341 ITR 537 (Del)

ii) CIT Vs Sunbeam Auto Ltd. 332 ITR 16 (Del)

iii) ITO V D.G. Housing Projects Ltd. 343 ITR 329 (Del); and

iv) PCIT V Delhi Airport Metro Express (P) Ltd. 398 ITR 8 (Del) 13.10 Moreover, as noted, where two views are possible

and the AO has taken a view with which the CIT/PCIT does

not agree, the assessment order cannot be termed as

erroneous and prejudicial to the interests of the Revenue

unless the view taken by the AO is unsustainable in law.

The following decisions support this :

i) CIT Vs DLF 350 ITR 555 (Del), holding that possibly the AO could have taken another view, but that he did not do so, would not render his opinion to be an unsustainable opinion requiring exercise of revisional powers. ii) In Garg Brothers (P) Ltd. V DCIT vide order dated 18.04.2018, ITA No. 2519/Del/2017, the was found to have adopted one of the courses permissible in law. It was held that even if it had resulted in loss to the Revenue, the decision of the AO could not be treated as erroneous and prejudicial to the interests of the Revenue. The Bench followed the decision of the Hon'ble Supreme Court in the case of Malabar Industries Ltd. V CIT 243 ITR 83 (S.C.).

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 50 14. As correctly pointed out, it is seen that the facts and

the report of the Investigation Wing of the Department were

all available with the AO during the assessment proceedings

and there was no new fact having emerged after the passing

of the assessment order or any fact that had been skipped by

the AO. Proper enquiries had been conducted by the AO and

the assessment had been framed thereon. The assessment,

therefore, had wrongly been treated by the ld. PCIT as

erroneous within the meaning of the provisions of Section

263 of the Act.

14.1 In CIT Vs DLF 350 ITR 555 (Del) it has been held that

once the AO had accepted the claim of the assessee on

examination of the facts on record and after making all

possible enquiries, the assessment order could not be

termed as erroneous and prejudicial to the interests of the

Revenue; that where two views are possible and the AO has

taken a view with which the PCIT does not agree, the

assessment order cannot be held to be erroneous and

prejudicial to the interests of the Revenue. Similarly, the

decision in the case of Garg Brothers Pvt. Ltd. Vs DCIT,

rendered vide order dated 18.04.2018 in ITA

2519/KOL/2017.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 51

emerged after the passing of the assessment order and no

fact has been stated to have been skipped by the AO.

Therefore, again, the assessment order cannot be said to be

erroneous and prejudicial to the interests of the Revenue. In

this regard, the following decisions are to the same effect :

i) CIT Vs Max India Ltd. 295 ITR 282 (S.C.) ii) Malabar Industrial Co.Ltd. V CIT 243 ITR 83 iii) 171 ITR 698 (All) CIT v. Goyal Private Family Specific Trust iv) 170 ITR 28 (All) CIT v. Kashnl Nath & Company v) 171 ITR 141 (MP) CIT v. Ratlam Coal Asn. & Co. vi) 430 ITR 55 (Kar) CIT vs. Cyber Park Development & Construction Ltd. vii) ITA No.25l9/Kol/2017 dated 18.4.2018 Garg Brothers (P) Ltd. vs. DCIT viii) 1TA Nos. 3281-3284/D/2015 dated 11.10.2019 Smt. Shumana Sen vs. DCIT ix) ITA No. 5239/D/2019 dated 21.2.2020 M/s Sunrays Cotspln (P) Ltd. vs. PCIT x) ITA No. 3207/Ahd/2009 Gujarat Laxmi Majur Kamgar Sahkari Mandi Ltd. vs. CIT xi) ITA No. 499/Chd/2016 dated 9.11.2016'Sh. Paramjit Singh vs. POT

15.1 Then, the assessment order, as rightly stated is not

based on either incorrect application of law or incorrect

application of facts or non application of mind on the part of

the AO. There is nothing on record to show that the income

assessed has not been assessed in accordance with law. The

requirements of invocation of the provisions of Section 263

of the Act are not fulfilled and so, the revision itself is not

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 52

sustainable in law, it being, at best, a case of two possible

views, of which, one view has been adopted by the AO. The

following decisions are to the same effect :

i) 112 taxmann.com 321 (Del) ETT Ltd vs CIT ii) 120 taxmann.com 1 87 (Mad) CIT vs Padmavathi iii) 275 Taxman 394 (Mad) CIT vs Vijay Kumar Koganti iv) 117 taxmann.com 986 (Gauhati) Abdul Hamid vs 1TO

15.2 Then, the revision is also not sustainable, since it

has not been ordered on any independent enquiry carried

out by the PCIT. The notice to show cause, issued u/s 263

of the Act itself is based on the averment that the AO has

failed to consider the relevant seized material. In this

regard, in “Jeewanlal Ltd. V Addl. CIT, 108 ITR 407 (Cal),

following the decision of the Hon'ble Supreme Court in the

case of “Sirpur Paper Mills Ltd. Vs CWT, 77 ITR 6 (S.C), it

has been held that while exercising revisionary powers, the

Commissioner must have an unbiased mind and he must

decide the dispute in accordance with the procedure which is

consistent with the principle of natural justice and that he

cannot permit his mind to be influenced by the dictation of

another authority; and that he cannot permit his judgement

to be influenced by matters not disclosed to the assessee.

The following decisions are also decisions to the same effect:

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 53 i) 290 ITR 395 (Gau) B & A Plantation & Industries Ltd. vs. CIT ii) 296 ITR 238 (P&H) CIT vs. Sohana Woolen Mills iii) ITA No. 690/Chd/2010 A.Y. 2005-06 dated 9.3.2012 Sh. Jaswinder Singh vs. CIT v) ITA No. 367/Chd/2012 A.Y. 2007-08 dated 7.3.2013 Aarti International vs. CIT vi) 384 ITR 147 (Del) CIT vs. G&G Pharma India Ltd. vii) ITA No. 7785/2015 (Del) dated 13.10.2015 Pr. CIT vs. Rakam Money Matters (P) Ltd.

15.3 It is also settled, as in the case of CIT Vs Leisure

Ware Exports Ltd. 341 ITR 166 (Del) that the provisions of

Section 263 of the Act cannot be invoked to make deeper

enquiry in presumption and assumption that something new

may come out.

15.4 In “DCIT Vs Jyoti Foundation” 357 ITR 388 (Del), it

has been held that orders passed without enquiry or

investigation are treated as erroneous and prejudicial to the

interests of the Revenue, but orders which are passed after

enquiry/investigation on the question/issue are not per-se

or normally treated as erroneous and prejudicial to the

interests of the Revenue because the revisionary authority

feels and opines that further enquiry/investigation was

required or deeper or further scrutiny should be undertaken.

These decisions are also to this effect :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 54

i) 332 ITR 167 (Del) CIT vs. Sunbeam Auto Ltd ii) 341 ITR 537 (Del) CIT vs. Vikas Polymers Income Tax Appellate Tribunal iii) ITA No. 7265/D/2017 dated 27.1.2020 M/s Klaxon Trading (P) Ltd. vs. PCIT (Delhi Tribunal) iv) ITA No. 1781/D/2016 dated 24.4.2019 Sanjeev Singh vs. PCIT (Delhi Tribunal )

15.5 Then, it is also settled that for holding that the

assessment order prejudicial to the interests of the Revenue

but is also erroneous, there has to be some minimal enquiry

preceding such a conclusion is held in “PCIT Vs Delhi

Airport Metro Express (P) Ltd,. 398 ITR 8 (Del), if the PCIT is

of the view that AO did not undertake any enquiry, it

becomes incumbent on the PCIT to conduct such enquiry.

Where such basic exercise has not been carried out by the

PCIT, the revisionary order is not sustainable. Such

decision is in conformity with the following decisions :

i) 1TA No. 771/CHD/2017 Shri Abhimanyii Gupta Vs. PC1T ii) 70 taxmann.com 227 (Mum) Narayan Tatu Rane vs. 1T0 iii) 1TA No. 339l/D/2018 dated 8.1.2019 Arun Kumar Garg HUF vs. PC1T iv) ITA No. 2799/D/2018 dated 21.6.2019 Champ Info Software vs. PC1T v) ITA No. 3097/D/2014 dated 1.7.2019 Dwarkadhis Buildwell (P) ltd. vs. CIT

15.6 Then, in “CIT Vs Neerav Modi” 398 ITR 292 (Bom),

it was held that the AO was satisfied, consequent to making

an enquiry and examining the evidence produced by the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 55

assessee, establishing the identity and credit worthiness of

the donor, as also the genuineness of the gift; that the CIT,

in his order, had not indicated any doubt in respect of the

evidence produced by the assessee; that the satisfaction of

the AO on the basis of the documents produced had not been

shown to be erroneous, in the absence of making a further

enquiry; that it was a case where a view had been taken by

the AO on enquiry; that even if this view, in the opinion of

the CIT, was not correct, it would not permit exercise of

power u/s 263 of the Act; and that in fact, in the case of

“Amitabh Bachchan”, the Supreme Court had observed that

there can be no doubt that where the view taken by the AO

is a possible view, interference u/s 263 of the Act is not

permissible. SLP filed by the Department against the

aforesaid order, stands dismissed, in SLP No.

(C)22149/2016, reported in 244 taxman 194 (S.C.). Besides,

the following decisions are also to the same effect :

i) ITA No. 3205/Del/2017 M/s Amira Pure Foods (P) Ltd. v. PCIT ii) ITA No. 574/Del/2018 dated 19.06.2018 M/s Vidya Prakashan Mandir (P) Ltd. vs PrCIT iii) ITA no. 2539/Del/2018 dated 29.08.2018 Durgesh Autofin P Ltd. Vs Pr. CIT

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 56

15.7 Besides, it is also settled that when, as in the

present case, the reasons recorded for re-opening the

assessment were the same as for which jurisdiction u/s 263

had been invoked, such invocation of the provisions of

Section 263 was not tenable. In the present case, evidently,

the reasons recorded (APB 53) for re-opening the assessment

u/s 147 of the Act and those (APB 93-94) for which the ld.

PCIT sought to invoke his revisionary jurisdiction, are the

same. In similar facts and circumstances, revision has been

held to be not sustainable ;

(i) CIT Vs Suresh Paul Bansal 2 taxmann.com 260 (Mad), following CIT Vs Vikram Aditya & Associates (P) Ltd. 287 ITR 268 (Mad) and CIT Vs Prudent Advisory Services (P) Ltd., order dated 28.02.2007, passed in IT Appeal No. 170 of 2007, against which last order, the SLP filed by the Department has been dismissed vide order dated 15.01.2000 in SLP (Civil) [CC No. 13518/2007]. (ii) Sri Bala Forgings (P) Ltd. Vs PCIT 175 DTR 57 (Del) (Trib) is also to the same effect. (iii) Too, once the order passed u/s 147/143(3) of the Act is invalid, the consequential proceedings u/s 263 are also invalid, as held in ; i) 341 1TR 240 (Del) CIT v. Software Consultants ii) 49 ITR (T) 0406 (Mum) dated 24.6.2016 M/s Westlife Development Ltd v. Pr. CIT iii) ITA No. 2857/Del./2017 dated 10.12.2018 in the case of M/s. SPJ Hotels Pvt. Ltd. vs The PCIT-8 iv) ITA No. 2808/D/2016 M/s Aas Research and Solutions (P) Ltd. (since kaizen Products (P) Ltd.) vs. PCIT affirmed by Delhi High Court in the case of Pr. CIT v. Kaizen Products (P Ltd. presently known as Aas Research & Solutions (P) Ltd. in ITA No. 466/2017 dated 2.5.2017. v) 220 TTJ 0273 (Jodhpur-Tribunal) dated 9.5.2019 M/s Vinod Commodities Ltd. vs. ACIT

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 57 vi) ITA No. 764 to 766/Kol/2014 dated 5.4.2017 M/s Classic Flour & Food Processing (P) Ltd. vs. CIT vii) ITA No. 2269/D/2017 dated 10.12.2018 M/s Supersonic Technologies (P) Ltd. vs. PCIT viii) l.TA. No.50/DEL/2021 Assessment year: 2017-18 Mikado Realtors (P) Ltd. vs. Pr. CIT (Central)

record indicating that the assessment order is prejudicial to

the interests of the Revenue. In this regard, reliance has

rightly been placed on ;

i) 142 ITR 778 (Pat) CIT vs. Shanti Lai Aggarwala ii) 96 ITR 310 (All) CIT vs. Late Sunder Lal iii) 111 ITR 326 (All) J.P. Srivastava & Sons v. CIT iv) 170 ITR 28 (All) CIT vs. Kashi Nath & Co. iv) 394 ITR 758 (Del) PCIT.v. Vinita Chaurasia

16.1 Then, in “CIT Vs Gabriel India Ltd.” 203 ITR 108

(Bom) and “CIT Vs Software Consultants” 341 ITR 240 (Del),

it has been held that the revisional authority cannot simply

ask the AO to re-examine the matter and that this can be

done only after the assessment order is found to be

erroneous and prejudicial to the interests of the Revenue.

16.2 In “CIT V Trustees Anupam Charitable Trust” 167

ITR 129, Jaipur (Trib), it has been held that error in the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 58

assessment should be one which had depended on fact or

law and was not a mere possibility or guess work.

16.3 Where the assessment order has been set aside

without giving reasons, it is a vitiated order, as held in :

i) 96 ITR 310 (All) CIT vs. Sunder Lal iii) 111 ITR 326 (All) J. P. Srivastava & Sons Ltd. vs. CIT iv) 170 ITR 28 (All) CIT vs. Kashi Nath & Co. 16.4 The following decisions hold that a revisional order

cannot be passed unless there is total non-application of

mind by the AO :

i) 100 ITD 173 (Mum) Mrs. Khatiza S. Oomerbhoy vs. ITO ii) 100 ITD 441 (Kol) Al-Haz Amir Hasan Properties Pvt. Ltd. vs. Asst. C1T iii) 203 1TR 108 (Bom) CIT vs. Gabriel India Ltd. iv) 171 ITR 141 (MP) CIT vs. Ratlam Coal Ash Co.

16.5 It has also been held that where all particulars are

furnished before the AO by the assessee and he has applied

his mind thereto, revision of the assessment order is not

valid. The following decisions are on the issue :

i) 130 TTJ 669 (Del) Regency Park Property Management Services Pvt. Ltd. vs. CIT ii) 125 TT.I 428 (Del) Rajiv Agnihotri vs. CIT iii) 131 ITD 58 (Jai) Rajiv Arora vs. CIT v) 137 TTJ 67 (Pat) Ramakant Singh vs. CIT

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 59

16.6 Courts have also on to hold that proceedings u/s

263 of the Act have to be confined to the findings recorded

by the AO, as follows :

i) 140 ITR 490 (P&H) Jagadhri Electric and Supply Co. vs. CIT ii) 192 ITR 547 (Kar) CIT vs. L.F.D. Silva iii) 192 ITR 50 (Mad) CIT vs. LateT.S. Srinivasa Iyer iv) 60 ITD 295 (Del) Jagjit Industries Ltd vs. ACIT v) 61 ITD 307 (Ahd) Satishbhai Jayantilal Shah vs. ACIT vi) 125 Taxation 188 (AP) CIT vs. G.K. Kabra Cooperative Ind. Estate vii) 61 ITD 317 (Mad) Sanco Trans Ltd. vs. ACIT

us.

herein above, it is found that the revisional proceedings,

culminating in the impugned order are not sustainable in

law, look at from any angle. Accordingly, the grievance of the

assessee is justified and is accepted. The order under

appeal is set aside and quashed and that passed by the AO

is revived. Ordered accordingly.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 60

ITA 147/CHD/2021

assessee has raised the following grounds of appeal :

2.1 That the finding that "the AO has failed to verify the genuineness and creditworthiness of unsecured loans" and also the observation that "AO has not called for any ledger documents and confirmation of accounts of the parties from whom the assessee had taken unsecured loan"; However "AO has failed to make any independent enquiry to verify the genuineness of the loans" is factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable. 2.2 That further finding that "the AO has failed to verify the genuineness and creditworthiness of sundry creditors and also the observation that "AO has not called for any ledger documents and confirmation of accounts of the sundry creditors"; However "AO has failed to make any independent enquiry to verify the genuineness of the creditors" is factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable. 2.3 That also finding that "the AO has failed to check whether all the payments made to partners is accordance with partnership deed and Income Tax Act, 1961 and also the observation that AO has not even called for the copy of partnership deed and brought the same on record" is patently erroneous, unsupported by any evidences, cryptic and, untenable.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 61 2.4 That the learned Principal Commissioner of Income Tax has erred in holding that it is a case of "'lack of enquiry" and, further failing to appreciate that alleged inadequate enquiry in the manner suggested without any independent evidence and, without any further enquiries by him cannot be a basis for assumption of jurisdiction u/s 263 of the Act. 2.5 That the learned Pr. Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Pr. Commissioner of Income Tax had a different opinion and that too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible view 2.6 That the learned Pr. Commissioner of Income Tax has also failed to appreciate that, u/s 263 of the Act, an order of assessment cannot be set-aside to simply to make further enquiries and thereafter pass fresh order of assessment and as such, impugned order is contrary to law and hence, unsustainable. 2.7 That the learned Principal Commissioner of Income Tax has failed to appreciate that surmises, conjecture and suspicion could not be a basis much less a valid basis to invoke section 263 of the Act. 2.8 That while passing the order u/s 263 of the Act the learned Principal Commission of Income Tax cannot travel beyond the show cause notice and therefore findings and observation and also the material relief upon not referred in the show cause notice but made part of the order could neither in law and nor on fact be made a basis to assume jurisdiction u/s 263 of the Act; and thus order on this ground alone deserve to be quashed as such. 2.9 That various other adverse findings recorded in the notice u/s 263 of the Act and, also in impugned order are factually incorrect, vague, legally misconceived and untenable. 3. That the learned Principal Commissioner of Income Tax has framed the impugned order without granting sufficient opportunity to the appellant and therefore the order made is illegal, invalid and, vitiated order. 21. At the outset, it is noted that there is a delay in filing

the present appeal by 19 days. In this regard, the assessee

has filed an application seeking condonation of delay stating

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 62 that the period of delay is covered by the decision of the

Hon'ble Supreme Court wherein the period of Covid-19

Pandemic was directed to be excluded for the purpose of

limitation. It was, accordingly, submitted that the delay in

filing the present appeal may be condoned.

the delay is hereby condoned and appeal of the assessee is

admitted for adjudication.

held the assessment order to be erroneous in so far as

prejudicial to the interests of the Revenue, with regard to

the following three issues :

i) Genuineness and credit worthiness of unsecured loans ii) Verification of sundry creditors, and iii) Payments to partners

material on record with regard to these issues.

25.1 Apropos the issue of genuineness and credit

worthiness of the unsecured loans, the ld. PCIT has observed

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 63 that perusal of the assessment record showed that the

replies filed during the assessment proceedings were just

placed on record and that the AO had failed to verify the

genuineness and credit worthiness of the unsecured loans;

that the AO had not called for any ledger document and

confirmation of accounts of the parties from whom the

assessee had taken unsecured loans; that the AO had also

failed to make any independent enquiry to verify the

genuineness of the loans; that the assessee had submitted

supporting documents related to unsecured loans only in

response to the notice u/s 263 of the Act; that therefore, the

assessment order was erroneous and prejudicial to the

interests of the Revenue; that the AO should have brought

the same on record and make independent enquiry and also

carry out examination of the parties to verify the

genuineness and credit worthiness of the parties; and that

there is a clear cut lack of enquiry on this issue.

25.2 The stand of the assessee is that the unsecured loans

amount to Rs.19,33,54,914/-; that of 10 lenders from whom,

in addition to brought forward loans, the assessee had

received fresh borrowings during the year under

consideration, amounting to Rs.12,76,80,548/- and that

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 64

there are 23 lenders, from whom no fresh loans were

received by the assessee during the year and the loans from

whom amounted to Rs.6,56,74,365/-. The details of all the

unsecured loans, amounting to Rs.19,33,54,914/-, i.e.,

name of the lender, opening balance, as on 01.04.2014,

fresh borrowings, interest, TDS, repayment and closing

balance as on 31.03.2015, have been tabulated as under,

alongwith a reference to the relevant copy of ledger, as

placed in APB-II :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 65

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 66

Devi Sharda, lender, whose copy of ledger has been placed at

APB 86-87, the balance as on 01.04.2014 was a debit

balance of Rs.1,36,18,277/-; that fresh evidences in her case

were of Rs.2,76,49,139/-. Payment of Rs.4,12,67,415/- was

credited. However, there was “nil” balance as on

31.03.2015. These details have been filed at APB-34, in

Form No. 3CD, issued by the auditor, as per the

requirements of the provisions of Section 44AB of the Act.

26.1 The summary of the unsecured loans has, as such,

been tabulated as under :

notice (APB 41-44) dated 18.10.2018 was issued u/s 142(1)

of the Act. Therein, it was stated that as per the Profit &

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 67 Loss Account, it appeared that the firm had paid interest

and carrying of Rs.93,82,166/- and bank interest of

Rs.5,41,93,875/-, and had received interest and carrying of

Rs.3,77,10,670/-. The assessee was asked to furnish the

rate of interest allowed and charged. Details of tax deducted

at source u/s 194A alongwith its payment into the

Government account was also required to be furnished. In

case no tax had been deducted, the assessee was required to

give reasons thereof. The assessee was required to furnish

details of loans/deposits accepted/repaid during the year

otherwise than by account payee cheques or bank drafts

alongwith details of accounts consisting of loans/deposits.

The assessee was required to furnish copies of accounts

alongwith complete address with PAN, contact number, e-

mail Id, etc. in respect of unsecured loans of

Rs.19,33,54,914/-, trade creditors of Rs.19,42,87,255/-,

sundry debtors of Rs.66,39,17,817/-, as appearing in the

balance sheet, with full narration against the entry where

the outstanding balance was of Rs.2 lacs and above. The

assessee was also asked to furnish details of loans squared

up during the year.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 68 27.1 Vide reply (APB 46-47) dated 04.12.2018, the

assessee stated that details of interest paid and interest

charged during the year would be produced during the

manual hearing and that the rate of interest charged and

paid are given in the said details. It was stated that there

were no loans/deposits accepted or repaid during the year

otherwise than by account payee cheques or bank drafts. It

was stated that copies of accounts alongwith complete

address with PAN, contact number, e-mail Id in respect of

unsecured loans of Rs.19,33,54,914/-, trade creditors of

Rs.19,42,87,255/- and sundry debtors of Rs.66,39,17,817/-,

as appearing in the balance sheet, with full narration

against the entry where the outstanding balance was of Rs.2

lacs and above, would be produced during the year, with

documentary evidence would also be produced during the

manual hearing.

27.2 Vide notice (APB 48-49) dated 11.12.2018, issued

u/s 142(1) of the Act, the assessee was required to attend

the AO’s office on 17.12.2018 alongwith the required

information/documents, and also to produce the books of

account.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 69 27.3 In the ordersheet entry (APB 59) dated 21.12.2018,

the AO noted that the counsel of the assessee had submitted

the required documents/information and had also produced

the books of account, which had been test checked, and that

the case had been discussed with the counsel of the

assessee.

27.4 In the assessment order (APB 50-59) dated

21.12.2018, passed u/s 143(3) of the Act, the AO observed,

inter-alia, that the response of the assessee to the notices

had been received and the assessee had requested for

personal hearing for submission of complete

information/documents; that accordingly, notice u/s 142(1)

of the Act had been issued on 11.12.2018, fixing the case for

17.12.2018 for personal hearing; that in response, the

authorized representative of the assessee had appeared, with

whom the case had been discussed; that the assessee

produced the books of account, which were test checked;

and that the requisite documents/information had been

furnished, which had been placed on record after

examination.

of Rs.19,33,54,913/-, loans amounting to Rs.12,76,80,548/-

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 70

were pertaining to earlier years and they were brought

forward as pending balances. Now, it is well settled that

sums pertaining to earlier years, brought forward as pending

balance cannot be taxed under the provisions of Section 68

of the Act. It has been so held, inter-alia in the following

decisions :

i) 152 1TR 583 (Del) CIT vs. Om Prakash Mahajan ii)301 ITR 384 (Del) CIT vs. Usha Stud Agricultural Farms Ltd. 8. Since it is a finding of fact recorded by the C1T(A) that this credit balance appearing in the accounts of the assessee, does not pertain to the year under consideration, under these circumstances, the Assessing Officer was not justified in making the impugned addition under section 68 of the Act and as such no fault can be found with the order of the Tribunal which has endorsed the decision of the C1T(A).

iii) 89 DTR 265 (Del) CIT vs. Jain Exports Pvt. Ltd.

"22. We may also add that, admittedly, no credit entry has been made in the books of the assessee in the previous year relevant to the assessment year 2008- 2009. The outstanding balances reflected as payable to M/s Elephanta Oil & Vanaspati Ltd. are the opening balances which are being carried forward for several years. The issue as to the genuineness of a credit entry, thus does not arise in the current year and this issue could only be examined in the year when the liability was recorded as having arisen, that is. in the year 1984-1985. The department having accepted the balances outstanding over several years, it was not open for the CIT (Appeals) to confirm the addition of the amount of" 1,53,48,850/- on the ground that the assessee could not produce sufficient evidence to prove the genuineness of the transactions which were undertaken in the year 1984-85." iv) 301 ITR 404 (Raj) CIT vs. Prameshwar Bohra v) 349 ITR 260 (All) CIT vs. Raghuraji Agro Industries (P) Ltd. vi) 45 taxmann.com 441 (Guj) CIT vs. Jagatkumar Satishbhai Patel

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 71

INCOME TAX APPELLATE TRIBUNAL i) ITA No.1925/Del/2013 Kamal Industry, HUF vs. DCIT ii) ITA No. 1946/D/2010 AY 2000-01 dated 26.3.2018 Ravina Khurana v. DCIT iii) ITA No. 3736/D/2017 dated 27.11.2020 ACIT vs. SPG Finvest (P) Ltd. (in respect of investments pertains to earlier years) iv) 21 SOT 22 (Delhi) (URO) Suraj Bhan Bajaj vs. ITO v) 65 TTJ 476 (Del) Jagtar Singh vs. ITO vi) ITA No 1219/Mum/2013 Rita Stephen Pinto vs. 1TO vii) ITA No. 2927/Mum/2017 dated 15.6.2018 Syntensia Network Security India (P) Ltd. vs. ITO viii) ITA No 1078/Bang/2014 Glen Willians vs ACIT ix) ITA No 305/Mds/2016 M/s. Sooraj Leathers vs. ITO x) ITA No 557/LKW/20M dated 17.3.2016 ITO vs. Shri Kamal Raheja xi) 157 ITD 924 (Calcutta - Trib.) DCIT vs. Global Mercantiles (P) Ltd.

28.1 With regard to the sum of Rs.12,76,80,548/-,

undisputedly, these are outstanding balances reflected as

payable and are opening balances carried forward with

regard thereto , the issue as to the genuineness of credit

entries therefore, does not arise in the year under

consideration. The said issue could only be examined in the

year when the liability was recorded as having a reason.

28.2 The relation of the assessee, with the lenders

pertaining to those loans pertaining to earlier years,

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 72

amounting to Rs.12,76,80,548/-, has been tabulated as

under :

28.3 It has been stated that apart from the loans from

DDPL Commodities Pvt. Ltd., assessee has also entered into

trading transactions, for which the assessee had maintained

a separate trading account, which resulted into ‘nil’ balance

at the end of the year. The details of the purchases made

from lender have been filed at APB 313. It has also been

stated that apart from the loans taken from Fertichem

Cotspin Ltd., too the assessee had also entered into the

trading transactions and that for that also, the assessee had

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 73 maintained a separate trading account, which resulted into a

debit balance of Rs.74,40,279/-, as is available from APB 14.

28.4 The position of unsecured loans from the ten lenders,

from whom the amount of Rs.12,76,80,548/-, being loans

pertaining to earlier years brought forward as pending

balance, stands tabulated as under :

28.5 It is seen that the unsecured loans received are from

group entities. That being so, no adverse inference with

regard thereto can be drawn against the assessee, as held in

the following decisions, under similar facts and

circumstances :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 74

i) ITA No. 112/2018 dated 07.08.2018 Pr C1T vs M/s. Chain House International (P) Ltd.), (Mad) in SLP dismissed by Apex court in SLP (C) No. 1992/2019 dated 18.02.2019. ii) 257 Taxman 390(Del) dated 7.7.2018 Pr. C1T v. Hi-Tech Residency (P) Ltd. affirmed by Hon'ble Apex Court in 257 Taxman 335 (SC) iii) 105 taxman.com 158 (Del) PC1T vs. E-Smart Systems (P) Ltd. affirmed by Hon'ble Apex Court in 263 Taxman 373 (SC) dated 3.12.2018. iv) 361 ITR 155 (Del) CIT Vs Nipun Auto (P) Ltd. v) 62 ITR (T) 512 (Del) ACIT Vs Shyam Indus Power Solutions (P) Ltd.

28.6 It is seen that with regard to these ten lenders, the

assessee has produced the following evidences :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 75

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 76

28.7 The above evidence with regard to each of these

lenders remains patent on record and uncontroverted.

Further, to reiterate, with regard to these loans carried out

from earlier years, the assessee has also paid interest

thereon after deduction of TDS. Now, evidently, the

department cannot be allowed to approbate and reprobate,

as has wrongly been done in the present case. The following

are some of the decisions on this issue :

assessee is justified in contending that the ld. PCIT has gone

wrong in observing that the AO has failed to verify the

genuineness and credit worthiness of the unsecured loans,

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 77 that the AO has not called for any ledger documents and

confirmation of accounts of the parties from whom the

assessee had taken the unsecured loans and that the AO has

failed to make any independent enquiry to verify the

genuineness of the lenders. As discussed, these findings are

diametrically opposite to the facts placed by the assessee on

record, which evidence, as noted, has remained unshaken.

PCIT observed that the assessment record showed that the

replies filed during the assessment proceedings were just

placed on record and the AO had failed to verify the

genuineness and credit worthiness of the sundry creditors;

that the AO had not called for any ledger documents and

confirmation of accounts of the sundry creditors during the

assessment proceedings; that the AO had also failed to make

any independent enquiry to verify the genuineness of the

creditors; that the assessee had submitted ledger accounts

and confirmation of accounts related to the sundry creditors

only in response to the notice issued u/s 263; that therefore,

the assessment order was erroneous and prejudicial to the

interests of the Revenue; that the AO should bring the same

on record and make independent enquiry and cross-

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 78 examination to verify the genuineness and credit worthiness

of the sundry creditors.

29.1 As per the balance sheet (APB 7 read with APB 12-

13), the closing balances of sundry creditors during the year

is of Rs.9,42,87,205/-. The details thereof, i.e., the name of

the party alongwith its copy of ledger placed in the Paper

Book, the opening balance, the purchase made during the

year, the payment made during the year/other adjustment, if

any and the closing balance with regard to these sundry

creditors had been tabulated as under :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 79

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 80

29.2 It is seen that vide notice (APB 41-44) dated

18.10.2018, issued u/s 142(1) of the Act, the AO asked the

assessee to intimate the names and complete addresses of

the persons from whom purchases and sales exceeding Rs.2

lacs had been made and to also intimate the total

purchases/sales made during the year from these parties.

The assessee was asked to also furnish copies of account of

purchase and sales for the amounts, duly confirmed by the

parties.

29.3 Vide reply (APB 46-47) dated 04.12.2018, the

assessee stated that the names, complete address and copies

of persons from whom purchases and sales exceeding Rs.2

lacs had been made during the year, would be produced

during the manual hearing.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 81 29.4 Vide notice (APB 48-49) dated 11.12.2018, issued u/s

142(1) of the Act, the assessee was asked to attend the

Assessing Officer’s office on 17.12.2018 alongwith the

required information/documents, and also to produce the

books of account.

29.5 In ordersheet entry (APB 59) dated 21.12.2018, the

AO noted that the counsel of the assessee was present and

had submitted the required documents/information and had

also produced books of account, which had been test

checked, and that the case had been discussed with the

counsel of the assessee.

29.6 In the assessment order (APB 50-59) dated

21.12.2018, passed u/s 143(3) of the Act, the AO noted that

the response of the assessee had been received; that the

assessee had requested for personal hearing for submission

of complete information/documents; that accordingly, notice

u/s 142(1) had been issued on 11.12.2018, fixing the case

for 17.12.2018 for personal hearing; that in response, the

CA/authorized representative of the assessee company had

appeared, with whom, the case had been discussed, that the

assessee had produced books of account, which had been

test checked; and that the requisite documents/information

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 82

had been furnished, which had been placed on record after

examination.

29.7 The assessee has produced on record, during the assessment

proceedings, as before us, copies of ledger accounts of the sundry

creditors, for the year under consideration, as follows :

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 83

29.8 We find that as rightly been contended on behalf of

the assessee that once the purchases made are accepted,

thereby accepting the trading results, no adverse inference

can be drawn out of sundry creditors u/s 68 of the Act. This

position stands settled vide inter-alia, the following

decisions :

i) ITA No. 325/2008 (Del) CIT vs. Ritu Anurag Agarwal "As there was no case for disallowance for corresponding purchases, no addition could be made under Section 68 in as much as it is not in dispute that the creditors outstanding related to purchases and the trading results were accepted by the AO. We are, therefore, of the opinion that no substantial question of law arises for consideration in this case. The appeal is accordingly dismissed." ii) 205 CTR 444 (All) CIT vs. Pancham Dass Jain 3. We have heard Shri Shambhoo Chopra, learned standing counsel for the Revenue.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 84 He submitted that as the respondent-assessee was unable to produce the alleged creditors the provisions of s. 68 of the Act was squarely attracted in the present case and the assessing authority has rightly added the two amounts at the hands of the respondent-assessee. According to him s. 68 of the Act also covers up the case of purchases made on credit. 4. The submission is misconceived. The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of s. 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted by the Department, the question of addition of the aforesaid two amounts under s. 68 of the Act did not arise inasmuch as the provisions of s. 68 of the Act would not be attracted on the purchases made on credit. iii) 220 Taxman 17 (Guj) CIT v Nangalia Fabrics (P) Ltd. iv) 200 Taxman 170 (Del) CIT v Oswal Chemical &Fertilisers Ltd. v) 372 ITR 619 (Bom) CIT vs. NikunjEximp Enterprises (P) Ltd. vi) 256 ITR 134 (Bom) RamanandSagar vs. DCIT vii) 282 ITR 251 (Bom) Babulal C Borana vs. ITO viii) 163 ITR 249 (Guj) CIT vs. M. K. Brothers ix) 276 CTR 89 (Cal) CIT v Manish Enterprises x) 205 Taxman 22 (Raj)(MAG.) CIT vs. Precious Jewels Corporation xi) 124 TTJ 554 (Del) Elnad International (P) Ltd. v DCIT "'5.4 We have considered the facts of the case and rival submissions. From the submissions made before us, it is clear that the transactions of purchase and sale were recorded in the books of account and these transactions led to profit to the assessee, which was brought to tax. If sales have been effected out of purchases made from these parties, then, it cannot be said that the purchases were bogus. The finding of bogus sale can only lead to the inference that the corresponding amount should be deleted from the turnover of the assessee. The AO has also not rejected the books of account to estimate profit on these transactions in case it was a firm finding that purchases and sales were bogus. The facts of the case of La Medica (supra) are different in the sense that detailed enquiries were made into the purchases made by the assessee, which were held to be bogus by the AO. It was found that the purchase consideration got deposited in a bank account of an employee in Calcutta, which was opened with the introduction of the assessee. No

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 85 such enquiry was made in this case. In the case of La Medica (supra), it was also not the case that sales were effected from the purchases made and, thus, the purchases could not be out-rightly termed as bogus. Therefore, we are of the view that the facts of the two cases are distinguishable. In absence of displacing the finding of the learned CIT(A) and the fact that the assessee showed profit from these transactions, it is held that there is no such error in the order of the learned CIT(A) which requires correction from us. Thus, this ground is dismissed." xii) 310 ITR 99 (AT) (SB) (Del) Manoj Aggarwal vs. DCIT "For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction therefore has been allowed."

xiii) 95 TTJ 71 (Del) Annamaria Travels & Tours (P) Ltd. vs. DCIT

iv) 67 SOT 52 (Mum) DCIT v Rajeev G. Kalathil xiv) 167 ITD 621 (Mum) M/s. Fancy Wear vs ITO., 6.But,we will like to decide the issue on merits also. The AO or the FAA have not rejected the books of accounts of the assessee nor have doubted the purchases made by it. The recognised principles of accountancy and tax jurisprudence hold that no sales can take place without purchases. Thus, the case under appeal is not about non genuineness of purchases itself, but it is about non genuineness of suppliers. Whether provisions of section 69C of the Act can be applied in the matters where all the purchase and sales transactions part of regular books of accounts. Basic precondition for invoking the section 69C is that the expenditure incurred by the assessee should be out of books of accounts. Here, the payments to the suppliers, as stated earlier, have been made by cheques. So,it cannot be held that expenses were incurred by the assessee outside the books of accounts. Section 69C was introduced in to the statute with a specific purpose. A bare reading of the section makes it clear that if the assessee incurred

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 86 any expenditure, but offered no explanation about the source of such expenditure or part thereof, or the explanation so offered is not satisfactory, such expenditure may be deemed to be the income of the assessee. The assessee has offered satisfactory explanation about the source of the expenditure in the case before us.

xv) 100 TTJ 892 (Ahd) Rajesh P Soni v ACIT

29.9 Further besides the above, as available from the

assessee's reply (APB 67-69) before the ld. PCIT, the

assessee has filed evidence, ledger account of the sundry

creditors in the assessee's books of account, from where, it

is evident that payment was made to them by the assessee

through the banking channels in the subsequent years. The

summary of such payments made by the assessee in the

subsequent years is at APB 73-76 and the copy of ledger

accounts has been furnished at APB 243-311.

29.10 From the above, we are of the considered opinion

that the purchases having been duly accepted, adverse

inference against the assessee was wrongly drawn with

regard to sundry creditors u/s 68 of the Act. The ld. PCIT

evidently erred in holding that the AO had failed to verify the

genuineness and credit worthiness of the sundry creditors.

The ld. PCIT further went wrong in observing, in the face of

the evidence produced by the assessee, that the AO had not

called for any ledger documents and confirmation of

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 87 accounts of the sundry creditors. The ld. PCIT further went

wrong in holding that the AO had failed to make any

independent enquiry to verify the genuineness of the

creditors. The impugned order in this regard is also set

aside and reversed and the assessment order is revived with

regard to the issue of sundry creditors also.

29.11 So far as regards the issue of payments made to

partners, the ld. PCIT observed that as per the assessment

record, the replies filed during the assessment proceedings

were just placed on record and the AO had failed to check

whether all the payments made to the partners were in

accordance with the Partnership Deed and the Income Tax

Act, 1961; that the AO had not even called for the copy of

the Partnership Deed and had not brought the same on

record during the assessment proceedings; that in the

absence of the Partnership Deed, all the payments made to

the partners remained unverified; that the copy of the

Partnership Deed had been submitted by the assessee only

in response to the notice issued u/s 263; that therefore, the

assessment order was erroneous and prejudicial to the

interests of the Revenue and that the AO should bring the

same on record and verify and check whether all the

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 88

payments made to the partners are in accordance with the

deed and the Income Tax Act, 1961.

29.12 The payments made to the partners have been

tabulated as follows :

Sr. Name of Partner Interest Remuneration No. (in Rs.) (in Rs.) i) Lalit Mohan Sharda 8.98.170 3,00,000 ii) Mahesh Sharda 19,69,555 6,00,000 iii) Pankaj Sharda 17,66,511 3,00,000 Total 46,34,236 12,00,000

29.13 Further, the status of the partners’ remuneration

and interest paid to partners has been shown as follows :

Sr. Assessment Partners Interest Disallowance Assessed Assessment No. Remuneration paid to Partners i) 2011-12 16.00,000 17,04,834 — DCIT 143(3) ii) 2012-13 16.00.000 20,33.464 Circle — iii) 2013-14 4,80.000 29,92.937 Sirsa — iv) 2014-15 12,00,000 40,26.827 ~ v) 2015-16 12,00,000 46,34,236 — vi) 2016-17 12,00.000 96.94,384 —

regard to either partners’ remuneration or interest paid to

partners has suffered disallowance in the earlier years as

well as in the immediately succeeding assessment year, in

scrutiny assessment proceedings, no disallowance in the

year under consideration is called for, in order to maintain

consistency, too for the reason that adverse inference was

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 89

drawn against the assessee in this regard only on the ground

that copy of Partnership Deed had not been placed on

record. The following decisions are to the same effect :

i) 358 ITR 295 (SC) CIT vs. Excel Industries Ltd. ii) 308 ITR 161 (SC) CIT vs. J. K. Charitable Trust iii) 266 ITR 99 (SC) CIT v. Berger Paints iv) 394 ITR 449 (SC) Godrej & Boyce Manufacturing company Ltd. vs. DCIT 30.1 Otherwise too, as rightly contended, both the

payments, i.e., either on account of remuneration paid to

partners, or on account of interest paid to partners is

taxable in their respective hands and not in the hands of the

assessee. Therefore, no adverse inference under the

provisions of Section 263 of the Act could have been drawn.

30.2 As such, here also, we find the grievance of the

assessee to be justified. We hold that the ld. PCIT has erred

in holding that the AO had failed to check whether all the

payments made to partners were in accordance with the

Partnership Deed and the Income Tax Act. The ld. PCIT also

went wrong in observing that the AO had not even called for

the copy of the Partnership Deed and had not brought the

same on record.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 90 30.31 The assessee's contentions are to the effect that the

AO had passed the assessment order after making all

possible enquiries; that the AO had adopted one of two

possible view; that the revisional order is based on highly

vague and cryptic observations; that the provisions of

Section 263 do not permit revision on the basis of merely

suspicion, conjectures and surmises; that revisionary powers

cannot be invoked to make deeper enquiry; that to arrive at

a conclusion of the assessment order being erroneous and

prejudicial to the interests of the Revenue, the same minimal

enquiry has to be there; that the revisionary action is based

on receipt of proposal from the AO; that Commissioner of

Income Tax cannot simply ask the Assessing Officer to re-

examine the matter, he can do so only after finding order of

assessment is erroneous and prejudicial to interest of

Revenue; that error should be one which depended on

fact or law and not mere poss1blity or guess work; that

proceedings u/s 263 have to be confined to findings recorded

by learned Assessing Officer and not beyond.

while dealing with t he assessee's appeal in ITA

146/CHD/2021 for assessment year 2011-12 (supra). For

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 91

the above discussion, finding merit in the grievance sought

to be raised by the assessee, the same is accepted. The

impugned order qua all the three issues raised, i.e.,

genuineness and credit worthiness of unsecured loans,

verification of sundry creditors and payments to partners, is

reversed and the assessment order concerning all these

issues is ordered to be revived.

147/CHD/2021, for assessment year 2015-16 is partly

allowed.

ITA 148/CHD/2021

assessee has raised the following grounds of appeal:

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 92

failed to make any independent enquiry to verify the genuineness of the loans" is factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable. 2.2 That further finding that "the AO has failed to verify the genuineness and creditworthiness of sundry creditworthiness of sundry creditors" and also the observation that "AO has not called for any ledger documents and confirmation of accounts of the sundry creditors"; However "AO has failed to make any independent enquiry to verify the genuineness of the creditors" is factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable. 2.3 That also finding that "the AO has failed to check whether all the payments made to partners is accordance with partnership deed and Income Tax Act, 1961 and also the observation that AO has not even called for the copy of partnership deed and brought the same on record" is patently erroneous, unsupported by any evidences, cryptic and, untenable. 2.4 That the learned Principal Commissioner of Income Tax has erred in holding that it is a case of "lack of enquiry" and, further failing to appreciate that alleged inadequate enquiry in the manner suggested without any independent evidence and, without any further enquiries by him cannot be a basis for assumption of jurisdiction u/s 263 of the Act. 2.5 That the learned Pr. Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Pr. Commissioner of Income Tax had a different opinion and that too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible view. 2.6 That the learned Pr. Commissioner of Income Tax has also failed to appreciate that, u/s 263 of the Act, an order of assessment cannot be set-aside to simply to make further enquiries and thereafter pass fresh order of assessment and as such, impugned order is contrary to law and hence, unsustainable. 2.7 That the learned Principal Commissioner of Income Tax has failed to appreciate that surmises, conjecture and suspicion could not be a basis much less a valid basis to invoke section 263 of the Act. 2.8 That while passing the order u/s 263 of the Act the learned Principal Commission of Income Tax cannot travel beyond the show cause notice and therefore findings and observation and also the material relied upon not referred in the show cause notice but made part of the order could neither in

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 93 law and nor on fact be made a basis to assume jurisdiction u/s 263 of the Act; and thus order on this ground alone deserve to be quashed as such. 2.9 That various other adverse findings recorded in the notice u/s 263 of the Act and, also in impugned order are factually incorrect, vague, legally misconceived and untenable. 3. That the learned Principal Commissioner of Income Tax has framed the impugned order without granting sufficient opportunity to the appellant and therefore the order made is illegal, invalid and vitiated order

the present appeal by 19 days. In this regard, the assessee

has filed an application seeking condonation of delay stating

that the period of delay is covered by the decision of the

Hon'ble Supreme Court wherein the period of Covid-19

Pandemic was directed to be excluded for the purpose of

limitation. It was, accordingly, submitted that the delay in

filing the present appeal may be condoned.

the delay is hereby condoned and appeal of the assessee is

admitted for adjudication.

pressed.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 94 38. Apropos Ground Nos. 2 to 2.9, the facts are,

mutatis-mutandis , similar to those present in ITA

No.146/CHD/2021, dealt with herein by us, in the preceding

portion of this order. That being so, our findings on these

grounds, qua assessment year 2011-12 (supra) are squarely

applicable to the year under consideration also, i.e.,

assessment year 2017-18. Following the reasons recorded by

us in this regard for assessment year 2011-12, for the year

under consideration also, the revisional proceedings,

culminating in the impugned order are not sustainable in

law.

worthiness of the lenders and the genuineness of the

transactions was not enquired into by the AO regarding

loans of Rs.8.3 Crores taken by the assessee during the year;

that the AO did not ask for the Income Tax Return and the

bank account and confirmations; that in the assessment

order, there is even no mention of any such enquiry having

been carried out by the AO. It has been contended that no

minimal enquiry is mandatorily to be carried by the CIT in

the revisionary proceedings. Reliance in this regard has been

placed on “Basera Realtors” 163 TTJ 736 (CHD), “Raj Laxmi”

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 95 31 SOT 353 (Chennai) (SB), “Daniel Merchants” (2017) TIOL

455 (SC)(IT) & “Daniel Merchants” (2017) TIOL 2526 (HC)

(KOL) (IT).

39.1 In this regard, we find that no such objection was

raised by the CIT in the impugned order. It is well settled

that the case of the Commissioner cannot be improved upon

by the DR. Reference, in this regard, can be made to “CIT

v.Jagadhiri Electric Supply & Industrial Co.” 140 ITR 490

(P&H), “M/s Sabh Infrastructure Ltd. vs. ACIT”,398 ITR 198

(Del) and “Sarogi Credit Corporation v. Commissioner Of

Income-Tax, Bihar” 03 ITR 344 (Patna).

39.2 In view of the above, finding that in this matter,

the revisionary proceedings, culminating in the impugned

order are not sustainable in law, the case looked at from any

angle. Accordingly, the grievance of the assessee in this

regard is justified. It is accepted as such. The order under

appeal is set aside and quashed and that passed by the AO

is revived. Ordered accordingly.

ITA 146,147 & 148/CHD/2021 A.Y. 2011-12, 2015-16 & 2016-17 96

assessee, i.e., ITA 146/CHD/2021, ITA 147/CHD/2021 and

ITA 148/CHD/2021 are partly allowed.

Order pronounced on 04.03.2024.

Sd/- Sd/-

(VIKRAM SINGH YADAV) (A.D.JAIN ) ACCOUNTANTMEMBER VICE PRESIDENT “Poonam” आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. .��यथ�/ The Respondent 3. आयकर आयु�/ CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar