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Judgment
PER SATBEER SINGH GODARA, JM
This Revenue’s appeal with assessee’s Cross Objection ITA No.5272/Del/2025, CO No.23/Del/2026 for Assessment Year 2022-23, arises against National Faceless Appeal Centre/Commissioner of Income Tax (Appeals)[in short the “CIT(A)”, New Delhi’s order dated 06.03.2025 passed in appeal number NFAC/2021-22/10363993, involving proceedings under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The assessee has raised following grounds of appeal in its Cross Objection No.23/Del/2026:-
Ground 1: That, the learned Assessing Officer has erred in law in assuming jurisdiction and completing the assessment pursuant to a notice issued under section 143(2) of the Income-tax Act, 1961, which was not issued in accordance with the binding Instructions issued by the Central Board of Direct Taxes (CBDT) vide instruction circular F NO. 225/157/2017/ITA-II dated 23.06.2017 as the AO is required to specify the category of the scrutiny selected under CASS (Computer Aided Scrutiny Selection) as to whether, it is a limited scrutiny, manual scrutiny or Complete Scrutiny Assessment and accordingly the Assessment Order dated 15-12-2022 is liable to be annulled.
Ground 2:
The said notice under section 143(2) of the Act being contrary to CBDT Instructions, which are mandatory and binding on the Assessing Officer under section 119 of the Act, renders the entire assessment proceedings void ab initio, without jurisdiction and liable to be quashed.
The Learned counsel submits at the outset that the assessee’s cross objection no.23/Del/2026 raise purely a legal issue that the impugned assessment herein dated 15.12.2022 deserves to be quashed since not framed after issuance of a valid section 143(2) notice as per CBDT Instructions/ Circular dated 23.06.2017. We find no merit in the assessee’s legal ground in the light of hon’ble jurisdictional high court’s recent decision in Bharat Bansal vs National Faceless Assessment Centre, Delhi in WP(C) No.2238/2026 dated 17/02/2026 adjudicating the very issue in the department’s favour. Rejected accordingly.
Next comes the Revenue’s appeal ITA No.5272/Del/2025 raising the following substantive grounds:-
1.Whether on the facts and circumstances of the case the Ld. CIT (A) was justified in deleting the Addition of 25,64,006/- in respect of disallowance u/s 40(a) (ai) made by the AO on account of non deduction of tax on rent payment of Rs. 85,46,688/- after considering the submissions made by assessee, however, no remand report was called for from the AO to verify the same.
2.Whether on the facts and circumstances of the case the Ld. CIT (A) was justified in deleting the Addition of Rs. 48,46,405/-out of total addition 55,74,319/- made by the Assessing officer in respect of excess purchase and added only gross profit i.e. 2.37% of total excess/bogus purchases.
3.Whether on the facts and circumstances of the case the Ld. CIT (A) was justified in deleting the Addition of Rs. 1,48,005/-out of total addition 1,48,606/- as unexplained expenses u/s 69с as the assessee did not submit any explanation for the difference in the ledger account of i.e. discovery sales, Pernod ricard India Pvt. Ltd., Oasis Overseas Exports Pvt Ltd & United Sprits Ltd. and CIT(A) added only gross profit i.e. 2.37% of total excess/bogus purchases.
4.Whether on the facts and circumstances of the case the Ld. CIT (A) was justified in deleting the Addition of Rs. 9,93,76,665/- made by AO in respect of disallowance of sundry creditors as the assessee has failed to submit the details of confirmation ledger account of creditors amounting to Rs.49,68,86,327/- for which 20% was disallowed the AO. Thus, the genuineness of these creditors remained unexplained.
5.Whether on the facts and circumstances of the case the Ld. CIT (A) was justified in deleting the Addition of Rs. 70,80,000/- in respect of disallowance of salary expense incurred for relatives as the details submitted by the assessee are general in nature. The only obvious reason for the claim of this huge expenditure of salary to related persons seems to be to reduce the taxable income of the assessee.
We advert to first and foremost issue between the parties involving section 40(a)(ai) disallowance of Rs.25,64,006/- @30% involving the rent payment therein for various shops amounting to Rs.157,08,178/-. The Learned CIT(A) holds that the assessee was required to deduct TDS only qua rental payments 71,61,480/-; reading as under:-
“...7. The assessing officer has made the disallowance of Rs. 25,64,006/- (30% of 84,688/- under Section 40a(ia) of the Income Tax Act, 1961) on account of non-deduction of TDS on rent paid. The assessee has submitted that it had claimed total rent of Rs. 1,57,08,178/- for one whole sale shop and 54 retails shops. The copy of shop licences showing the address of the shop taken on rent were submitted before the AO. The assessee has submitted that TDS was applicable only on the rent of Rs. 71,61,480/- and the ‘TDS was not deductible on the balance rent paid. It has been submitted that the rent of Rs. 54,75,000/- was paid to individual parties wherein the rent paid per person was less then Rs. 2,40,000/- per annum and TDS deduction is not applicable. The rent of Rs. 30,71,688/- was paid to Haryana Urben Development Authority and the assessee was not required to deduct TDS on the rent paid to such Authority. The assessee has relied upon some judicial precedents in support of its submissions. The submissions of the assessee have merits as it is clear from the facts that TDS was not required to be deducted out of the payment of rent of Rs. 85,46,688/-. Accordingly, the disallowance of Rs. 25,64,006/- made by the AO under Section 40a(ia) due to non-deduction of TDS on rent is hereby deleted...”
That being the case, the Revenue fails to rebut the foregoing clinching finding of fact that no TDS was required to be deducted qua rental payments made to Haryana Urban Development Authority (HUDA). We thus uphold the learned CIT(A)’s/NFAC forgoing detailed discussion in very terms. This Revenue’s first and foremost substantive ground fails therein.
The Revenue’s next twin substantive grounds seek to revive unexplained/bogus purchases disallowance and unexplained expenses under section 69C of the Act involving corresponding figures of Rs.55,74,319/- and Rs.1,48,606/- which stands partly deleted to the extent of Rs.6,10,266/- and Rs.1,23,235/-; respectively, followed by gross profit estimation @2.37% on remaining component thereupon.
That being the case, we are of the considered view that various recent judicial precedents (2025) 173 taxmann.com 592 (Guj.) Ravjibhai Becharbhai Dhamelia vs. ACIT; (2024) 160 taxmann.com 110 (Bom) PCIT Vs. Hitesh Mody (HUF), (2024) 160 taxmann.com 93 (Del) PCIT Vs. Forum Sales (P) Ltd.; (2025) 172 taxmann.com 283 (Bom) PCIT Vs. Kanak Impex (India) Ltd; (2025) 178 taxmann.com 424 (Del. – Trib.) DCIT Vs. Kohinoor Foods Ltd.; and (2025) 177 taxmann.com 836 (Delhi-trib.) DCIT Vs. Tirupati Matsup (P.) Ltd. have decided the instant issue of bogus purchases with divergent views i.e. accepting or partly allowing or rejecting the same in entirety; as the case may be. We thus express our full concurrence with the learned CIT(A)/NFAC’s in foregoing detailed discussion adding not only granting part relief but also estimating GP @2.37% guided by market comparables. These Revenue’s second and third substantive grounds are hereby rejected.
Learned CIT-DR next vehemently submits that the Revenue’s fourth substantive ground herein is that the learned Assessing Officer has rightly added the assessee’s sundry credits @20% of the total sum of Rs.49,68,86,327/-@20%; coming to Rs.9,93,76,665/- which has been wrongly deleted in the CIT(A)’s detailed discussion; reading as under:-
The assessing officer has made the addition of Rs. 26,43,874/-under Section 68 of the Income Tax Act, 1961 on account of difference in the closing balance of the sundry creditors as per books and as per the confirmation of parties. The assessee has submitted that the difference in the balances of three parties is primarily due to the reason that rebate and discount given by such parties was accounted for by them in their books in F.Y. 2021-22 whereas the assessee has considered such rebate and discount in its books in next year i.e. F.Y. 2022-23 relevant to A.Y. 2023-24. The assessee has further submitted that the issue is only with regard to year of taxability and has relied upon the decision of Hon’ble Supreme Court in the case of Excel Industries Ltd. The assessee has further submitted that Section 68 has no applicability to the sundry creditors and relied upon on catena of case laws. The submissions of the assessee have been perused and have found to have merit. Accordingly, on the facts of the case and following the judgement of Hon’ble Supreme court in the case of Excel Industries Ltd, the addition of Rs. 26,43,874/- made by the AO under Section 68 is hereby deleted.
We have given our thoughtful consideration to Revenue’s and assessee’s submissions reiterating their respective stands against and in support of the learned CIT(A)’s foregoing detailed discussion. We find no reason to sustain the impugned addition as such an estimation at a flat rate of 20% than having examined each and every corresponding sundry credit entry(ies) does not deserve to be concurred with. This is indeed coupled with the fact that the assessee had duly pleaded and proved with its supporting evidence and the corresponding purchases also stand accepted as in the preceding paragraphs. We thus uphold the learned CIT(A)’s/NFAC’s impugned appellate discussion deleting this sundry credits addition in very terms.
The Revenue’s last substantive ground is that of section 40A(2)(b) disallowance amounting to Rs.70,80,000/- paid to the five specified persons. The learned CIT(A)/NFAC records in para 7.6 that all these five payees have been receiving their respective salaries at the very rate. And also that it is a revenue neutral instance since they are themselves taxed at a maximum rate going by the CBDT landmark Circular dated 18.06.1967 and CIT vs Indo Saudi Services (Travels) Pvt. Ltd. (2009) 310 ITR 306 (BOM.). We thus find no merit in the Revenue’s last substantive ground as well which is rejected in very terms.
The Revenue’s appeal being ITA No.5272/Del/2025 and the assessee’s Cross Objection CO No.23/Del/2026 are dismissed. A copy of this common order be placed in its respective case files.