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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:
This appeal is filed by the Assessee against the order of Ld. National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred as CIT(A)) dated 30-Aug-2025 arising from the order u/s. 143(3) r.w.s. 263 of the Income-tax Act, 1961 (Hereinafter referred to as “Act”) dated 30.09.2021 for the A.Y. 2015-16, passed by the ACIT-2(1)(1), Ghaziabad.
The Assessee has raised the following grounds of appeal :
1)That, the assessment made Under section 143 (3) r.w.s. 263 and the additions/disallowance made by the Assessing Officer are illegal, bad in law and without jurisdiction. The NFAC has erred in upholding the same.
2)Ground The NFAC has failed to appreciate the complete record and explanation given in the evidence produced, material placed that has been made available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made.
3)That, the NFAC has erred in not providing proper and adequate opportunity of personal hearing to the Appellant even the specific request has been made by the appellant, which is clear violation of rule 12 of NFAC Scheme and against the principle of natural justice.
4)That, NAFC has failed to appreciate that proceeding initiated by PCIT U/s 263 to set aside the original assessment order passed U/s 143(3) is itself illegal, bad in law and without jurisdiction, as the same has been passed beyond the jurisdiction of limited scrutiny.
5)That Pr. CIT has erred in issuing the direction to verify the sundry creditors by issuing the Notice Under section 133(6), which clearly shows that the Pr. CIT wants to direct the assessing officer, in what manner he should complete the assessment, which is clear violation of provision of section 143(2) r.w.s 143(3) of the Act. The NFAC has erred in confirming the same.
6)That, the Assessing Officer has erred in completing the assessment on Income of at Rs.2,23,01,147.00 against the Returned Income declared by the assessee. The additions/disallowances made at Rs.1,27,32,909.00 are illegal, unjust, highly excessive and are not based on any material on record by the Assessing Officer. The NFAC has erred in confirming the same.
7)That, the NFAC (Appeals) has erred in upholding the addition of Rs.1,27,32,909.00 on account of unverified creditors applying provision of section 68 of the Income Tax Act, 1961, merely on the basis of the non-responsiveness of notice U/s 133(6) issued to the creditors hence, the invoking of section 68 is highly arbitrary, unjustified and against the facts and circumstances of the case.
8)That, NFAC has erred in not appreciating that, the assessing officer has wrongly applied provision of section 68 of the ACT, without appreciating that the provision of section 68 is not applicable on the sundry creditor, which is highly arbitrary, unjustified and illegal.
9)Without Prejudice to the above, the assessing officer has erred in making the alleged addition/ disallowance of sundry creditors, without appreciating that the assessing officer has already estimated the profit on the total turnover of the assessee, thereafter of estimation of profit no further addition can be made related to the purchases. Therefore, the addition of sundry creditor is highly arbitrary and unjustified. The NFAC has confirming the same.
10)The NFAC has erred in making the observation, in the impugned order, which are unjustified, unlawful and based on mere surmises and conjunctures. The additions made cannot be justified by any material on record and also excessive.
11)The Appellant craves leave to add, amend, alter and OR modify the grounds of appeal of the said appeal.
The brief facts of the case are the assessee is an Individual and engaged in the business of Civil Contractor of various Development Authorities through its Prop. Concern M/s A. K. Construction. The Return of Income has been filed on 28.09.2015 declaring 'Income of Rs.69,59,460.00. The case of the assessee has been selected under the Limited Scrutiny, for the specific reason of examining "Contract Receipt mismatch, Sales Turnover mismatch, Sundry Creditors and Tax Credit mismatch". The ld AO completed the proceedings U/s 143(3) of the Income Tax Act, 1961 on dated 29.09.2017 on Income of Rs.95,68,238.00 after making addition/disallowance by estimating the Net Profit @7% instead of @5.16%.
Subsequently, the Pr. CIT, Ghaziabad has initiated the proceedings U/s 263 on 27.02.2020, on the basis that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue as he has failed to verify the 'Large Increase in the Sundry Creditors'; and that the Sundry Creditors amounting to Rs.1,27,32,909.00 was not verified by the assessing officer. Thereafter, the assessing officer has completed the assessment proceedings U/s 143(3)/263 dated 30.09.2021 by making addition/disallowance out of Sundry Creditors of Rs. 1,27,32,909/- assessing the total income at Rs.2,23,01,147.00. Upon appeal, the ld CIT(A), the additions were confirmed.
Aggrieved the assessee is before us. Before us, the assessee has made the following submissions:
1) The assessment proceedings U/s 263 and Assessment Order passed U/s 143(3) r.w.s. 263 is illegal, bad in law and without jurisdiction:-
That, as stated above, the original assessment of the assessee has been selected under the 'Limited Scrutiny', on the issues of "Contract Receipt mismatch, Sales Turnover mismatch, Sundry Creditors and Tax Credit mismatch" (kindly refer As annexure-'B'), whereas, the assessing officer has passed the assessment order U/s 143(3) of the Act by making the addition on account of estimation of the Net Profit @7% instead of @5.16% on the ground, that, the assessing officer has observed, that, in the Profit & Loss Account certain expenses like Wages, Labor Cess, Staff and Labor Welfare, Telephone Misc. Expenses has been claimed on higher value (kindly refer As annexure-'C')., which has been passed beyond the issues of the limited scrutiny, therefore, the assessment order passed is illegal, bad in law and without jurisdiction.
On the basis of the said assessment order, the Pr. CIT has assumed the jurisdiction U/s 263 and held that the assessment order passed is erroneous and prejudicial to the interest of the revenue, while assuming the jurisdiction U/s 263 by the Pr. CIT, has failed to appreciate, that, the assessment order has passed beyond the scope of limited scrutiny, which is illegal, bad in law and without jurisdiction, therefore, the proceedings initiated U/s 263 on the basis of illegal assessment order, which has no sanctity/legs to stand on, in the eyes of law, makes the whole proceedings and assumption of jurisdiction U/s 263 is itself illegal, bad in law and without jurisdiction.
That, the Pr. CIT has also failed to appreciate before initiation of assumption of jurisdiction U/s 263, that, 'the assessment order is passed by the assessing officer is erroneous and void-ab-initio, therefore, the assumption of jurisdiction U/s 263 and order passed is also erroneous and viod-ab-initio. Here the assessee wants to rely on the following decision are as under :-
a)Chaitanya Bansibhai Nagori Vs. Pr. CIT, In ITA No.377/Ahd/2020 dated 23.05.2022.
b)Narender Kumar Ramesh Bhai Patel Vs. DCIT, In ITA No.981/Ahd/2019 dated 20.03.2020.
Further, all the basis of the said proceedings and the order passed U/s 263, the notice issued U/s 143(2) and the order passed U/s 263 read with section 143(3), which is impugned order becomes the illegal, bad in law and without
jurisdiction. In view of the facts and circumstances, the Hon'ble ITAT, in the case of Smt. Aishwarya Rai Bachchan, Vs. Pr. CIT-8, Mumbai, vide ITA No.754/Mum/2021 dated 25.02.2022.
In view of the facts and circumstances and judicial precedents, the proceedings and the order passed U/s 263, the notice issued U/s 143(2) and the order passed U/s 263 read with section 143(3), which is impugned order becomes the illegal, bad in law and without jurisdiction, therefore, the same liable to be quashed.
2) Reg. addition of Rs.1,27,32,909.00 on account difference in Sundry Creditors:-
That, in the year under consideration, the assessee has shown the total sundry creditors of Rs. 1,90,75,680.00. During the assessment proceedings, the assessee appellant has filed the details of the sundry creditors, such as Name Address, PAN alongwith nature of the Transaction and the details of the total Credit and Debit entries, the list has been reproduced by the assessing officer in the assessment order, (kindly refer the Page No. 2 to 5 of the impugned assessment order)
In pursuance to the above details, the assessing officer has issued the notice U/s 133(6) of the parties and made the observation, that, there are unverified parties and also, having the difference between the balances of Sundry Creditors and made the addition of Rs.1,27,32,909.00 as per the table given below:
Sr. Name of Party Closing Balance No. 1. M/s Ample Infra Logistics 10,16,175.00 2. M/s Arya Bandhu Traders, 19,493.00 3. M/s Bhagwan Brick Field, 16,09,000.00 4. M/s Bokam RMC, 11,29,700.00 5. M/s D.B.F. Bhatta Co., 1,00,450.00 6. M/s Jamuna Brick Klin, 10,64,325.00
7. M/s Krishna Traders,. 3,42,884.00
Sr. No. Name of Party Closing Balance 1. M/s Ample Infra Logistics 10,16,175.00 2. M/s Arya Bandhu Traders, 19,493.00 3. M/s Bhagwan Brick Field, 16,09,000.00 4. M/s Bokam RMC, 11,29,700.00 5. M/s D.B.F. Bhatta Co., 1,00,450.00 6. M/s Jamuna Brick Klin, 10,64,325.00 7. M/s Krishna Traders,. 3,42,884.00 8. M/s Maa Bhagwati Bricks, 19,92,500.00 9. M/s Mahadev Bricks Udyog, 13,96,345.00 10. M/s Mitra Brothers, 3,23,040.00 11. M/s Mohammadpur Brick Field, 14,75,375.00 12. M/s Mohan Kalra Station, 2,45,000.00 13. M/s Mohan Nagar Service Center, 1,00,000.00
14. M/s Shraya Grit Udyog, 3,54,200.00 15. M/s Shree Ganesh Tiles House, 1,03,431.00 16. M/s Sri Ram Enterprises, 5,14,500.00 17. M/s Startech Concrete Pvt. Ltd., 9,46,491.00 Total 1,27,32,909.00 That, the assessing officer has erred in observing, that, there is a difference between the balances of Sundry Creditors and remaining unverified due to no response to notice U/s 133(6) of the Act, without appreciating the facts, there is no discrepancies or differences as alleged by the assessing officer. The partywise submission are as under :-
a)M/s Ample Infra Logistics, (TIN No.08630903373):- That, in the year under consideration, the assessee has purchased the Granular sub-base (In short 'GSB') Rs.35,40,085.00 out of which the assessee has made the payment of Rs.30,63.248.00, and having the closing balance of Rs. 10,16,175.00, The copy of the confirmed ledger along with bills are being enclosed, for your ready reference.
b)M/s Bhagwan Brick Field, (TIN No.09290602400):- That, in the year under consideration, the assessee has purchased the Bricks Rs. 19,59,000.00 out of which the assessee has made the payment of Rs.10,62,813.00, and having the closing balance of Rs.16,09,000.00, the said party is having the running account from the previous year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
c)M/s Bokan Rmc, (TIN No.09865712045):- That, in the year under consideration, the assessee has purchased the Ready Mix Concrete Rs. 18,29,700.00 out of which the assessee has made the payment of Rs.13,37,825.00, and having the closing balance of Rs.11,29,700.00 and the payment is made through banking channels, the said party is having the running account from the previous year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
d)M/s D.B.F Bhatta Co.:- That, in the year under consideration, the assessee has not any purchases, the said party is having the brought forward opening balance of Rs. 1,74,450.00 out of which the payment of Rs.74,000.00 were made during the year, therefore, the assessing has erred in making the addition of the closing balance of Rs.1,00,450.00 during the year is highly arbitrary and unjustified. The copy of the confirmed ledger is being enclosed, for your ready reference.
e)M/s Jammu Brick Klin, (TIN No.09691000585):- That, in the year under consideration, the assessee has purchased the Bricks Rs.13,14,325.00.00 out of which the assessee has made the payment of Rs.9,93,600, and having the closing balance of Rs. 10,64,325, the said party is having the running account from the previous year and the payment is made through banking channels. The copies of the confirmed ledger along with bills are being enclosed, for your ready reference.
1)M/s Krishna Trader, (TIN No.09491002599):- That, in the year under consideration, the assessee has purchased the TMT saria Rs.3,42,884.00 in the month of march, 2015, therefore, the party is having the credit balance, which has been paid in the subsequent year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
g)M/s Maa Bhagwati Brick Field, (TIN No.09188820023C):-That, in the year under consideration, the assessee has purchased the Bricks Rs.28,92,500.00 out of which the assessee has made the payment of Rs. 16,16,750.0, and having the closing balance of Rs.19,92,500.00, the said party is having the running account from the previous year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
h)M/s Mahadev Bricks Udvog, (TIN No.09988830833C):- That, in the year under consideration, the assessee has purchased the Bricks Rs.17,50,220.00 out of which the assessee has made the payment of Rs.11,72,075, and having the closing balance of Rs.13,96,345.00, the said party is having the running account from the previous year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
i)M/s Mitra Brothers, (TIN No.094490700206):- That, in the year under consideration, the assessee has purchased the construction material of Rs.4,61,300.00 out of which the assessee has made the payment of Rs.4,90,000.00, and having the closing balance of Rs.3,23,040.00, the said party is having the running account from the previous year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
j)M/s Mohammadpur Bricks Field, (TIN No.09391001237):-That, in the year under consideration, the assessee has purchased the Bricks Rs.19,25,375.00 out of which the assessee has made the payment of Rs.11,38,972.00, and having the closing balance of Rs. 14,75,375.00, the said party is having the running account from the previous year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
k)M/s Mohankalra Service Station, (TIN No.09988830833C):-That, in the year under consideration, the assessee has purchased the fuel(Diesel) Rs.2,73,535.00 out of which the assessee has made the payment of Rs.2,73,535.00. The said party has denied the transaction, whereas, the assessee is having the purchases based on bills issued, when the assessee came to know that the party has denied the transaction, the assessee contacted the said party has confront the same, then party clarify that the alleged party has not able to identified the assessee, due to long time has been passed and they have maintained the account in the name of AK Construction and the notice has been received regarding Satish Kumar. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
1)M/s Mohan Nagar Service Center, (TIN No.09790702929):-That, in the year under consideration, the assessee has purchased fuel (Diesel) of Rs.4,00,000.00 out of which the assessee has made the payment of Rs.3,00,000.00 through banking channels and having closing balance of Rs.1,00,000.00. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
m)M/s Shray Grit Udyog.:- That, in the year under consideration, the assessee has not made any purchases, the said party is having the brought forward opening balance of Rs.8,54,200.00 out of which the payment of Rs.5,00,000.00 were made through banking channels, during the year, therefore, the assessing officer has erred in making the addition of closing balance of Rs.3,54,200.00 during the year is highly arbitrary and unjustified. The copy of the confirmed ledger is being enclosed, for your ready reference.
n)M/s Shree Ganesh Tiles House, (TIN No.09590701516):- That, in the year under consideration, the assessee has purchased the Tiles of Rs.1,03,431.00, which was the closing balance of Rs.1,03,431.00, the payment will be made in the subsequent year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
o)M/s Sri Ram Enterprises:- That, in the year under consideration, the assessee has purchased the Building Material of Rs.30,00,000.00 out of which the assessee has made the payment of Rs.33,23,160.00, and having the closing balance of Rs.5,14,500.00, the said party is having the running account from the previous year. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
p)M/s Startech Concrete Pvt. Ltd., (TIN No.09688825635C):-That, in the year under consideration, the assessee has purchased the Readymade Concrete of Rs.19.70,491.00 out of which the assessee has made the payment of Rs. 10,24,000.00 and having the closing balance of Rs.9.46.491.00. The copy of the confirmed ledger along with bills is being enclosed, for your ready reference.
That, the aforesaid party-wise enclosures, referred as above, are being enclosed as Annexure -F
Further, while drawing the adverse observation/ presumption by the assessing officer has failed to appreciate the following facts, which are crucial to determine the genuineness of the creditors, such as :-
1.That, the Assessing officer failed to appreciate that the purchases were made on basis of the bills, which are duly recorded in the books of accounts.
2.That, the Major Purchases were made through banking channels.
3.That, the Assessing officer also made the addition of the opening balance brought forward from earlier years, while making the alleged addition.
That, all the parties are identifiable as all are registered with trade tax department and TIN No. were allotted to them and were of trade creditors only.
That, the assessing officer has failed to appreciate before disallowing the alleged sundry creditor as bogus, that in actual they are trade creditors and same were duly recorded in the books of accounts which are duly accept the same and the books have never been rejected by the assessing officer and the assessing officer has produced the same twice during both the assessment proceedings, in which no discrepancies has been pointed out by the assessing officer.
That, the assessing officer has also failed to appreciate the evidences filed before him related to the liability shown as Sundry creditors, he has disallowed with the prejudice mind and to make the huge addition and raise huge frivoulse demand, in lieu of the order passed by the Pr. CIT U.s 263 of the ACT.
That, the assessing officer has failed to appreciate the Gross Profit and Net Profit declared by the assessee appellant which are comparable from the earlier year. The comparable chart are given below :-
Sr. Asstt. Turnover Gross Profit G. P. % Net Profit N. P. % No. Year 1. 2013-14 5,09,10,789.00 56,14,309.00 11.03%, 27,98,490.00 5.50%, 2. 2014-15 6,33,56,770.00 71,32,343.00 11.26% 32,87,362.00 5.19%, 3. 2015-16 14,17,81,441.00 1,44,97,734.00 10.23%, 73,18,964.00 5.16%,
In view of the above, the assessing officer has estimated, the Net Profit @7 % in the Original Assessment Proceedings, which has been accepted by the assessee.
The ledger copies of account for the subsequent years, in which the assessee has made the payments is being enclosed, for your ready reference. It is important to mention here, all the sundry creditors are shown as liability are in actual trade creditors form whom the assessee is made the purchases of the raw material such as sub contract, Hiring of Machinery or purchase of civil construction material etc. The same were duly recorded in the books of accounts, which were accepted by the assessing officer.
Further, in the year under consideration, the assessee company is filing all the details related to sundry creditors in shape of confirm copy of accounts, TIN No., Complete Postal Addresses and the confirmation, in which the assessee company has paid the said liability. In most of the cases, the assessee company has running accounts with the alleged said parties. Therefore, the payments and purchases were made on regular basis. In view of the above facts and circumstances. All the alleged parties are identifiable and genuine and duly supported by bills issued by them against the material purchased.
In view of the above facts and circumstance and documents and evidences, the assessee appellant has discharge his onus. The sundry Creditors are identifiable, genuine and creditworthiness, the presumption of the assessing officer that they are bogus, is purely based on surmises and conjectures
Now, it is important to mention here, that, the notices issued by the assessing officer has been duly served, whereas, the assessing officer has taken an adverse action against the assessee on the no response has been received, which itself prove the identity of the creditors. Now the assessee is filing the details as mention above to discharge its onus to that effect. It is important to note and consider, that, all the creditors are trade creditors and only because of raw material on consumable purchased from them. Payments were made through banking channels. All the parties are identifiable, these goods have dully been entered in stocks. For the mere facts, that, U/s 133(6) letters not replied by the parties, cannot be the reason to treat, these liabilities as income of assessee. It is highly presumptive and without any reasonable reasons.
Moreover, the basis of the addition that the notices U/s 133(6) issued to the sundry creditors remaining un-served and un-complied is highly arbitrary and unjustified, by ignoring the other material available on record and also without appreciating the fact that Sundry creditors could not be treated as bogus sundry creditors and amount standing against them could not be added to the income of the assessee as corresponding purchases were admitted and payments made to many sundry creditors continues from earlier years which were accepted by AO which meant genuinity of payment to these creditors, as held by the Hon'ble ITAT KOLKATA BENCH 'C' in IT APPEAL NO. 2620 (KOL.) of 2013 [ASSESSMENT YEAR 2010-11] ITO vs Standard Leather (P.) Ltd. and CIT v. Ritu Anurag Aggarwal - IT Appeal No. 325 of 2008 dated 22/7/2009, dealing with section 68 of the IT Act in a similar case, the Hon'ble Delhi High Court observed, that
"...Proceeding on this basis, the ITAT observed that the sales, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer".
Similar view has also been taken by the Hon'ble ITAT, in the Cuttack Bench, in the case of Srabani Construction Pvt. Ltd. Vs. DCIT, vide ITA No.01 & 02/CTK/2017 has held, that, the Sundry creditors can not be disallowed, when the assessing officer has accepted, the purchase sales and profit declared by the assessee.
In view of the above facts and circumstances and judicial precedence, the assessing officer is highly arbitrary and unjustified in making the addition on account of disallowance of Sundry Creditors, when the books of accounts maintained by the assessee has been accepted, similarly, the trading result i.e. Purchase, Sales and Profit earned has been accepted, than, no disallowance of the sundry creditors can be made.
In the instant case, the assessing officer has passed the original assessment order U/s 143(3) of the Act by making the addition on account of estimation of the Net Profit @7% instead of @5.16% without rejecting the books of accounts, therefore, the assessing officer has already estimated the profit, hence, no further disallowance of the sundry creditors can be made as held by the Hon'ble Jurisdictional Allahabad High Court, in the case of CIT vs. Banwari Lal Bansidhar-229 ITR 229(Allahabad High Court) - In this case their Loads-sips of Allahabad High Court has held that where it, income is assessed at G.P.rate by rejecting books of the assessee u/s 145(1) no disallowance can be made separately and also by the Jurisdictional ITAT, in the case of M/s. S. B. Industries, Prem Casting, Rainbow Road, Muzaffarnagar Vs. Income Tax Officer, Ward 1, Muzaffarnagar, ITA NO. 1056/DEL/2015, for assessment year 2010-11. The identical view has been taken by the Kolkata Bench, in the case of Aditya Enterprises Vs. ITO, in ITA No.2342/Kol/2016 dated 03.05.2018, therefore, once the estimation of the profit has been done by the assessing officer, than no further disallowance can be made on account of Sundry Trade Creditors, hence the addition made by the assessing officer is highly arbitrary, unjustified and purely based on surmises and conjecture.
In view of the above, the addition made by the assessing officer are highly arbitrary, illegal, unjust and excessive, without appreciating the facts and circumstances, hence, the addition made on other account are liable to be deleted.
In the facts and circumstance the additions/disallowances may please be deleted or in the alternative a suitable relief may please be allowed accordingly.
Kindly take the same on record and consider the same against the additions made and also it is humbly requested allow the assessee a personal hearing through video conference/virtual hearing to give the proper explanation in view of the documentary evidences filed. Kindly allow the appeal and oblige.
Per contra the ld DR pointed out that the impugned order is order dated 30.09.2021 passed by the ld AO u/s 143(3) r.w. 263 of the Act. Therefore, the objection against the original order u/s 143(3) and order u/s 263 has no relevance. The ld DR on merits, relied on the order of AO/CIT(A).
We have heard the rival submissions and have perused the materials on record. We find that the assessee has raised grounds of appeal against the order u/s 263 which is not maintainable at this stage and dismissed as such.
With respect to ground 3, we find that the assessee has raised the grounds of natural justice. The assessee has contested that the NFAC has not provided proper and adequate opportunity of personal hearing to the assessee even when the specific request has been made by the assessee which violates the rule 12 of NFAC Scheme and against the principle of natural justice. In such factual matrix, we are of the view that the ld. CIT(A) should have given adequate opportunity to the assessee to explain its case. We accordingly, in the interest of natural justice, set aside the issue of sundry creditors to the file of the CIT(A) for adjudication afresh. The CIT(A) is directed to accord the assessee three effective opportunities to furnish the requisite explanation. Needless to say, that the assessee would participate and furnish evidences/documents as and when required by the Ld. CIT(A).
In the result, the appeal of the assessee is allowed for statistical purposes.