TaxTMI 
TaxTMI 
2026 (10) TMI 528
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....(Appeals) has erred in passing the order dated 13/06/2025 without appreciating the entire submissions filed by the appellant and therefore demonstrating no application of mind to the merits of the claim. 2. The Ld. CIT(A) has also erred in Disposing of the appeal by instructing Assessing Officer to apply gross profit percentage method without applying his mind independently to the facts of the case & also without considering the essence of the submissions made before him during the appellate proceedings. without considering the essence of the submission made filed during the course of assessment proceedings 3. The appellant reserves its right to add to, alter, amend, modify or delete any of the grounds taken in this appeal." 3. The present appeal is directed against the order dated 13/06/2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi ["CIT(A)"] under section 250 of the Income-tax Act, 1961 ["the Act"] for Assessment Year 2009-10. The order under appeal arises out of the order dated 31 October 2019 passed by the Deputy Commissioner of Income tax, Circle 8(3)(1), Mumbai ["AO"] under section 254 read with se....
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....urchases (trading stock) 63 to 69 4 Marco Enterprises (formerly Reiver Gold Elevators) 22,08,311 Canvas shoes (3,000+1,500 pairs) and other merchandise Purchases (trading stock) 70 to 89 5 Om Corporation 4,22,510 Uniforms for shop staff (not for sale) Purchases/staff uniform expense 90 to 92 6 Sonotron Trading Co. Pvt. Ltd. 1,50,332 Jeans Purchase (trading stock) 102 to 110 7 Siddhivinayak Corporation 7,10,340 Cotton bags and belts Purchases (trading stock) 93 to 101 Total 79,35,261 3.3 On further appeal before the ld CIT(A), it was submitted that the disputed purchases constituted about 1.92 per cent of the assessee's total purchases for the year; that no order recording rejection of the assessee's books of account as passed; no any adverse finding concerning the reported sales or closing stock or any finding that the turnover was inflated. But the assessee's appeal against the reassessment order was dismissed by the learned CIT(A)-14, Mumbai by order dated 31/03/2015. On the assessee's further appeal, this Tribunal, by order dated 18/09/2018, rem....
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....oceeded to treat the matter as one involving disallowance of allegedly inflated purchases and directed the AO to apply a "gross profit percentage (in terms of purchase)" to the amount of Rs.79,35,261/- and to treat the resultant amount as undisclosed income of the assessee. The relevant finding of ld CIT(A) is reproduced as under : "5.6 The Assessing Officer's stand that the amount of Rs.79,35,261/- is not a genuine claim has been upheld. However, as per settled principle in this regard, the entire amount of such expenditure cannot be disallowed since the Assessing Officer has not made a case that corresponding sales have not been considered in the accounts. Therefore, I direct the Assessing Officer to apply the gross profit percentage (in terms of purchase) on the amount of Rs.79,35,261/- and to treat the resultant amount as undisclosed income of the appellant for the relevant assessment year." 4.3 The operative direction of the learned CIT(A), as reproduced in the impugned order, is to the effect that the AO shall "apply the gross profit percentage (in terms of purchase) on the amount of Rs.79,35,261/- and to treat the resultant amount as undisclosed income of the ass....
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....terprises were consequently the documents pertaining to the very supplier referred to by the AO under its earlier name. It was further submitted that the AO's observation regarding pipes and iron bars was relevant only to the purchases from Shreeji Traders, which were capitalised and were not trading purchases. The remaining disputed purchases comprised apparel, shoes, bags, belts and other merchandise relevant to the assessee's retail business. It was also submitted that the AO's observation regarding absence of stock records was contrary to the quantitative stock statements and warehouse records placed on record. 5.2 The learned Counsel further submitted that the assessee's sales, books of account and closing stock had not been rejected or disturbed; there was no finding that the reported sales were inflated, that the closing stock was fictitious, or that any part of the payments made to the suppliers had returned to the assessee in cash. It was submitted that the information received from the Sales Tax Department was not independently verified by the AO and that no statement of any supplier or other third party was furnished to the assessee. No opportunity of ....
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....ed that the direction contained in paragraph 5.6 of the impugned order was inherently indeterminate because the learned CIT(A) had merely directed the AO to apply a "gross profit percentage" without specifying the percentage, the basis for adopting such percentage, the comparable cases, or the precise quantum of addition. Such a direction, according to the learned Counsel, amounted to leaving the substantive adjudication of the appeal to the AO. 6. The learned Departmental Representative supported the impugned order. He submitted that the assessee had failed to produce the concerned suppliers despite specific opportunity having been granted by the AO and that such failure was material to the determination of genuineness of the purchases. It was further submitted that the purchases had been reported as suspicious by the Sales Tax Department and that the assessee had not satisfactorily discharged the burden cast upon it. The learned Departmental Representative also relied upon the judgment of the Hon'ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd., (2025) 474 ITR 175 (Bom) and submitted that the issue ought to be decided having regard to the factual circumstances of ....
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....rsy before us requires examination in two distinct aspects: first, the manner in which the genuineness of the disputed purchases was dealt with in the second round of proceedings; and second, the legality of the direction issued by the learned CIT(A) to the AO to apply an unspecified gross-profit percentage. 8.1 At the outset, it is necessary to notice the precise scope of the proceedings before us. The original addition of Rs.79,35,261/- was made by the AO under section 69C of the Act on the footing that the purchases were unexplained expenditure. The Tribunal thereafter restored the matter to the AO for fresh consideration in the light of the material and submissions already placed before the learned CIT(A). In the consequential proceedings, the assessee furnished documentary material relating to the transactions. The AO, however, once again rejected the purchases principally on the ground that the suppliers were not produced and by relying upon the information originating from the Sales Tax Department. The learned CIT(A), in turn, substantially adopted the AO's reasoning on genuineness but expressly held that section 69C was not applicable. 8.2 In our considered view, ....
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.... the gross-profit method, even where its application may otherwise be warranted in a case concerning disputed trading purchases, cannot be applied mechanically to the entire amount of Rs.79,35,261/-. The record, as placed before us, shows that Rs.36,10,473/- relating to Shreeji Traders was capitalised as furniture and fixtures and was not debited to the Profit & Loss Account as revenue expenditure. Likewise, Rs.4,22,510/- relating to Om Corporation represented uniforms for shop staff and not goods acquired for resale. The nature and accounting treatment of these transactions are materially different from ordinary purchases of trading stock. Further, the principle emerging from the decision of the Hon'ble Bombay High Court in Mohommad Haji Adam & Co. (supra), as relied upon before us, is that where the sales corresponding to disputed purchases have not been disturbed, the addition, where warranted, is to be determined with reference to the differential gross profit attributable to the disputed purchases vis-à-vis genuine purchases, rather than by treating the entire purchase amount as income. In the present case, the learned CIT(A) did not undertake that exercise. There i....
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....the documentary evidence and has not recorded a complete and reasoned finding on the issues arising from the material on record, we consider it appropriate, in the interest of substantial justice, to restore the matter to the file of the learned CIT(A). 8.8 Accordingly, the order of the learned CIT(A) dated 13.06.2025 is set aside and the matter is restored to his file for fresh adjudication in accordance with law. The learned CIT(A) shall examine the entire documentary material furnished by the assessee, consider the findings recorded by the AO, deal with the objections raised by the assessee as well as the submissions of the Revenue, and thereafter determine the issue afresh by passing a speaking and reasoned order. 8.9 We clarify that we have expressed no final opinion on the genuineness or otherwise of the disputed purchases or on the ultimate quantum, if any, liable to be assessed. All such issues are left open for determination by the learned CIT(A) in accordance with law. The grounds of appeal on merit are allowed for statistical purposes. 9. Now, we take up the appeal of the assessee for A.Y.2015-16. The Assessee is mainly aggrieved with the penalty levied u/s 271(....
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.... disallowances of Rs.2,94,91,486/- under section 36(1)(vii) and Rs.30,10,00,000/- under section 43B was sustained observing as under: "5.3.2: In Para 5.1.1 to 5.1.3 above in this order, it has been discussed as to how the Assessing Officer has recorded his satisfaction for initiation of penalty u/s 271(1)(c). It can be seen that the Assessing Officer has initiated penalty for furnishing inaccurate particulars of income in respect of some item(s) of disallowance and also for concealment of particulars of income in respect of some item(s). It is also to be mentioned that the there was a single notice u/s 274. Hence, it was not possible for the Assessing Officer to specify the limb under which penalty was initiated because in this case, one single notice was issued for separate contravention of the limbs. Thus, it is held that there was no infirmity in the action of the Assessing Officer in not specifying any limb, as contended by the appellant. The ground no. 2 is therefore, dismissed. 5.4.1 In the ground no. 3, the appellant has argued that the Assessing Officer has erred in levying penalty on the disallowance in respect of bad debts of Rs.2,94,91,486/- claimed by ....
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.... "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars." [Emphasis supplied] 5.4.3 It is respectfully reiterated that since the appellant has failed to bring on record any documentary evidence to establish that the debts and advances written off by the assessee are akin to any provisions for such debts created in....
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....tial..... 5.5.2 I have perused the order. In the case of Pr. CIT vs. Dr. Vandana Gupta, the issue before the Hon'ble Delhi High Court was as follows: "In these search proceedings, the assessee who is a Medical Practitioner, surrendered 2,00,00,000/- and filed a revised return declaring that amount as additional income. The AO completed scrutiny assessment, by assessing total of the two figures i.e. Rs. 2,09,18,060/-. He initiated penalty proceedings, on the footing that the assessee had concealed the income and filed inaccurate particulars when she, in fact, filed the return on 25.09.2009. The penalty order was subsequently made on 29.06.2012. The assessee appealed to the CIT (A) against imposition of penalty contending that she neither concealed particulars of income nor furnished inaccurate particulars and that all material disclosures were made during the assessment proceedings. The revised return merely reflected the voluntary disclosures made by her." 5.5.3 The decision of the Hon'ble Delhi High Court was, therefore, delivered in a completely distinguishable set of facts where the assessee concerned initially suppressed the income and then, r....
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....grieved, the assessee filed appeal before the Tribunal raising the grounds as above. 13. The learned Counsel for the assessee referred to Ground No.2 of the appeal and submitted that the penalty proceedings are unsustainable in law since the notice issued under section 274 did not specify the particular limb of section 271(1)(c) under which the penalty was proposed to be imposed, therefore the penalty proceeding are wholly unsustainable in law and void ab initio. Reliance was placed upon the judgment of the Hon'ble jurisdictional High Court in Mohd. Farhan A. Shaikh v. DCIT, (2021) 434 ITR 1 (Bom). 13.1 On merits, with regard to the disallowance of Rs.2,94,91,486/-, the learned Counsel submitted that the amount represented sundry balances/bad debts written off and was duly disclosed in the audited accounts. It was submitted that the assessee had furnished the relevant ledger accounts and supporting details and had explained that the amounts represented unrealisable dues of franchisees and dealers whose businesses had closed and recovery had become time-barred and commercially unviable. It was contended that the disallowance represented, at the highest, failure to establis....
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....nt order, where the Assessing officer has mentioned for initiation of the penalty in respect to the issue of bad debts as for furnishing inaccurate particulars of the income which lead to the concealment of particular income. In respect of the issue for interest disallowance u/s 43B, penalty was initiated for furnishing inaccurate particulars of income. Since the penalty was initiated for the limbs, therefore the contention of the assessee that particular limb was not strike off in notice for penalty, does not satisfy the criteria of decision relied upon. The Assessing officer has initiated penalty on both the grounds of concealment of the income as well as furnishing of incurred particular of the income. The learned CIT(A), while dealing with this objection, observed that the AO had initiated penalty in respect of different items on different grounds, namely, furnishing of inaccurate particulars and concealment of particulars of income, and that a common notice under section 274 had been issued. The learned CIT(A), therefore, held that the AO was not required to specify a particular limb in the notice. 15.1 As far as ground no. 1 of no satisfaction recorded for initiation of pe....
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....nishing inaccurate particulars of income. The learned CIT(A)'s distinction of Reliance Petroproducts (supra) on the ground that there was a "failure" on the part of the assessee to establish the claim, therefore, does not by itself meet the statutory requirement for levy of penalty under section 271(1)(c). There must be a finding, supported by material, that the particulars furnished by the assessee were inaccurate or false. In the absence of such a finding, we are unable to sustain the penalty in respect of the disallowance of Rs.2,94,91,486/-. Accordingly, Ground No. 3 is allowed. 15.5 The next issue concerns penalty on the disallowance of Rs.30,10,00,000/- under section 43B in respect of interest expenditure. The assessment record, as noted by the learned CIT(A) himself, shows that the disallowance was made on the basis of the particulars furnished by the assessee during the assessment proceedings. The assessee had disclosed finance cost of Rs.39.18 crore and furnished particulars of payments made to the State Bank of India and SIDBI, on the basis of which the AO determined the unpaid amount of Rs.30.10 crore. The nature of the disallowance is also material. The interest ....