2015 (7) TMI 1365 - AT - Income Tax

Revision u/s 263 - Disallowance of purchases - rejection of books of accounts - HELD THAT - AO had made inquiries about the purchases made by the assessee in pursuance of the information received form the Sales tax department, that he had issued a detailed notice to the assessee in that regard, that he had also recorded the statement of the director of the company, that he made certain disallowance with regard to purchases.In these circumstances, we are of the opinion that it was not case of no inquiry. AO had adopted a particular method to deal with the alleged purchases.If the CIT was of the opinion that the assessment should have been passed after making inquiries in different manner then it cannot held that the order of the AO was erroneous or prejudicial to the interest of Revenue. It is possible that had the AO made the inquiries as desired by the CIT he would have collected higher revenue.But, that alone would not justify the invoking of the revisionary powers by the CIT.As the AO had applied his mind and passed the order after rejecting the book of accounts u/s. 145(3) of the Act, so, we are of the opinion that the order of the AO was not neither erroneous nor prejudicial to the interest of the Revenue. - Decided in favour of the assessee.

Summary

Issues:
1. Challenge to order passed under section 263 of the Income-tax Act, 1961.
2. Assessment of income and treatment of alleged bogus purchases.

Analysis:

1. Challenge to order passed under section 263 of the Income-tax Act, 1961:
The Appellate Tribunal ITAT Mumbai dealt with the challenge raised by the Assessee against the order passed under section 263 of the Income-tax Act, 1961. The CIT invoked section 263 based on information revealing alleged accommodation bills for purchases by the Assessee. The CIT contended that the AO should have disallowed the entire bogus purchases. The Assessee responded by providing explanations and supporting documents during the proceedings. The CIT, however, held the AO's order as erroneous and prejudicial to the interest of revenue, directing a fresh assessment order. The Tribunal, after considering the submissions, emphasized that the AO had conducted inquiries, issued notices, and recorded statements, demonstrating a proper application of mind. Referring to precedents, the Tribunal highlighted that the CIT's revisionary powers are applicable when there is inadequate inquiry, not just a different approach. Ultimately, the Tribunal ruled in favor of the Assessee, stating that the AO's order was neither erroneous nor prejudicial to revenue.

2. Assessment of income and treatment of alleged bogus purchases:
The Tribunal also analyzed the assessment of the Assessee's income and the treatment of alleged bogus purchases. The CIT's contention was based on the lack of corresponding sales against the purchases, leading to the view that the entire alleged bogus purchases should have been disallowed. The Assessee argued that the purchases were essential for business operations, providing detailed explanations and supporting evidence. The CIT, however, set aside the original assessment order, directing a fresh assessment after hearing the Assessee. During the Tribunal proceedings, the AR argued that the AO had thoroughly examined the purchases, considered information from the sales tax department, and applied his mind by disallowing a portion of the purchases. The DR supported the CIT's order, claiming inadequate inquiries by the AO. The Tribunal, after reviewing the facts, concluded that the AO had conducted inquiries and applied a specific method in dealing with the alleged purchases. Citing a judgment, the Tribunal reiterated that revisionary powers are not justified merely due to a different approach that could potentially increase revenue. Consequently, the Tribunal allowed the Assessee's appeal, emphasizing the AO's proper application of mind and rejecting the CIT's view of the order being erroneous or prejudicial to revenue.

In conclusion, the Appellate Tribunal ITAT Mumbai's judgment addressed the challenge to the order passed under section 263 of the Income-tax Act, 1961, and the assessment of the Assessee's income concerning alleged bogus purchases. The Tribunal emphasized the importance of proper inquiry by the AO, rejected the CIT's view of the order being erroneous, and ruled in favor of the Assessee, allowing the appeal.