2018 (5) TMI 2102 - AT - Income Tax

Revision u/s 263 by CIT - Hawala/Bogus purchases - Reopening of assessment u/s 147 - case of the Pr.CIT in the revision order is that the AO failed to make enquiries before completing the assessment on the claims relating to bogus purchases and the sundry creditor balances - receipt of information from the DG (Investigation), Pune as supplied by the Sales Tax Department - AO in restricting the addition i.e. 20% of the said bogus purchases - HELD THAT - It is a case of taking plausible view by the AO on the issue under consideration. In the revision order, the Pr.CIT did not agree with the said view and restored the issue to the file of AO for fresh assessment implying in favour of making addition of entire such purchases. In this process, Pr.CIT ignored the fact relating to existence of various views on this issue. We have also noticed on the issue of bogus purchases, there are various views inviting debates on the requirement of making entire additions or GP additions of various rates or various GP rates etc. Therefore, making addition on account of bogus purchases constitutes a debatable one. As such, the AO has taken one prevailing view in this matter. Therefore, thrusting another view by the Pr.CIT in his revision order in our view is outside the scope of provisions of section 263. Therefore, it is not a clear cut case of erroneous assumption of law as made out by the Pr.CIT. Hence, the revision order on this issue is unsustainable in law. Accordingly, relevant grounds raised by the assessee on this aspect are allowed. Regarding the other issue of sundry creditors issue was not at all taken up in the re-assessment proceedings. The reasons recorded by the AO supports the same. Normally, such issues are taken up in the regular assessment u/s.143(3) of the Act. In this case, there is no such order passed by the AO at the relevant point of time. Further, it is not the case of the Revenue that the issue of sundry creditors was not examined by the AO. Therefore, we find the issues above narrated by the Pr.CIT are general and casual. It is not the case of the Pr.CIT that the above issues were allowed by the AO after due process of verification of scrutiny of the account. As such, AO is not under any mandate to examine sundry creditor account - also not the case of the Pr.CIT that there is something erroneous about the sundry creditor account and therefore, the AO failed to make proper/adequate enquiries on this issue. Pr.CIT s finding is too general and the same is unsustainable. He failed to make out a case that allowing claims of the assessee on this issue amounts to erroneous order of the AO in so far as it is prejudicial to the revenue. In the absence of any categorical finding on erroneous assumption of law/fact leading to loss of revenue, the finding of the Pr.CIT is not sustainable. Therefore, we are of the opinion that the directions given by the Pr.CIT are liable to be quashed. Accordingly, the re-assessment order of the AO is restored. The grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (Pr.CIT).
2. Alleged bogus purchases and their treatment in reassessment.
3. Examination of sundry creditors, valuation of stock, and other claims in the return of income.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act by the Pr.CIT:
The Pr.CIT invoked Section 263 of the Income Tax Act against the Assessing Officer’s (AO) order, which added only 20% of the bogus purchases in the reassessment. The Assessee contended that the AO’s decision constituted one of the plausible views and was a debatable issue. The Pr.CIT issued a show cause notice to the Assessee, questioning why the provisions of Section 263 should not be invoked. The Pr.CIT held that the AO completed the assessments without fully obtaining the details from the Assessee and failed to verify the genuineness of the purchases, making the order erroneous and prejudicial to the interest of revenue.

2. Alleged Bogus Purchases and Their Treatment in Reassessment:
The AO scrutinized the transactions of alleged bogus purchases amounting to ?3,47,78,546/- during the reassessment proceedings. The AO concluded that making an addition of 20% of the said purchases would meet the ends of justice. This decision was based on various judicial precedents and the analysis of the Gross Profit (GP) ratios of the Assessee over the years. The Pr.CIT disagreed with this view and implied that the entire amount of ?3,47,78,546/- should have been added back to the income. However, the Tribunal found that the AO had taken a plausible view supported by judicial precedents and that the issue was debatable. Therefore, the Tribunal held that the Pr.CIT’s revision order on this issue was unsustainable in law.

3. Examination of Sundry Creditors, Valuation of Stock, and Other Claims in the Return of Income:
The Pr.CIT argued that the AO failed to examine sundry creditors, valuation of stock, and various expenses claimed by the Assessee, making the order erroneous and prejudicial to the interest of revenue. The Tribunal found that these issues were not taken up in the reassessment proceedings and were not part of the reasons recorded by the AO at the time of reopening the assessment. The Tribunal held that the Pr.CIT’s findings were too general and unsustainable. It was not the case of the Pr.CIT that there was something erroneous about the sundry creditor account that required further scrutiny. Therefore, the Tribunal quashed the directions given by the Pr.CIT on this issue.

Conclusion:
The Tribunal allowed the appeals of the Assessee for all the assessment years under consideration (2009-10 to 2011-12). The Tribunal restored the reassessment order of the AO, holding that the Pr.CIT’s invocation of Section 263 was unsustainable in law. The Tribunal emphasized that the AO had taken a plausible view on the issue of bogus purchases and that the Pr.CIT’s findings on sundry creditors and other claims were too general and unsupported by specific errors or prejudices to the revenue.

Order Pronounced:
The order was pronounced in the open court on the 4th day of May, 2018.