2022 (8) TMI 1431 - AT - Income Tax

Revision u/s 263 - bogus purchase was informed from the Sales Tax order - PCIT had issued notice for setting aside the order of assessing authority passed u/s 148 - HELD THAT - As per the office note it is confirmed that the books of accounts and relevant documents are verified by the assessing authority during the assessment proceeding and no such bogus purchase was found in the books of the assessee. Revenue authorities was unable to substantial any nexus with the sellers and assessee. The proper verification was made during assessment proceeding with the proper application of mind. So, the assessment order cannot be called as erroneous. The assessee had complied the notice U/s 263 - But ld PCIT unable to comply the same in the order u/s 263. Both in reopening u/s 148 revision U/s 263 the same issue, bogus purchase cannot be enquired multiple time. As in the case of CIT versus Paramjit Kaur 2007 (8) TMI 323 - PUNJAB AND HARYANA HIGH COURT held that the existence of material must be real and it must also have nexus with the believe that income, escaped assessment. It is clear that an order cannot be termed as erroneous unless it is not in accordance with law. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the AO. Therefore, it cannot be held that in the instant case the ld. AO's order was erroneous and prejudicial to the interest of the revenue within the terms of section 263. Once the impugned issue was considered and examined by the AO Commissioner cannot set aside the order without recording a contrary finding. This will be contrary to Section 263 - Therefore, we are of the considered opinion that the impugned action of the PCIT u/s 263 of the Act was patently illegal and is liable to be quashed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Erroneous and prejudicial reassessment order under Section 143(3)/148.
3. Failure to obtain and verify the mismatch list from the Excise and Taxation Department.
4. Verification of purchases and sales during the reassessment proceedings.
5. Legality of the order passed under Section 263.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The primary issue raised by the assessee was whether the Principal Commissioner of Income Tax (Pr. CIT) was justified in exercising jurisdiction under Section 263 of the Income Tax Act, 1961. The assessee contended that the Pr. CIT erred in law by holding the reassessment order passed under Sections 143(3)/147 as erroneous under Section 263, relying on a purported mismatch list obtained from the Excise and Taxation Officer (ETO).

2. Erroneous and prejudicial reassessment order under Section 143(3)/148:
The reassessment order dated 29.12.2016 was challenged on the grounds that it was deemed erroneous and prejudicial to the interest of the revenue by the Pr. CIT. The Pr. CIT's observation was based on the failure of the Assessing Officer (AO) to obtain the mismatch list from the Excise & Taxation Department during the reassessment proceedings. The Pr. CIT held that the AO did not make the requisite verifications as he did not have the mismatch list to make necessary inquiries.

3. Failure to obtain and verify the mismatch list from the Excise and Taxation Department:
The Pr. CIT noted that the AO did not obtain the mismatch list from the Excise & Taxation Department and instead made inquiries about eight entities from whom purchases were not made and who did not figure in the mismatch list. This failure led to the assessment order being held as erroneous and prejudicial to the interest of revenue.

4. Verification of purchases and sales during the reassessment proceedings:
During the reassessment proceedings, the AO had confronted the assessee about the alleged bogus purchases related to eight different parties as provided by the Sales Tax Department. The assessee denied making purchases from these parties. The AO sought further information from the Assistant Director of Income Tax (Investigation) and the Assistant Excise and Taxation Commissioner (AETC), but no further information about such bogus parties was received. The AO verified the purchases and sales as per the report received from the authorities and completed the verification of bills and vouchers during the assessment proceedings.

5. Legality of the order passed under Section 263:
The Tribunal held that the Pr. CIT's action under Section 263 was not justified. The AO had properly applied his mind during the assessment proceedings and verified the books of accounts and relevant documents. The Tribunal observed that the same issue of bogus purchases was agitated both in the reopening under Section 148 and the revision under Section 263. The Tribunal concluded that the assessment order could not be termed erroneous as the AO had made proper inquiries and verifications during the assessment proceedings. The Tribunal quashed the proceedings under Section 263, holding that the Pr. CIT's action was patently illegal.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the proceedings under Section 263 of the Income Tax Act, 1961. The Tribunal held that the assessment order passed under Sections 143(3)/148 was not erroneous and prejudicial to the interest of the revenue as the AO had made the necessary inquiries and verifications during the reassessment proceedings. The Pr. CIT's action under Section 263 was deemed unjustified and illegal.