2020 (1) TMI 1669 - AT - Income Tax

Revision u/s 263 by CIT - Estimation of income on bogus purchases - AO added 3% as possible profit on the alleged purchases over and above the GP rate 4.63% shown by the assessee - HELD THAT - It is a settled position in law that provisions of sec. 263 of the Act do not permit substituting one opinion by another opinion. Therefore, the order of C.I.T. cannot be sustained on the principle of erroneous nature of the order of the A.O., as it is not erroneous. Further, in the instant case, to reiterate, there was no allegation by the Ld. revenue authorities that the evidences produced were fictitious or invented, thus accepted the authenticity of the same. Such an order cannot be called erroneous and prejudicial to interests of revenue only because the A.O. made the assessment without discussing such details therein, as held by the Coordinate Bench of ITAT Kolkata in the case of Chroma Business Ltd. vs. DCIT 2003 (10) TMI 256 - ITAT CALCUTTA-C The assessee produced all necessary details of purchases, sales, audited books of account, quantity details as mentioned above. The assessee books of accounts were audited by Chartered Accountant. Quantity details were given in respect of opening stock, purchases, sales, closing stock AO did estimate and further added 3% as possible profit on the alleged purchases over and above the GP rate 4.63% shown by the assessee in the audited books of account. The quantity details shown by assessee in the audit report reflects sales quantity 4,64,632 Kg and corresponding purchases 4,30,650 Kg. No discrepancy was found between purchase shown by assessee and the sales declared. Purchase cannot be rejected without disturbing the sales. Recognized principle of accountancy and tax jurisprudence hold that no sales can take place without purchase. AO has passed order consciously after applying his mind after conducting the enquiry and added further 3% on bogus purchase over and above GP rate 4.63% declared by the assessee inclusive of the said purchase. Thus we are of the view that revisionary jurisdiction exercised by the Ld. Pr. C.I.T. u/s. 263 of the Act was not in tune with the facts and evidences on record duly explained to the Ld. A.O. and verified by him and that being so the order passed u/s. 263 of the Act on such erroneous stand is liable to be quashed as per law - Decided in favour of assessee.

Summary

Issues Involved:
1. Limitation and condonation of delay.
2. Validity of reassessment proceedings.
3. Erroneous and prejudicial assessment orders.
4. Bogus purchases and their disallowance.
5. Revisionary jurisdiction under Section 263 of the Income Tax Act.

Detailed Analysis:

1. Limitation and Condonation of Delay:
All three appeals were barred by a delay of 2 days. The Tribunal, after considering the reasons provided in the petitions, decided to condone the delay and admitted the appeals for hearing.

2. Validity of Reassessment Proceedings:
The reassessment proceedings were challenged on the grounds of being bad in law. The assessee argued that the reassessment order was neither erroneous nor prejudicial to the interest of revenue. The reassessment was initiated based on information regarding bogus purchases amounting to Rs. 48,84,550/- for the AY 2010-11, which was added back by the AO at a rate of 3%.

3. Erroneous and Prejudicial Assessment Orders:
The Principal Commissioner of Income Tax (PCIT) invoked Section 263, claiming the AO's order was erroneous and prejudicial to the interest of revenue. The PCIT argued that the AO failed to disallow the entire amount of bogus purchases and only added 3% of the purchase amount. The PCIT relied on the Supreme Court judgment in the case of N.K. Proteins Ltd., which upheld the addition of the entire bogus purchase amount.

4. Bogus Purchases and Their Disallowance:
The assessee contended that the purchases were genuine and supported by quantity details, audited books of account, and other necessary documents. The AO had already added 3% to the gross profit, which was considered reasonable. The Tribunal noted that the AO had conducted a thorough enquiry and applied his mind before making the addition. The Tribunal also highlighted that no sales could occur without corresponding purchases, and the AO's decision to add 3% was logical and reasonable.

5. Revisionary Jurisdiction under Section 263:
The Tribunal emphasized that the PCIT's jurisdiction under Section 263 could not be invoked merely to gather more material or take a different view on the same set of facts. The AO had conducted enquiries and made a reasoned decision, which was one of the possible views. The Tribunal relied on various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which held that if the AO adopts one of the possible courses permissible in law, it cannot be treated as erroneous and prejudicial to the interest of revenue.

The Tribunal concluded that the PCIT's order under Section 263 was not justified as the AO had acted judiciously and conducted necessary enquiries. The Tribunal quashed the PCIT's order and allowed the appeals.

Conclusion:
The Tribunal allowed the appeals, quashing the PCIT's order under Section 263, and upheld the AO's decision to add 3% of the bogus purchases to the gross profit. The AO's order was neither erroneous nor prejudicial to the interest of revenue, and the PCIT's invocation of revisionary jurisdiction was not warranted.