2018 (11) TMI 1958 - AT - Income Tax

Revision u/s 263 against reopening of assessment - Estimation on income on bogus purchases - HELD THAT - We find from the records that while passing order u/s 143(3) r.w.s. 147 of the I.T. Act, the AO has considered the factual position with regard to making purchases from different persons. From the records, we found that completed assessment was reopened on the ground of information from the investigation wing that assessee had made purchases from alleged bogus supplier. Since the reopening itself was for this purpose only the AO after having detailed inquiry and investigation found that corresponding sales have been duly accounted for in the books, accordingly entire purchases could not be added and he estimated extra profit of 6% on such purchases and added the same in assessee s income. We are of the considered view that order passed by Ld. CIT u/s 263 of IT. Act is not correct as Ld. CIT has not discussed the factual details passed in the order in the case of N. K. Proteins Ltd. 2017 (1) TMI 1090 - SC ORDER and N.K. Industries 2016 (6) TMI 1139 - GUJARAT HIGH COURT , wherein in these cases, 100% of additions were made. Therefore in the case of the assessee, AO had not made 100% addition, whereas after going through the aforementioned different orders passed by different courts, had made additions @ 6%. We have also considered the various decisions of the judicial authorities, wherein under identical facts and circumstances, 2% additions on bogus purchases were made. Since the additions in such type of case depend on the facts of each case, therefore provisions of section 263 could not have been invoked by the Ld. CIT. Decided in favour of assessee.

Summary

Issues:
1. Invocation of clause (a) of Explanation 2 to section 263(1) by Ld. Pr. CIT-29 Mumbai.
2. Invocation of clause (d) of Explanation 2 to section 263(1) by Ld. Pr. CIT-29 Mumbai.

Issue 1 - Invocation of clause (a) of Explanation 2 to section 263(1):
The appeal was filed against the order of Ld. Pr. CIT-29 Mumbai for AY 2010-11. The AO had passed the order u/s 143(3) r.w.s 147 after conducting necessary inquiries. The Ld. CIT invoked clause (a) of Explanation 2 to section 263(1) stating that the AO failed to examine the issue mentioned in the notice u/s 263 of the I.T. Act. The Tribunal noted that the AO had considered the factual position regarding purchases from different persons and made additions. The Ld. CIT set aside the assessment order, leading to the appeal. The Tribunal found that the AO had made additions @ 6% of the entire bogus purchases, whereas the Ld. CIT expected a 100% addition. The Tribunal considered judicial pronouncements and held that the Ld. CIT's order was incorrect as it did not discuss factual details from relevant cases where 100% additions were made. The Tribunal allowed the appeal, emphasizing that the Ld. CIT could not invoke section 263 based on the varying percentages of additions made in different cases.

Issue 2 - Invocation of clause (d) of Explanation 2 to section 263(1):
The second issue raised in the appeal was the invocation of clause (d) of Explanation 2 to section 263(1) by the Ld. Pr. CIT-29 Mumbai. The appellant argued that the facts of the case in N. K. Proteins Ltd. Vrs. DCIT were different from their case. The Tribunal observed that the reopening of the assessment was based on information regarding purchases from alleged bogus suppliers. The AO, after detailed inquiry, estimated an extra profit of 6% on such purchases. The appellant cited various decisions where additions were restricted to 2% of bogus purchases under similar circumstances. The Tribunal considered these decisions and concluded that the Ld. CIT's order was not correct as it did not account for the factual details in relevant cases where 100% additions were made. The Tribunal allowed the appeal, emphasizing that the Ld. CIT's invocation of section 263 was not justified based on the facts and circumstances of the case.

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the orders passed by the Ld. CIT under both clause (a) and clause (d) of Explanation 2 to section 263(1). The Tribunal considered the varying percentages of additions made in similar cases and held that the Ld. CIT's orders were not in line with established judicial precedents.