2018 (10) TMI 2028 - AT - Income Tax

Revision u/s 263 by CIT - Reopening of assessment u/s 147 - estimation of income on bogus purchases - assessee was saddled with estimated addition of 10% by AO - PCIT has held the assessment order to be erroneous and prejudicial to the interest of revenue primarily for two reasons. Firstly, due to non-consideration of the decision of hon ble Supreme Court in case of N. K. Protein 2017 (1) TMI 1090 - SC ORDER and secondly, due to lack of proper inquiry HELD THAT - As regards the second allegation of the PCIT, we are unable to agree with the same. The assessment order clearly reveals that the AO made necessary inquiry to find out genuineness of purchases. As regards the allegation of non- consideration of the decision in case of N.K. Protein (supra), it is relevant to note, the said decision was rendered by the hon ble apex court on 16.01.2017 which is much after the completion of assessment on 02.03.2016. Therefore, there is no occasion on the part of the Assessing Officer to consider the said decision. That being the case, the exercise of power under section 263 of the Act for non-consideration of the aforesaid decision of the hon ble apex court is wholly misconceived. In any case of the matter, the addition to be made on the basis of bogus purchase is a purely factual issue and varies from case to case depending upon the facts of each case. In case of N.K. Protein (supra) the facts involved clearly reveal that there was a search and seizure action carried out in case of N.K. Protein during which various incriminating material including blank cheque books in the name of different entities were found which conclusively proved that the assessee had not made any purchases. Thus, in the context of those facts 100% addition on account of bogus purchases was upheld. Whereas, in the case of the present assessee no such facts are involved. In any case of the matter, when the assessee was able to link the purchases with corresponding sales, the logical conclusion which one can arrived at is, the assessee might not have purchased goods from the declared source but from some other parties. In that event, only the profit element embedded in the bogus purchases can be considered for addition. Therefore, the decision of the Assessing Officer to restrict the addition to 10% of the bogus purchases is in tune with the consistent view of the tribunal and different high courts in similar nature of cases. The exercise of power u/s 263 in the facts of the present case is invalid. Accordingly, the impugned order passed by the leaned PCIT u/s 263 of the Act deserves to be quashed and order passed by the Assessing Officer is restored. Decided in favour of assessee.

Summary

Issues:
Challenge to order under section 263 of the Income Tax Act for assessment year 2011-12 based on alleged bogus purchases.

Analysis:
The appeal was filed by the assessee against the order passed by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act. The assessee, a partnership firm engaged in civil contract work, filed its return declaring total income. The assessment was reopened under section 147 based on information regarding alleged bogus purchases. The Assessing Officer called for evidence to prove the genuineness of purchases from a specific party, which the assessee failed to provide. The Assessing Officer, however, noted that purchases and sales were recorded in the books but estimated profit at 10% of the alleged bogus purchases, adding to the income. The Principal Commissioner found the assessment order erroneous for not considering a Supreme Court decision and lack of proper inquiry, setting it aside for fresh assessment.

The Authorized Representative argued that the PCIT's jurisdiction was illegal as the Assessing Officer conducted necessary inquiry before completing the assessment. The AR contended that the Supreme Court decision was not available at the time of assessment, and the addition made by the Assessing Officer was consistent with judicial precedents. The Departmental Representative acknowledged the timing of the Supreme Court decision but supported the PCIT's exercise of power under section 263.

The Tribunal analyzed the case, noting that the Assessing Officer had conducted inquiries into the alleged bogus purchases and made additions based on profit estimation. The Tribunal disagreed with the PCIT's view that there was a lack of proper inquiry and non-consideration of the Supreme Court decision. The Tribunal highlighted that the Supreme Court decision was rendered after the assessment was completed, making it irrelevant for the Assessing Officer's consideration. The Tribunal emphasized that the factual issue of bogus purchases varies case by case and upheld the Assessing Officer's decision to restrict the addition to 10% based on the evidence provided by the assessee. Consequently, the Tribunal quashed the PCIT's order and restored the Assessing Officer's order.

In conclusion, the Tribunal allowed the assessee's appeal, pronouncing the order on 31.10.2018.