2020 (1) TMI 727 - AT - Income Tax

Revision u/s 263 - Bogus purchases - AO estimated the gross profit @ 7% of the alleged non genuine purchase - HELD THAT - As during the assessment proceedings, the Assessing Officer has not only enquired into the alleged purchase transaction, but has applied his mind to the materials brought on record. In fact, the disputed purchase is the sole reason for which the assessment was re opened under section 147 of the Act. In view of the aforesaid factual position, the observations of learned PCIT that the Assessing Officer has not applied his mind or has not made enquiry which he should have made, in our view, is without any factual basis. More so, when the selling dealer has responded to notice issued under section 133(6) by the Assessing Officer and has confirmed the sales made to the assessee PCIT has not expressed any opinion as to whether the entire purchase should have been disallowed or only profit element has to be added. He has again left the issue open for the decision by the Assessing Officer while directing him to make afresh assessment. When the Assessing Officer has already passed the assessment order after making necessary enquiry and applying his mind to the materials brought on record, it is not understood what more can be achieved by setting aside the assessment order and restoring the issue to him for making a fresh assessment without any specific direction. In the aforesaid facts and circumstances, we hold that exercise of power under section 263 of the Act in the facts of the instant case is not valid. Accordingly, we quash the order passed under section 263 of the Act and restore the assessment order. Assesee's Grounds are allowed.

Summary

Issues:
Challenge to order under section 263 of the Income Tax Act, 1961 for assessment year 2009-10.

Analysis:
The appeal was filed challenging an order passed under section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax, Mumbai. The Assessing Officer reopened the assessment based on information received during a search operation, suspecting non-genuine purchases. The Assessing Officer estimated the profit on alleged non-genuine purchases at 7% and added it back to the income. The Principal Commissioner found the assessment order erroneous and prejudicial to revenue's interests, citing lack of proper inquiry and application of mind by the Assessing Officer. The Principal Commissioner set aside the assessment order, directing a fresh assessment.

The Assessee contended that the Assessing Officer had made proper inquiries into the disputed purchases and passed the order after due application of mind. The Assessee argued that a similar transaction in a previous year had been accepted by the department without challenge under section 263. The Assessee also argued that the decision cited by the Principal Commissioner was irrelevant to the case.

The Departmental Representative supported the Principal Commissioner's observations, claiming the Assessing Officer's conclusions were contradictory and lacked proper application of mind. Referring to Explanation 2 of section 263(1) of the Act, the Departmental Representative argued that the Principal Commissioner was empowered to revise the assessment order.

The Tribunal found that the Assessing Officer had conducted thorough inquiries, including obtaining documentary evidence and confirmation from the selling party. Despite the confirmation, the Assessing Officer did not accept the purchases as genuine, estimating the profit at 7%. The Tribunal held that the Principal Commissioner's view lacked factual basis, as the Assessing Officer had applied his mind and made necessary inquiries. The Tribunal also noted that the Principal Commissioner did not provide specific directions for the fresh assessment. Consequently, the Tribunal quashed the order under section 263 and restored the assessment order, allowing the Assessee's appeal.