2021 (7) TMI 1191 - AT - Income Tax

Revision u/s 263 - estimation of income on bogus purchases - entities merely provided accommodation entries against commission without delivering actual goods or services - HELD THAT - The assessee produced requisite details and documentary evidences including stock record and quantitative details of opening stock, closing stock, purchase, sale etc. The corresponding sales made against the purchases were also demonstrated. The copies of purchase invoices as well as ledger extracts were furnished in support of purchase transactions. After considering all these evidences, Ld. AO came to a conclusion that since sales were offered and adequate quantitative details were produced by the assessee, the conclusion which was to be drawn was that the goods were procured from grey market whereas the bills were obtained from accommodating suppliers. In such a case, the only option left was to estimate the suppressed profits on these transactions. Keeping in view the applicable VAT rate, Ld. AO estimated a further addition of 1.6% against these purchases. There facts would show that Ld. AO took one of the possible view with due application of mind which could not be termed as perverse, in any manner. There could be no sale without actual purchase of goods keeping in view the nature of assessee s business. The action of Ld. AO was in conformity with the ratio of various judicial pronouncements as enumerated in para 6.4 of the assessment order. In view of the foregoing, it could very well be said that the view of Ld. AO was one of the possible view which was not contrary to law or unsustainable in law. Merely because Ld. Pr. CIT held a view that the estimation should have been at higher rates or entire purchase should have been disallowed, the same would not make the order erroneous unless it was found that the action of Ld. AO was not in accordance with law or perverse, in any manner. This being the case, the revision could not be held to be justified as per the ratio laid down by jurisdictional High court in Grasim Industries Ltd. 2010 (2) TMI 4 - BOMBAY HIGH COURT . Also see assessee's own case 2020 (11) TMI 167 - ITAT MUMBAI We hold that revisional jurisdiction was invalidly exercised and therefore, liable to be set-aside - Decided against revenue.

Summary

Issues:
Challenge to invocation of revisional jurisdiction u/s 263 by Ld. Principal Commissioner of Income Tax-32, Mumbai for AY 2014-15.

Analysis:
1. The assessee challenged the revision u/s.263, arguing that the assessment order u/s.143(3) was not erroneous or prejudicial to revenue. The appellant contended that the AO had raised queries on alleged bogus purchases during assessment, and after considering evidence, made a 1.6% addition. The appellant claimed the revision was a change of opinion and violated the law. The appellant also argued that directions given to the AO in the revision order were already complied with during assessment proceedings. The appellant further contended that the revisional jurisdiction should not substitute the AO's view with the Principal Commissioner's view, as it goes against the purpose of Section 263.

2. The Sr. Counsel for the assessee argued that the issue under Sec. 263 was already addressed by the AO during original assessment, and a plausible view was taken after due consideration. The Counsel cited the Tribunal's decision in the assessee's case for AY 2009-10 where a similar revisional order was quashed. The CIT-DR argued that the AO failed to conduct proper inquiries as per Explanation-2 to Sec.263, justifying the exercise of revisional jurisdiction.

3. The Tribunal examined the facts where the assessee, a diamond manufacturing and trading firm, faced an estimated addition of 1.6% for alleged bogus purchases from entities linked to an entry provider group. The AO found the assessee failed to prove the purchases' genuineness, leading to the addition. The AO estimated the suppressed profit based on VAT rates and judicial precedents. The Pr. CIT later opined the order was erroneous, directing a 100% addition, citing a Supreme Court case. The Tribunal found the AO had considered all evidence and made a reasonable estimation, in line with judicial precedents, and ruled that the revision was not justified.

4. The Tribunal referred to a previous case where the revisional jurisdiction was challenged and quashed, emphasizing that a possible view taken by the AO cannot be deemed erroneous. The Tribunal concluded that the revisional jurisdiction was invalidly exercised in the current case, following the same reasoning as the previous decision. Consequently, the revisional order was set aside, and the appeal was allowed.