2022 (5) TMI 854 - AT - Income Tax

Revision u/s 263 - PCIT assumed jurisdiction u/s.263 on the issue of unverified purchases claims to have made by the assessee - HELD THAT - The assessee has made purchases of Rs.8.65 Crs. During the course of assessment proceedings, the assessee had furnished complete list of parties from whom he had made purchases. AO had issued notices to all the parties and out of 28 parties, 7 parties have replied with necessary evidences and remaining parties did not respond to the notice issued by the AO - AO in the absence of necessary information regarding total purchases has taken a view and has estimated net profit @ 7.5% on total sales. PCIT on very same issue of unverified purchases assumed his jurisdiction and held that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. PCIT as erred in assuming jurisdiction u/s.263 of the Act, because assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, because, the AO had examined the purchases claims to have made by the assessee, during the course of assessment proceedings and after considering necessary facts has taken one of the possible view and has estimated gross profit @ 7.5% on total sales. The view taken by the AO is a possible view and thus, we are of the considered view that the PCIT cannot assume jurisdiction to revise the assessment order on very same issue by holding that the AO ought to have made further enquiries on the issue. Thus assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue and thus, we quashed the order passed by the PCIT u/s.263 - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of Principal Commissioner under section 263 of the Income Tax Act.
2. Assessment based on unverified purchases and estimation of gross profit.

Analysis:
1. Jurisdiction of Principal Commissioner under section 263 of the Income Tax Act:
The appeal challenged the order of the Principal Commissioner of Income Tax (PCIT) dated 09.03.2021 passed under section 263 of the Act for the assessment year 2017-18. The PCIT initiated revision proceedings based on the assertion that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue due to unverified purchases claimed by the assessee. The PCIT, relying on judicial precedents, held that the burden of proof lies on the assessee to establish the genuineness of purchases. The PCIT set aside the assessment order and directed the AO to re-do the assessment, emphasizing the need for the assessee to discharge the onus of proof regarding the purchases made. However, the appellate tribunal found that the PCIT erred in assuming jurisdiction under section 263 as the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The tribunal noted that the AO had examined the purchases during assessment proceedings and estimated gross profit based on the available information, which was a plausible view. Therefore, the tribunal quashed the order passed by the PCIT under section 263.

2. Assessment based on unverified purchases and estimation of gross profit:
The core issue revolved around the assessment completed by the AO based on unverified purchases made by the assessee. The PCIT contended that the AO's failure to verify all purchases rendered the assessment order erroneous and prejudicial to the Revenue's interest. The PCIT highlighted the importance of the assessee proving the genuineness of purchases through various means, such as producing books of accounts, bills, and confirmations from parties. The PCIT emphasized that if the assessee fails to discharge this burden, the expenses could be disallowed. However, the tribunal disagreed with the PCIT's stance, stating that the AO had examined the purchases and estimated profit based on the available evidence. The tribunal held that the PCIT wrongly assumed jurisdiction under section 263, as the assessment order was not erroneous or prejudicial to the Revenue. Consequently, the tribunal allowed the appeal filed by the assessee, quashing the PCIT's order and upholding the assessment completed by the AO.

In conclusion, the tribunal's detailed analysis focused on the jurisdiction of the PCIT under section 263 and the assessment process based on unverified purchases. The tribunal emphasized the importance of the AO's examination of relevant aspects during assessment proceedings and upheld the assessment order, ruling in favor of the appellant.