2024 (4) TMI 87 - AT - Income Tax

Revision u/s 263 - Bogus purchases - estimation of income - assessee made cash purchases from the open market, since the sales had been confirmed, no disallowance was made by the AO under the provisions of Section 40A(3) - lack of enquiry, as held by the ld. PCIT - HELD THAT - As correctly submitted on behalf of the assessee, the claim made representing the purchases could have been added to the income of the assessee and only the profit margins embedded therein could be subjected to tax. AO did precisely this by disallowing the higher purchase cost, as alleged, on purchases made from M/s Gaja Nand Pardeep Kumar, as compared to other independent parties - Details of purchases made by the assessee from M/s Gaja Nand Pardeep Kumar, with copies of purchase bills have been filed. As correctly contended on behalf of the assessee, it is seen that it was on having considered the aforesaid detailed reply filed by the assessee alongwith the concerned evidences, that the AO, vide order passed under Sections 147/143(3) of the Act, the AO made addition on account of difference of purchase price concerning purchases made by the assessee from M/s Gaja Nand Pardeep Kumar, in comparison to purchases made from other entities, on the same day. The application of mind on the part of the AO in the aforesaid assessment order is evident from the fact that the AO clearly held that in the enquiry conducted by issuance of summons and by calling for information from the Market Committee, Dabwali, the stated firm of M/s Gaja Nand Pardeep Kumar, Dabwali was found to be non existent. It was on these basis, that the AO held that it appeared that the assessee had made purchases from the grey market at prices much lower than that recorded in the books of account and that the assessee had obtained bogus higher rate purchase bills from the said party, in order to suppress gross/net profit. The AO, therefore, made addition on account of difference of purchase price and added an amount. It was only the profit element embedded in the entire purchases made, that could have been brought to tax, which is exactly what has been done by the AO following case Sathyanarayan P. Rathi 2013 (6) TMI 257 - GUJARAT HIGH COURT , Shri Ganpatraj A Sanghavi 2014 (11) TMI 295 - ITAT MUMBAI AND Pradeep Shantilal Patel 2013 (11) TMI 1646 - GUJARAT HIGH COURT PCIT has observed that the assessee had made cash purchases from the open market, as the sales had been confirmed, but the AO had failed to acknowledge this fact and no disallowance had been made under Section 40A(3) - It has rightly been contended that the AO has passed the order after making all possible enquiries and the ld. PCIT has gone wrong in holding it to be a case of lack of enquiry, attracting the provisions of Section 263 of the Act. As discussed, it is patent that during the assessment proceedings, the AO had made all possible enquiries into the matter of purchases. The ld. PCIT, on the other hand erred in not repeating the categorical response made by the assessee by way of its reply. As correctly pointed out, it is seen that the facts and the report of the Investigation Wing of the Department were all available with the AO during the assessment proceedings and there was no new fact having emerged after the passing of the assessment order or any fact that had been skipped by the AO. Proper enquiries had been conducted by the AO and the assessment had been framed thereon. The assessment, therefore, had wrongly been treated by the ld. PCIT as erroneous within the meaning of the provisions of Section 263 of the Act. There is nothing on record to show that the income assessed has not been assessed in accordance with law. The requirements of invocation of the provisions of Section 263 of the Act are not fulfilled and so, the revision itself is not sustainable in law, it being, at best, a case of two possible views, of which, one view has been adopted by the AO. In the entirety of the facts and circumstances discussed herein above, it is found that the revisional proceedings, culminating in the impugned order are not sustainable in law, look at from any angle. Accordingly, the grievance of the assessee is justified and is accepted. The order under appeal is set aside and quashed and that passed by the AO is revived. Ordered accordingly. Revision u/s 263 - as per CIT genuineness and creditworthiness of unsecured loans, verification of sundry creditors and payments made to the partners' is based on fundamental misconception of facts and provisions of law and thus not in accordance with law and, therefore untenable - HELD THAT - Purchases having been duly accepted, adverse inference against the assessee was wrongly drawn with regard to sundry creditors u/s 68 of the Act. PCIT evidently erred in holding that the AO had failed to verify the genuineness and credit worthiness of the sundry creditors. PCIT further went wrong in observing, in the face of the evidence produced by the assessee, that the AO had not called for any ledger documents and confirmation of accounts of the sundry creditors. The ld. PCIT further went wrong in holding that the AO had failed to make any independent enquiry to verify the genuineness of the creditors. The impugned order in this regard is also set aside and reversed and the assessment order is revived with regard to the issue of sundry creditors also. Issue of payments made to partners - Where no disallowance with regard to either partners remuneration or interest paid to partners has suffered disallowance in the earlier years as well as in the immediately succeeding assessment year, in scrutiny assessment proceedings, no disallowance in the year under consideration is called for, in order to maintain consistency, too for the reason that adverse inference was drawn against the assessee in this regard only on the ground that copy of Partnership Deed had not been placed on record. Otherwise too, as rightly contended, both the payments, i.e., either on account of remuneration paid to partners, or on account of interest paid to partners is taxable in their respective hands and not in the hands of the assessee. Therefore, no adverse inference under the provisions of Section 263 of the Act could have been drawn. We find the grievance of the assessee to be justified. We hold that the ld. PCIT has erred in holding that the AO had failed to check whether all the payments made to partners were in accordance with the Partnership Deed and the Income Tax Act. The ld. PCIT also went wrong in observing that the AO had not even called for the copy of the Partnership Deed and had not brought the same on record. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Erroneous and prejudicial assessment orders.
3. Verification of purchases and applicability of Section 40A(3).
4. Genuineness and creditworthiness of unsecured loans.
5. Verification of sundry creditors.
6. Payments made to partners.

Summary:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee challenged the order under Section 263 of the Income Tax Act, arguing that the Principal Commissioner of Income Tax (PCIT) did not satisfy the statutory preconditions and thus acted without jurisdiction. The Tribunal concluded that the PCIT erred in invoking Section 263 as the Assessing Officer (AO) had conducted adequate inquiries and applied his mind to the facts on record.

2. Erroneous and prejudicial assessment orders:
The PCIT held that the assessment orders were erroneous and prejudicial to the interests of the Revenue. However, the Tribunal found that the AO had taken a possible view after making necessary inquiries and considering the evidence. The Tribunal emphasized that a difference of opinion does not justify revision under Section 263.

3. Verification of purchases and applicability of Section 40A(3):
The PCIT argued that the AO failed to disallow bogus purchases and examine the applicability of Section 40A(3) regarding cash purchases. The Tribunal noted that the AO had made necessary inquiries and concluded that only the profit margin embedded in the purchases could be taxed, not the entire purchase amount. The Tribunal found that the AO's view was a possible view and not perverse, thus not warranting revision under Section 263.

4. Genuineness and creditworthiness of unsecured loans:
The PCIT contended that the AO did not verify the genuineness and creditworthiness of unsecured loans. The Tribunal observed that the AO had called for details and examined the evidence, including ledger accounts and confirmations. The Tribunal held that the AO had made adequate inquiries and the PCIT's conclusion of lack of inquiry was incorrect.

5. Verification of sundry creditors:
The PCIT held that the AO failed to verify the genuineness of sundry creditors. The Tribunal found that the AO had asked for details and examined the evidence, including ledger accounts and payments made through banking channels. The Tribunal concluded that the AO had made necessary inquiries and the PCIT's observations were unfounded.

6. Payments made to partners:
The PCIT argued that the AO did not verify whether payments made to partners were in accordance with the partnership deed and the Income Tax Act. The Tribunal noted that the AO had examined the evidence and found no disallowance in earlier years. The Tribunal held that the AO had made adequate inquiries and the PCIT's conclusion was incorrect.

Conclusion:
The Tribunal quashed the orders passed by the PCIT under Section 263 for all three assessment years, holding that the AO had made necessary inquiries and taken a possible view. The appeals filed by the assessee were partly allowed.