2024 (12) TMI 894 - AT - Income Tax

Revision u/s 263 - additions made in the hands of the assessee on the basis of show-cause notice from Central Excise Directorate indicating that the assessee had claimed Cenvat Credit on bogus purchases - HELD THAT - Once CESTAT has given a findings that the purchases in question were not bogus, then, in our view additions proposed to be made u/s 147 and 263 of the Act have no basis which the same can be sustained. Thus when CESTAT has decided the issue in favour of the assessee by holding that the purchases in question were not bogus, we hold that since the very basis on which proceedings were initiated u/s 263 of the Act have been vacated / set-aside, then, order passed u/s 263 of the Act is also liable to be set-aside. Decided in favour of assessee.

Issues Involved:

1. Legality of the order passed under Section 263 of the Income Tax Act.
2. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263.
3. Validity of the assessment order under Section 143(3) r.w.s. 147.
4. Impact of the CESTAT ruling on the proceedings under Section 263.
5. Relevance of the Supreme Court and High Court precedents in setting aside the Section 263 order.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed Under Section 263:

The assessee challenged the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263, arguing that it was "bad in law" and should be quashed. The contention was that the PCIT had wrongly assumed jurisdiction under Section 263 concerning the Value Added Tax (VAT) of Rs. 45,07,004/- related to purchases of SS Scrap, which the assessee claimed was never expensed. The PCIT's order was criticized for setting aside the entire assessment order, despite identifying an error in only one aspect.

2. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) Under Section 263:

The PCIT issued a notice under Section 263, observing that the assessment order was erroneous and prejudicial to the interests of the revenue because it failed to account for the total claimed amount, including a VAT element. The PCIT argued that the Assessing Officer neglected to inquire about the VAT element in the claimed purchases, rendering the assessment order erroneous. The PCIT's decision drew parallels to the Malabar Industrial Co. Ltd. case, emphasizing that the failure to investigate relevant aspects of the financials justified setting aside the assessment order.

3. Validity of the Assessment Order Under Section 143(3) r.w.s. 147:

The original assessment order was challenged on the grounds that it did not comprehensively address the issues related to bogus purchases and the VAT element. The reopening of the case under Section 148 and subsequent additions for bogus purchases were based on a show-cause notice from the Central Excise Directorate, which alleged disallowed Cenvat credit. The PCIT's intervention under Section 263 aimed to rectify these perceived omissions in the assessment process.

4. Impact of the CESTAT Ruling on the Proceedings Under Section 263:

The CESTAT ruling in favor of the assessee, which held that the purchases were genuine, played a crucial role in the appeal. The assessee argued that since the CESTAT had decided the issue in their favor, the basis for the Section 263 proceedings was invalidated. The Tribunal noted that the CESTAT's findings negated the allegations of bogus purchases, thereby undermining the rationale for the Section 263 order.

5. Relevance of the Supreme Court and High Court Precedents:

The Tribunal referred to the case of CIT vs. A. Yonus Kunju, where the High Court held that when the basis for reassessment proceedings was vacated by a parallel proceeding, the reassessment could not be sustained. This precedent supported the assessee's argument that the Section 263 order should be set aside, as the CESTAT ruling had vacated the grounds for the PCIT's intervention. The Tribunal concluded that since the CESTAT had found the purchases genuine, the Section 263 order was unsustainable.

Conclusion:

In light of the CESTAT ruling and the legal precedents, the Tribunal set aside the order under Section 263, allowing the assessee's appeal for both assessment years. The Tribunal emphasized that the original basis for the Section 263 proceedings had been invalidated, rendering the PCIT's order unsustainable. The appeal was allowed, and the order was pronounced in open court on September 27, 2024.

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