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2017 (12) TMI 467 - AT - Income TaxRevision u/s 263 - period of limitation for revising of the order u/s 263 - bogus purchases - Held that - In re-opened proceedings as the issue of purchases was re-opened and this issue was also subject matter of original proceedings. Hence, the issue related to verification of purchases merged with the re-opened proceedings, where admittedly issue of bogus purchases was the basis for re-opening. Thus, the facts in the present case are distinguishable from the facts of the Judgment of the Hon ble Supreme Court rendered in the case of CIT vs. Alagendran Finance Ltd. 2007 (7) TMI 304 - SUPREME Court . In the instant case thus the limitation for revising of the order u/s 263 would start from the order passed u/s 143(3) read with section 148 of the Act but not from the date when the original assessment order was passed u/s 143(3) of the Act. Thus, this ground of the assessee s appeal is dismissed. Genuineness of the investment - eligible for deduction u/s 10B - Held that - The assessee can not be allowed to take advantage of its own wrong. By claiming the bogus expenditure the assessee has certainly caused prejudice to the interest of the revenue. The component of investment which is claimed as business expenditure may be unexplained investment, which is claim under the garb of trading expenditure. Keeping this in view, we do not see any reason to interfere into the action of the Ld. CIT(A), same is hereby affirmed. This ground of assessee s appeal is dismissed. Before parting we may also hold that even if the Ld. CIT(A) has decided the issue that the profit arising out of the bogus purchases would be eligible for deduction u/s 10B even then the revenue cannot be precluded to examine the issue from the stand point of genuineness of investment. - Decided against assesee
Issues Involved:
1. Legality and validity of the order passed by the Ld. PCIT under Section 263. 2. Jurisdiction of the Ld. PCIT to direct the AO to make necessary inquiries. 3. Impact of the disallowed purchases on the assessee's income and tax liability. 4. Limitation period for passing the order under Section 263. Issue-wise Detailed Analysis: 1. Legality and Validity of the Order Passed by the Ld. PCIT under Section 263: The assessee contended that the order passed by the Ld. PCIT under Section 263 is illegal and bad in law. The Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT 243 ITR 83 established that for the Commissioner to exercise jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interests of the Revenue. The assessee argued that even if the purchases from M/s Vitrag Jewels were disallowed, the increased profit would still be exempt under Section 10B, causing no prejudice to the Revenue. The Tribunal acknowledged that the twin conditions must be satisfied for invoking Section 263 but concluded that the order was both erroneous and prejudicial to the Revenue due to the lack of inquiry into the genuineness of the purchases. 2. Jurisdiction of the Ld. PCIT to Direct the AO to Make Necessary Inquiries: The Ld. PCIT directed the AO to make necessary inquiries regarding the purchases from M/s Vitrag Jewels, which were considered accommodation entries. The assessee argued that the Ld. PCIT did not have jurisdiction as the issue had already been decided by the CIT(A) in a previous order. However, the Tribunal found that the AO should have extended the inquiry to all purchases, not just those from M/s JPK Trading India Pvt. Ltd., and upheld the Ld. PCIT's jurisdiction to direct further inquiries. 3. Impact of the Disallowed Purchases on the Assessee's Income and Tax Liability: The assessee claimed that disallowing the purchases would only increase the profit, which is eligible for deduction under Section 10B, resulting in no tax impact. The Tribunal, however, emphasized that the genuineness of the investment and the potential for claiming bogus expenditure were significant concerns. The Tribunal held that the assessee could not benefit from its own wrong and affirmed the Ld. PCIT's action, stating that the disallowed purchases could represent unexplained investments rather than legitimate business expenses. 4. Limitation Period for Passing the Order under Section 263: The assessee argued that the order under Section 263 was barred by limitation, contending that the limitation period should commence from the original assessment order date, not the reassessment order date. The Tribunal distinguished the present case from the Supreme Court's decision in CIT vs. Alagendran Finance Ltd. 293 ITR 001, noting that the issue of bogus purchases was reopened in the reassessment proceedings. Consequently, the limitation period began from the reassessment order date, making the Ld. PCIT's order timely and valid. Conclusion: The Tribunal dismissed the appeal of the assessee, upholding the Ld. PCIT's order under Section 263. The Tribunal concluded that the order was not barred by limitation, and the Ld. PCIT had jurisdiction to direct further inquiries. The Tribunal also affirmed that the disallowed purchases could affect the genuineness of the investment and the assessee could not claim bogus expenditure under the guise of trading expenses. The appeal was dismissed in its entirety.
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