2018 (12) TMI 210 - AT - Income Tax

Revision u/s 263 - bogus purchases - difference in purchase of gold jewellery, silver and the copper purchases - Held that - AO called for the details and verified the same and found that the assessee has accounted the purchases correctly. The assessee also furnished the details of purchases before the AO, party wise and found no difference. Hence, we observe that the assessee has correctly accounted the purchases and did not over state the purchases and there is no understatement of income on account of purchases. Therefore, CIT has invoked the jurisdiction without having any error in the assessment order which was not prejudicial to the interest of the revenue. Hence, we hold that the order passed by the Ld. Pr. CIT is unsustainable, accordingly quash the order and allow the appeal of the assessee.

Summary

Issues:
Assessment under section 263 based on overstated purchases compared to VAT returns.

Analysis:
1. The appellant filed the return of income declaring a total income of ?12,92,240, which was scrutinized resulting in an assessment of ?16,32,380. The Principal CIT found an excess claim of expenditure under purchases due to a discrepancy between VAT returns and profit and loss account, leading to a notice under section 263.

2. The appellant explained the difference in purchases due to a clerical error in VAT returns, supported by a reconciliation statement. The appellant argued that all purchases were correctly accounted for in the books of accounts, verified by the assessing officer, and no modification was needed in the assessment order.

3. The Principal CIT did not accept the appellant's explanation, citing a difference of ?4,32,401 in purchases. The appellant contended that the actual difference was ?6,21,467, including making charges, which was accepted by VAT authorities. The appellant requested to quash the section 263 order.

4. During the appeal hearing, the appellant reiterated the clerical error in VAT returns, which led to forgoing input tax credit. The appellant argued that the assessing officer had verified the details during assessment, and there was no error causing prejudice to revenue.

5. The Tribunal analyzed the details submitted by the appellant, noting a difference of ?6,21,461 in purchases, including making charges. The Tribunal found that the assessing officer had correctly verified the purchases and accepted the trading results, indicating no understatement of income. Consequently, the section 263 order was quashed, and the appeal of the assessee was allowed.