2020 (9) TMI 692 - AT - Income Tax

Revision u/s 263 - Estimation of additional profit at the rate of 11.27% towards bogus purchases by AO - HELD THAT - The view taken by the AO in not taxing 100% but only profit element in such hawala purchases is fortified by the judgment in Pr.CIT Vs. Mohommad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT wherein it has held that no ad hoc addition for bogus purchases can be made. Rather, the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. Since the AO in the instant case has made addition for the additional profit at the rate of 11.27% towards bogus purchases, we hold that the impugned order, treating such assessment order as erroneous and prejudicial to the interest of revenue, cannot be validated. The AO has taken a view, which cannot, by any standard, be categorized as a non-plausible view. We, therefore, set-aside the impugned order. - Decided in favour of assessee.

Summary

Issues:
Assessment order under section 263 of the Income-tax Act, 1961 for the assessment year 2009-10.

Analysis:

The case involved an appeal by the assessee against the order passed by the Principal Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. The Assessing Officer (AO) had received information from the Sales Tax Department regarding the assessee procuring bogus bills in a hawala racket. The AO assessed that 15% of profit on such purchases was taxable as additional income. The Principal Commissioner, using his revisional power under section 263, found the assessment order to be erroneous and prejudicial to the interest of revenue. The assessee, despite several notices, did not appear before the Tribunal, leading to an ex parte disposal of the appeal.

The Tribunal considered the power of revision under section 263, emphasizing that it does not extend to debatable issues. If the Assessing Officer takes one of the possible views on a debatable issue, revision is not applicable. The Principal Commissioner held the assessment order to be erroneous as the AO did not tax 100% of the bogus purchases but only the profit element. The Tribunal referred to a judgment of the jurisdictional High Court, which stated that ad hoc additions for bogus purchases are not permissible. Instead, the addition should be based on the difference between the gross profit rate on genuine purchases and hawala purchases. Since the AO had added profit at a specific rate for the bogus purchases, the Tribunal concluded that the assessment order was not erroneous. Therefore, the impugned order was set aside, and the appeal by the assessee was allowed.

In conclusion, the Tribunal found that the AO's decision to tax only the profit element of the bogus purchases was based on a plausible view and not erroneous. The judgment of the High Court supported this approach, leading to the allowance of the appeal by the Tribunal.