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2020 (11) TMI 167 - AT - Income TaxRevisionary proceedings u/s 263 - Assessment was reopened u/s 147 to the effect that assessee is beneficiary of bogus hawala purchases - PCIT has exercised the revisionary jurisdiction on the ground that AO has not correctly assessed the income from bogus purchases - HELD THAT - Debatable issue on which more than one plausible views are reasonably possible and if the AO has taken one possible views it can not be said that assessment is erroneous and prejudicial to the interest of the Revenue. In the case of CIT vs. Nirav Modi 2016 (6) TMI 1004 - BOMBAY HIGH COURT which has been passed after considering the decision of the Hon'ble Apex Court in the case of Malabar Industries Company Ltd. 2000 (2) TMI 10 - SUPREME COURT wherein it has been held that in order to invoke the revisionary jurisdiction the twin conditions have to be satisfied namely (i) the assessment order should be erroneous and (ii) also prejudicial to the Revenue. The Hon ble Court has held that where two views are possible and AO has taken one of the possible views there is no occasion to invoke the provision of section 263 even the Hon ble Supreme Court has dismissed the SLP filed by the Revenue against this decision in CIT vs. Nirav Modi 2016 (12) TMI 1596 - SC ORDER - Therefore, we are not in concurrence with the conclusion of the Ld. PCIT on this issue - Decided in favour of assessee.
Issues Involved:
1. Validity of the notice issued under section 263 of the Act. 2. Whether the reassessment order was erroneous and prejudicial to the interest of the Revenue. 3. Examination of the original assessment and reassessment processes. 4. Jurisdictional authority of the Principal Commissioner of Income Tax (PCIT) under section 263. 5. Applicability of judicial precedents and case laws. Issue-wise Detailed Analysis: 1. Validity of the notice issued under section 263 of the Act: The assessee contended that the notice issued under section 263 was based on a proposal from the Income Tax Officer (ITO) or Joint Commissioner of Income Tax (Jt. CIT) rather than a suo-moto examination by the PCIT. This, according to the assessee, made the revision proceedings contrary to the provisions of section 263 and thus, bad in law and liable to be quashed. 2. Whether the reassessment order was erroneous and prejudicial to the interest of the Revenue: The assessee argued that the reassessment order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the Revenue. The original assessment was completed under section 143(3) and later reopened under section 147 based on information about alleged bogus purchases. The AO made an estimated addition after verifying the details, which the assessee claimed was a valid exercise of discretion. The PCIT, however, believed that the AO's addition of 1.5% of the bogus purchases was without justification, leading to an under-assessment of income. 3. Examination of the original assessment and reassessment processes: The reassessment was framed under section 143(3) read with section 147, assessing the income at ?48,88,440/-. The AO made an addition of ?40,10,094/- (1.5% of the alleged bogus purchases). The PCIT issued a show cause notice under section 263, arguing that the AO did not fully examine the reasons for which the case was selected for scrutiny, rendering the assessment order erroneous and prejudicial to the Revenue's interest. 4. Jurisdictional authority of the Principal Commissioner of Income Tax (PCIT) under section 263: The PCIT exercised revisionary jurisdiction, believing that the AO's order was erroneous and prejudicial to the Revenue. The assessee contended that the AO had made specific inquiries and applied his mind before making the addition, thus the reassessment order should not be deemed erroneous. The PCIT's reliance on certain judicial precedents was also challenged by the assessee. 5. Applicability of judicial precedents and case laws: The assessee cited various case laws, including CIT vs. Nikunj Exim Enterprises Pvt. Ltd., Babulal C. Bhurana vs. ITO, and CIT vs. Simit P. Sheth, to argue that the AO's addition based on estimation was valid. The PCIT, however, relied on the Supreme Court's decision in N.K. Proteins Ltd. and Vijay Proteins Ltd., suggesting that 100% of the bogus purchases should be added. The Tribunal noted that the AO's view was a possible one and that the revisionary jurisdiction under section 263 could not be exercised merely because the PCIT had a different view. Conclusion: After hearing both parties and perusing the material on record, the Tribunal concluded that the AO had examined the issue of bogus purchases during the reassessment proceedings and made a possible view. The Tribunal held that the PCIT's exercise of revisionary jurisdiction was invalid, as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal set aside the proceedings under section 263 and the consequent order, allowing the assessee's appeal. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the open court on 28.09.2020.
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