2022 (4) TMI 541 - AT - Income Tax

Revision u/s 263 - estimation of income on bogus purchases - HELD THAT - As per the provisions of section 263 of the Act, the ld. PCIT, either can modify the assessment order, enhance the assessment or may set aside the assessment for a fresh assessment, as he may deem fit, as per facts and circumstances of the case. It is a well-settled law that the appellate authority under the Act, has inherent powers as that of the lower authorities, which can be well exercised in the interest of justice. Considering the facts and circumstances of the case, as suggested by both the ld. representatives of the parties and since the ld. AR has also agreed that the net profit rate of the assessee may be reasonably enhanced so as to prevent the assessee for another round of litigation and for the purpose of finality of the proceedings, which has not been objected by the ld. DR, we direct the Assessing Officer to assess the net profit rate of the assessee @2% of the alleged bogus purchases. The order of ld. PCIT is modified accordingly. The directions given by the ld. PCIT for assessment afresh are set aside.

Summary

Issues:
1. Revision jurisdiction under section 263 of the Income Tax Act.
2. Validity of assessment order based on alleged bogus purchases.
3. Rejection of books of accounts and evidence submitted by the assessee.
4. Disputed purchases and impact on net profit rate.
5. Exercise of jurisdiction by the Principal Commissioner of Income Tax.

Analysis:

1. The appeal was filed against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, setting aside the assessment and directing a fresh assessment. The PCIT acted on information regarding alleged bogus billings by the assessee through a shell entity, leading to the revision of the assessment order by the Assessing Officer.

2. The PCIT found discrepancies in the purchases made by the assessee from a shell entity and set aside the assessment order. The PCIT directed the Assessing Officer to consider the alleged bogus purchases of a specific amount and make necessary additions to the assessment order. The PCIT's decision was based on the belief that the original assessment was erroneous and prejudicial to the revenue's interest.

3. The assessee argued that its books of accounts were not rejected, and it provided audited financial statements, tax audit reports, trade payable details, VAT returns, and excise duty information. The assessee maintained stock registers and daily registers showing transactions, which were not disputed by the Assessing Officer or the PCIT. The assessee contended that without legitimate purchases, sales could not have occurred.

4. The net profit rate shown by the assessee was marginally lower in the current year compared to the previous year. The Assessing Officer accepted the returned profit after considering the explanations provided by the assessee. The dispute arose due to the alleged bogus purchases impacting the net profit rate, leading to the PCIT's decision to set aside the assessment order.

5. The Tribunal, after considering both parties' submissions, modified the PCIT's order. It directed the Assessing Officer to assess the net profit rate at 2% of the alleged bogus purchases, thereby preventing further litigation for the assessee. The Tribunal emphasized the inherent powers of the appellate authority to act in the interest of justice and provide finality to the proceedings.

In conclusion, the Tribunal partly allowed the assessee's appeal, modifying the PCIT's order and providing a resolution that balanced the interests of both parties and aimed for a fair assessment without unnecessary litigation.