2022 (11) TMI 1241 - AT - Income Tax

Revision u/s 263 - unverified URD purchases - As per CIT no evidence submitted by the assessee or culled out by the AO that the 10% of URD expenses were made from commission agent - AO merely on the basis of assumption made addition of commission expenses instead of making the addition of entire unverified or non-genuine URD purchases - HELD THAT - The assessee before the investigation wing of the Income Tax Department has also made a detailed reply - Thereafter, the proceedings were initiated under section 147 of the Act by issuing notice u/s148 - Finally the assessment was framed by the AO under section 147 of the Act after considering all the facts with respect to URD purchases which can be verified from the assessment order available on record. Thus it can be inferred that there was due application of mind of the AO while framing the assessment under section 147 - Accordingly, we are of the view that the assessment order on hand cannot be held as erroneous insofar prejudicial to the interest of revenue on account of non-verification as alleged by the CIT u/s 263 of the Act. Whether the purchase shown by the assessee represents the bogus transaction in the absence of supporting documents ? - We note that whatever purchases are made by the assessee, become part of stock in trade and subsequently sold to the parties. Thus the impugned amount of purchases were either shown by the assessee in the stock in trade in the year under consideration or sales were made against such purchases. The learned CIT has not disturbed either the stock in trade of the purchases The entire exercise becomes tax neutral, in the sense that if the purchases are disbelieved and corresponding closing stock and the sale of the subsequent year should also be disbelieved on the same parameter. As such the revenue cannot take different stand with respect to the common transactions having impact on purchases, closing stock and the sales. All these transactions are interconnected and linked with each other. If any of the transaction is doubted then corresponding transaction should also be carrying same shadow of doubt - part of the transactions cannot be accepted as genuine and part of the transaction cannot accepted as bogus. Either the entire transaction to held as bogus or should be treated as genuine without making any cherry pick-up. Thus, for this reason as well, the assessment order cannot be held either erroneous or prejudicial to the interest of revenue. Contention of Assessee that the order of the AO got merged the order of the learned CIT-A is not agreeable - It is for the reason that the issue before the learned CIT-A was with respect to the deduction of the TDS. There was no issue with respect to the purchases from the unregistered parties. Thus, the issue raised by the learned PCIT with respect to the addition for the URD purchases wasn t other before the learned CIT-A. I Thus we hold that the order of the assessment does not suffer from any infirmity on account of non-verification as alleged by the CIT u/s 263 - Accordingly we quash the order framed under section 263 - Appeal of the assessee is allowed.

Summary

Issues:
Assessment framed under section 143(3) of the Income Tax Act considered erroneous by the Principal Commissioner of Income Tax (Central) under section 263 of the Act.

Analysis:
The appeal was filed by the Assessee against the order of the Principal Commissioner of Income Tax (Central), Ahmedabad, regarding the assessment order passed under section 263 of the Income Tax Act, 1961 for the Assessment Year 2015-16. The main issue raised by the Assessee was the contention that the assessment framed under section 143(3) of the Act was not erroneous in a way prejudicial to the interest of Revenue. The Assessee, a private company, had its assessment reopened under section 147 of the Act, where the Assessing Officer (AO) made an addition of commission expenses based on unverified URD purchases assumed to be made from commission agents. The Principal Commissioner initiated proceedings under section 263 as no evidence was found to support the assumption made by the AO.

Upon examination of the assessment records, the Principal Commissioner found that the entire unverified purchases should have been disallowed under section 37 of the Act, rather than just adding commission expenses. The Assessee argued that the AO had considered detailed submissions regarding purchases and had taken a possible view, hence no error existed. The Principal Commissioner disagreed, stating that the AO failed to establish the genuineness of the purchases, leading to an erroneous assessment prejudicial to Revenue. Consequently, the Principal Commissioner set aside the AO's order for fresh assessment.

The Assessee contended that the assessment order was proper and demonstrated due application of mind by the AO during the reassessment proceedings. The Assessee had provided detailed replies and evidence regarding URD purchases, which were considered in the assessment order under section 147 of the Act. The Assessee argued that the assessment could not be deemed erroneous or prejudicial to Revenue due to non-verification, as claimed by the Principal Commissioner under section 263.

The Tribunal analyzed the issue from various angles, highlighting the interconnected nature of purchases, closing stock, and sales. The Tribunal concluded that the assessment order was not erroneous or prejudicial to Revenue, as the transactions were tax-neutral, and there was no impact on the Assessee's profitability. Additionally, the Tribunal dismissed the argument that the assessment order merged with the CIT-A order, as the issues were distinct. Ultimately, the Tribunal allowed the appeal filed by the Assessee, quashing the order framed under section 263 of the Act.

In conclusion, the Tribunal ruled in favor of the Assessee, finding no infirmity in the assessment order and allowing the appeal.