2023 (2) TMI 532 - HC - Income Tax

Reopening of assesssment u/s 147 - addition of 100% of alleged bogus purchases u/s 68 - difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases - CIT(A) restricted the addition to 25% of the amount of purchases made - HELD THAT - In the present case, the order of the Tribunal is certainly not the one where the AO had been directed to carry out a fresh examination on any issue rather the Tribunal had clinched the issue by holding that the addition could only be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. Tribunal remitted the matter to the file of AO for applying the ratio laid down by this Court in the case of Mohommad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT The reason why the Tribunal did not specify the amount based upon the afore-stated principle was that specific details were not readily available from various ARs/DRs for facilitating the calculation of such rates. In our opinion, the Action of the respondent No.4 in issuing Form No.3 based upon FAQ No.7 issued by the CBDT is unsustainable and accordingly set aside. The said respondent shall proceeded to issue Form No.3, keeping in view the provisions of section 2(1)(j)(B) of the Act of 2020 and determine the disputed tax by giving effect to the orders of the Tribunal. Needful be done within a period of three months.

Summary

Issues:
1. Reassessment of income under section 143(3) of the Income Tax Act, 1961.
2. Appeal against the order of the Commissioner of Income Tax (Appeals) restricting the addition of alleged bogus purchases.
3. Tribunal's order remanding the matter to the Assessing Officer based on a specific judgment.
4. Appeal by the revenue against the Tribunal's order under section 260A of the Act.
5. Filing of declaration under Direct Tax Vivad se Vishwas Act and dispute regarding the calculation of disputed tax.
6. Rectification application filed by the petitioner regarding the demand raised in Form No.3.
7. Interpretation of section 2(1)(j)(B) of the Act of 2020 in the context of disputed tax calculation.
8. Application of FAQ No.7 issued by the CBDT in the calculation of disputed tax.
9. Justification of the disputed tax calculation based on the Tribunal's order.

Analysis:
1. The petitioner's income reassessment was done under section 143(3) of the Income Tax Act, resulting in a significant increase due to alleged bogus purchases. The Commissioner of Income Tax (Appeals) later restricted the addition, leading to appeals and a remand by the Tribunal for the Assessing Officer to apply a specific judgment's ratio on genuine and hawala purchases.

2. The Tribunal's decision was challenged by the revenue through an appeal under section 260A of the Act, leading to a dispute over the calculation of disputed tax under the Direct Tax Vivad se Vishwas Act. The petitioner's declaration and subsequent issues with the demand raised in Form No.3 were raised, highlighting discrepancies in the tax liability calculation.

3. The rectification application filed by the petitioner was rejected, citing reliance on FAQ No.7 issued by the CBDT. However, the court determined that the calculation of disputed tax should be based on the Tribunal's order, as per section 2(1)(j)(B) of the Act of 2020, emphasizing the need to give effect to the appellate forum's decision.

4. The court clarified that FAQ No.7's application was not relevant in this case, as the Tribunal's order did not require a fresh examination by the Assessing Officer but provided a specific direction on the addition based on gross profit rates. The court set aside the disputed tax calculation based on FAQ No.7 and directed the respondent to recalculate the disputed tax in line with the Tribunal's order within three months, resolving the writ petition.