MAHARASHTRA ENGINEERING ,,KOLHAPUR vs. PR. COMMISSIONER OF INCOME-TAX -1,, KOLHAPUR

PER GEORGE MATHAN, JUDICIAL MEMBER:

This is an appeal filed by the assessee against the order of learned Pr. CIT-I, Kolhapur, in Appeal No. KOP/PCIT-1/263/Hawala/A.Y-10-11/ Maharashtra Engg/2017-18 dated 28-3-2018 for A.Y. 2010-11 passed u/s 263 of the Income-tax Act, 1961 (hereinafter referred as “the Act).

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firm which is in the business of manufacturing of Tractor & Precision Sheet

Metal Work. It was his submission that the assessee had, during the relevant

assessment year, done purchase of H.R. and C.R. sheets which are basically

M.S. Sheets from one M/s. C.R. Enterprises for a total consideration of Rs.

1,70,55,525/- The assessee had sold the same and he had also disclosed

profit on the sales in his P & L a/c. The return of income had been filed for the

relevant assessment year on 31-10-2009 disclosing total income of Rs.

6,80,159/-. Certain information had come to the possession of the A.O from the

Dy. CIT (Inv) Pune that assessee was beneficiary from bogus Hawala

purchases done with Raju Bhanubhai Doshi (C.R. Enterprises), Mumbai, to the

extent of Rs. 1,70,55,525/- during the year. Consequently, the case of the

assessee was re-opened by issuing notice u/s 148 of the Act and the accounts

of the assessee was examined. Details were called for and the assessment

was completed on 11-3-2016 u/s 143(3) read with sec. 147 of the Act wherein

transactions with M/s, C.R. Enterprises were verified. In the course of

assessment proceedings, it was verified by the A.O with regard to the

documentary proof for purchases from said Hawala dealer and its subsequent

sales thereof. It was understood that all the transactions were duly recorded in

the books. The assessee had also admitted that the transactions were in the

nature of circular transactions in order to enhance the turnover. It was admitted

by the assessee that the purchases and sales were not bogus but were

genuine and subsequently had agreed to addition of 5% of purchases made

from the alleged Hawala dealers in addition to its trading results. The A.O had

verified the transactions and recorded in the assessment order that the

cheques had been issued in regards to the purchases and the cheques were

also received from the parties to whom the sales had been made. The

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assessee was unable to produce alleged Hawala parties from whom the

assessee had made purchases. Consequently, the A.O assessed 5% of the

purchases as income on the transactions. It was submitted that subsequently a

show cause notice was issued by the learned Pr. CIT on 22-2-2018 asking the

assessee to submit a reply by 27-3-2018. It was his submission that in the

show cause notice, the learned Pr. CIT has taken a stand that he proposes to

apply the decision of the Hon’ble Gujarat High Court in the case of N.K.

Proteins Ltd. Vs. DCIT (2016) 72 Taxman.com 289 (Gujarat) to say that when

the entire purchases were found to be bogus then confirming the disallowance

of 5% of the bogus purchases goes against the principles of section 68 of the

Act. It was the submission that since the assessee did not get adequate time,

he was unable to respond to the show cause notice by 27-3-2018 but the

assessee had responded on 30-3-2018 with all the details as called for by the

learned Pr. CIT. It was his submission that however, the Pr. CIT passed an

order u/s 263 on 28-3-2018 setting aside the assessment order passed us

143(3) read with sec. 147 of the Act on 11-3-2016 for A.Y. 20-10-11 for fresh

determination of income after proper examination of the facts and law. It was

his submission that all the issues having been considered by the A.O in the

course of re-opened assessment and re-opening of the assessment has been

exclusively for the purposes of examining the said alleged Hawala purchases

and the A.O having formed his opinion and having accepted the purchases and

sales, the revision as proposed by the learned Pr. CIT is unsustainable as it

amounts to change of opinion.

this point, it was put to the learned CIT D.R as to how the order passed u/s 263

could be sustained especially in view of the fact that the said order has been

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passed in total violation of principles of natural justice insofar as the issues that

arose in the assessment year 2010-11 which had been considered and

assessment passed in 2016 is being proposed for revision by show cause

notice dated 22-2-2018 and the assessee was granted only five days time to respond i.e. by 27-3-2018. 27th March, 2018 is Tuesday and 29th March 2018

is Thursday. It was further put to the learned CIT D.R. for the Revenue as to

how it can be said that an effective opportunity has been granted to the

assessee in the form of such issue of notice. In reply, the learned CIT D.R.

submitted that the issue could be restored to the file of the learned CIT for fresh

adjudication. However, he failed to explain as to how such an opportunity can

be given which would in effect be extending the time limit provided u/s 263 of

the Act. The learned CIT D.R. was further requested to explain as to how the

provisions of sec. 263 can be applied when the provision of sec. 263(1)

specifically provides for “after making or causing to be made such inquiry as he

deems necessary” before the learned CIT passed an order on 28-3-2018. The

learned CIT D.R. was requested to show as to how and what was the inquiry

which has been done by the learned Pr. CIT or the inquiry which he has caused

to be made before he passed an order u/s 263 of the Act on 28-3-2018. To

this, the learned CIT D.R was unable to point out any of the inquiries. It was

however, his submission that this was a case of Hawala transaction and the

purchases were bogus and that the entire purchases were liable to be

assessed as against which the A.O had made the addition of only 5% of the

alleged Hawala purchases. The learned CIT D.R. vehemently supported the

order of the learned Pr. CIT Kolhapur.

It is noticed that the reopening of the assessment has been done for the

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specific purpose of examining the said purchases from C.R. enterprises. The

A.O after considering the evidences produced came to the conclusion that the

addition representing disallowance of 5% of the total purchases would meet the

ends of justice. Thus, the reasons have been recorded for the purposes of

reopening of the assessment. The issue on the basis which reopening has

been done, has been examined by the A.O and after verifying the evidences, a

conscious decision has been taken by the A.O when passing the assessment

order on 11-3-2016. A perusal of the order u/s 263 passed by the learned CIT

shows that in the show cause notice, the learned Pr. CIT has mentioned that

the disallowance of 5% of the total of such purchases is erroneous and

prejudicial to the interest of revenue within the meaning of sec. 263 of the Act.

However, when it came to the order passed u/s 263 he does not say as to how

the said assessment order passed u/s 143(3) read with sec. 147 for the A.Y.

2010-11 dated 11-2-2016 is erroneous insofar as it is prejudicial to the interest

of revenue. For brevity, the finding of the learned CIT in paras 9 to 13 is

extracted herein below.

“9. I have gone through assessment order. On the basis of information received from Maharashtra Sales tax Department, it is found that the aforesaid transactions are bogus without actual sale/delivery of goods. Further, on enquiries by the A.O the sellers are found to be non- existent at the given addresses. The assessee has also failed to file confirmations, failed to produce the suppliers. The letters issued have come back un-served, which proved that the whole purchases were not genuine. As stated above, the Hon’ble Supreme Court vide it’s judgment in SLP in CC No. 769/2017 has dismissed the SLP filed by the assessee thereby confirming the judgment of the Hon’ble Gujarat High Court in the case of N.K. Proteins Ltd Vs. DCIT (2016) 72 Taxman.com 289 (Gujarat) which has held that addition on percentage basis on bogus or Hawala purchases is against the spirit of I.T. Act. Considering all these facts and legal position, the assessment order is required to be set aside.

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such purchases but not the entire purchases. Therefore, in the light of the above judgment, the A.O is required to re-examine the factual matrix and then to decide whether addition of entire purchases or only profit element is warranted in this case.

the purchases are going to be treated as bogus and the addition is going to be

made of the entirety of the purchases what happens to the sales that have

been disclosed, as also the stocks by treating the said purchases as bogus.

Sales which have been disclosed cannot be touched. The stock statement of

the assessee would also stands disturbed. A perusal of the assessment order

however, shows that these have been examined by the A.O and after

considering the facts the estimated addition of 5% of purchases have been

made by the A.O. Thus, the issues have been examined by the A.O and just

because the opinion as arrived by the A.O is at a variation of the opinion of the

learned Pr. CIT, would not grant the learned Pr. CIT the powers of revision u/s

263 of the Act. Thus, on merits, the order passed u/s 263 stands set aside.

We are not going into the technical issues as has been discussed in this order

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above as we have, on merits, set aside the revisional order passed u/s 263 of the Act.

Order pronounced in open Court on this 20th day of February 2020.

Sd/- sd/- (ANIL CHATURVEDI) (GEORGE MATHAN) Accountant Member Judicial Member Pune; Dated : 20th February 2020. Ankam

Copy of the Order is forwarded to : 1. Assessee 2. Respondent 3. The Pr. CCIT Pune 4. The Pr. CIT 3 Pune 5. The Addl. CIT Range 6, Pune 6. The Assessing Officer 7. The D.R. ITAT Pune Bench ‘B’ 8. Guard file True copy

By order

Sr. Private Secretary ITAT Pune Bench, Pune

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1 Draft dictated on 18.02.2020 Sr. PS/PS 2 Draft placed before author 20.02.2020 Sr. PS/PS 3 Draft proposed and placed before the second Member 4 Draft discussed/approved by second Member 5 Approved draft comes to the Sr. 20-02-2020 Sr. PS/PS PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of order Sr. PS/PS 8 File sent to Bench Clerk 20-02-2020 Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order