Loading judgment…
Facts
The Assessee, engaged in advertising and trading PVC, faced reassessment under Section 147 for Assessment Year 2018-2019 due to alleged bogus purchases from two entities (MM9 International and Witteneia Multitrading Pvt. Ltd.). The Assessing Officer (AO), after verification and relying on a Gujarat High Court decision, made a 6% disallowance of the total transaction value. Subsequently, the PCIT initiated revision proceedings under Section 263, deeming the AO's order erroneous and prejudicial for not making a 25% addition based on a different High Court decision and alleging lack of proper verification by the AO.
Held
The Tribunal found that the Assessing Officer had conducted appropriate inquiries and taken a plausible view supported by judicial precedent by making a 6% addition. It reiterated that an order cannot be treated as erroneous or prejudicial under Section 263 merely because the PCIT holds a different view when two plausible views are possible. Therefore, the PCIT's order setting aside the assessment was set aside, and the original assessment order by the AO was reinstated.
Key Issues
Whether the PCIT could invoke Section 263 to revise an assessment order where the Assessing Officer had taken a plausible view regarding the quantum of disallowance for alleged bogus purchases, and if the AO's 6% addition for bogus purchases was appropriate or if a 25% addition was mandated.
Sections Cited
263, 147, 144B, 143(3), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
order : 30.05.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 12/11/2024, passed by the Ld. Principal Commissioner of Income Tax, Mumbai - 1 [hereinafter referred to as ‘the PCIT’] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Assessment Order, dated 19/03/2024, passed under Section 147 read with 144B of the Act was set aside as being erroneous in so far as prejudicial to the interest of Revenue.
The Assessee has raised following grounds of appeal : Assessment Year 2018-2019 “1. On facts and circumstances of the case and in law, the Principal Commissioner of Income-tax, Mumbai-1 ('Ld. PCIT') has erred in passing an order under section 263 of the Act seeking to revise the assessment order passed under section 147 of the Act which is neither erroneous nor prejudicial to the interest of revenue.
2. On facts and circumstances of the case and in law, the Ld. PCIT erred in passing the order under section 263 without appreciating the fact that appropriate inquiries and verification were conducted by the Ld. AO while completing the assessment under section 147 of the Act and the action of Ld. PCIT in revising the assessment order passed after verification of the details on record lacks judicial propriety and jurisdiction.
3. On facts and circumstances of the case and in law, the Ld. PCIT has erred holding the assessment order is erroneous and prejudicial on the ground that the addition of 6% on alleged bogus purchase made by the Ld. Assessing Officer (Ld. AO) is based on some random Gujarat High Court decision without reference to the binding decisions of the jurisdictional High Court and without adequate inquiry. The Ld. PCIT has failed to appreciate the fact that the reassessment was made solely on the ground of alleged bogus transactions and the impugned purchases/transaction entered by the appellant and the related documents have duly been verified and acknowledged by the Ld. AO during the course of assessment proceedings.
4. On facts and circumstances of the case and in law, the Ld. PCIT has erred in passing the order under section 263 of the Act by holding that 25% of the alleged bogus purchase should be added to the total income of appellant vis-à-vis the addition of 6% made by the AO, merely based on change of opinion and reference to alternative judicial decision on distinguished set of facts confirming higher percentage of bogus purchases as addition to the total income.
5. On facts and circumstances of the case and in law, the Ld. PCIT has erred in passing the order under section 263 of the Act without appreciating that 25% of the alleged bogus purchase cannot be added to the total income of appellant by treating purchases made from MM9 International and Witteneia Multitrading Pvt. Ltd as bogus purchases as the transaction entered into by the appellant are genuine transaction backed with sufficient documentary evidence.
2 Assessment Year 2018-2019 6. On facts and circumstances of the case and in law, the Ld. PCIT erred in passing the order under section 263 by holding that 25% of the alleged bogus purchase should be added to the total income of appellant instead of the addition of 6% made by the Ld. AO without taking cognizance of the fact that the Ld. AO has adopted a possible view and the order of the Ld. AO cannot be treated as prejudicial to the interests of the revenue when he has adopted one of the courses permissible in law.
7. Strictly, without prejudice to Ground No.1 to 6 above, the Ld. PCIT has erred in law and on facts in disallowing 25% of the alleged bogus purchase transactions even though it is well established principle that the addition on account of the alleged bogus transaction should be restricted to the profit element embedded in such purchases i.e. 3.02% in case of the appellant for the captioned AY.
8. Strictly, without prejudice to Ground No.1 to 7 above, the Ld. PCIT has erred in law and on facts in initiating the revision proceedings under section 263 of the Act and passing the impugned order without taking cognizance of the fact that the subject matter of revision proceedings has been challenged before the CIT(A) by the Assessee and is pending disposal and no revisionary power can be exercised on this aspect.”
The relevant facts in brief are that the Assessee, a private limited company, was engaged in the business of business of advertising and trading of PVC and its derivatives (import and domestic sale). During the relevant previous year, the Assessee-company earned passive income in the nature of dividend, interest, etc. The Assessee filed its return of income for the Assessment Year 2018-2019 on 30/10/2018 declaring business loss of INR.55,83,331/-. The case of the Assessee was not picked up for regular scrutiny assessment under section 143(3) the Act. However, subsequently, re- assessment proceedings under Section 147 of the Act were initiated in the case of the Assessee on the premise that the Assessee is one of the beneficiaries of accommodation entry of bogus purchase/sales based on the information received from Investigation wing/GST department in case of M/s. Mahalaxmi Enterprise and its group 3 Assessment Year 2018-2019 entities (namely, M/s. MM9 International and M/s. Wittenela Multitrading Private Limited). During the re-assessment proceedings, the Assessing Officer issued notice under Section 142(1) of the Act seeking further details in connection with the purchases and sales made from M/s. MM9 International and M/s. Witeneia Multitrading Private Limited. In response to the said notices, the Assessee submitted the details of sales and purchases made alongwith all the supporting documents vide Letter, dated 11/03/2023 and 26/07/2023. Subsequently, a Show Cause Notice, dated 20/02/2024, was issued to the Assessee to justify as to why the proposed variation on account of bogus purchases made from MM9 International (for short ‘MM9’) and Witteneia Multitrading Pvt. Ltd. (for short ‘Witteneia') should not be made. In response, the Assessee filed a detailed submission vide Letter, dated 09/03/2024, to prove the genuineness of the transaction and also submitted sufficient supporting to substantiate the transaction carried out by the Assessee. Subsequently, the Assessing Officer passed the Assessment Order, dated 19/03/2024, under Section 147 read with Section 144B of the Act by making disallowance of 6% of the total transaction value entered with MM9 and Witteneia by placing reliance upon the judgment of the Hon'ble Gujarat High Court in the case of Principal Commissioner of Income-tax vs. Vrajendra Jagjivandas Thakkar [2023] 295 Taxman 713 (Gujarat)[05-09- 2023].
Being aggrieved, the Assessee had preferred appeal before the Commissioner of Income-tax (Appeals) on 17/04/2024. Thereafter, during the pendency of the aforesaid appeal, the Ld. PCIT issued notice under Section 263(1) of the Act. In the said notice it was stated that the Assessing Officer had erred in relying on the judgment of the Hon’ble Gujarat High Court in case of Vrajendra Jagjivandas Thakkar vs. Income Tax Officer, without proper verification of facts and without considering applicability of other 4 Assessment Year 2018-2019 High Court judgments on the same issue and therefore, the assessment order was erroneous and prejudicial to interest of Revenue within the meaning of Section 263 of the Act.
5. Being aggrieved, the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.
We have heard both the sides and have perused the material on record.
On perusal of the record it becomes clear that in the present case the Assessing Officer had made inquiry requiring alleged bogus purchases. During the course of the re-assessment proceedings, following supporting documents/details were furnished by the Assessee to prove the genuineness of the sale/purchase transaction entered with MM9 and Witteneia: Sr. No. Particulars of documents Relevance of document 1. Detailed bifurcation of purchases and sales made 2. Copy of Invoices received from the Document evidencing that the parties and issued to the parties Assessee has purchased and sold goods. 3. Copy of relevant Form GSTR-2A- Contains details of purchases made System generated statement of which is auto-populated based on inward supplies of the Assessing sales details submitted by the seller reflecting purchases from MM9 in Form GSTR-
1. 1. This evidences International and Witteneia that transaction have duly been recorded in the GST returns of both the buyer and the seller.
4. Copy of Form GSTR 1 and Form Contains details of sales made and GSTR9 annual report containing the details of transaction entered.
5. Purchases and sales ledger To demonstrate that purchases and sales are recorded in the books of accounts of the Assessee 6. Lorry receipt To establish the actual movement of goods.
5 Assessment Year 2018-2019 7. Bank statement To establish that the transaction is carried out through proper banking channels.
On perusal of the judgment in the case of Vrajendra Jagjivandas Thakkar (supra), on which reliance was placed by the Assessing Officer, we find that the Hon'ble High Court of Gujarat had upheld the order of the Tribunal whereby addition in respect of alleged bogus purchases was restricted to 6% of such purchases as against disallowance of 100% of alleged bogus purchases made by the Assessing Officer. Thus, the Hon’ble High Court accepted the preposition that instead of entire amount of alleged bogus purchases, the profit element embedded in such alleged bogus purchases should be brought to tax. In the present case, following the aforesaid judgment, the Assessing Officer had determined the profit element embedded in alleged bogus purchases to be 6% of such purchases. While concluding, the Assessing Officer had recorded as under: “The assessee has submitted ledger copy of the purchase made along with copy of the invoices highlighting with bank statement with respect to the payments made in lieu of purchase from the above 2 parties. The assessee has also provided Confirmation from the 3rd parties, Even though assessee has submitted the details with regard to purchase claim made with the above 2 parties, as per the information available on record, it was found that the above parties viz. M/s. MM9 International and M/s. Witteneia Multitrading Pvt. Ltd. are engaged in issuing/generating/providing fake/bogus invoices for passing of fraudulent input tax credit without supply of goods. Therefore possibility of suppression of income as a result of the claim of bogus purchase expenditure cannot be ruled out. In this connection, Hon'ble Gujarat High court in the case of Vrajendra Jagjivandas Thakkar vs Income Tax Officer held that "considering overall facts and circumstances of the present case, we are of the view that disallowances @6% of impugned purchases/disputed purchases would be sufficient to meet the possibility of revenue leakage."
6 Assessment Year 2018-2019 Respectfully following the decision of the Hon'ble High Court of Gujarat, variation is proposed to disallow 6% of the purchase expenditure claimed of Rs.11.19,11,025/-(relating to the purchase transactions made with the above mentioned entities) which comes to Rs.67,14,661/- and the same is hereby added under the head income from business or profession.”
Thus, the Assessing Officer had made the aforesaid disallowance/addition observing that the possibility of suppression of income as a result of the claim of bogus purchase expenditure cannot be ruled out.
We note that in notice, dated 14/08/2024, issued under Section 263(1) of the Act, the Learned PCIT has recorded that the Assessing Officer had relied upon the above judgment of Hon’ble Gujarat High Court without proper verification of facts and without considering the applicability of other judgments on the same issue. Subsequently, while setting aside the Assessment Order, dated 19/03/2024, the Learned PCIT recorded as under: “In this case, assessment under Section 143(3) read with Section 147 read with Section 144B of the Act was completed on 19/03/2024 and the Assessing Officer made addition of 6% on the alleged bogus purchases in the hand of the Assessee. 2. It was noticed that the Assessing Officer had followed some random Gujarat High Court decision to come to the conclusion that 6% was the appropriate addition in the case of Alleged Bogus Purchases (ABP) without reference to the binding decisions of the jurisdictional High Court. 3. This lack of adequate inquiry and failure to follow decisions of either the Mumbai High Court or the Supreme Court on the issue of Profits on ABP has led to an assessment which was erroneous & prejudicial to the Interests of the revenue. 4. A notice for hearing was given to assessee dated 14/08/2024, in response to which the assessee filed details and pleads that no action under Section 263 of the Act can be made in this case. The record of the proceedings and the reply of the assessee have been perused. Reference is made to Hon'ble 7 Assessment Year 2018-2019 Supreme Court decision in the case of N.K. Protein Ltd. Vs. DCIT [2017] 84 taxmann.com 195 (SC), wherein the Hon'ble Supreme Court has dismissed the assessee's SLP and upheld the decision of Hon'ble Gujarat High Court as well as decision of the Tribunal. In the case of N. K. Protein Ltd., Hon'ble Tribunal came to a categorical finding that there were purchases from bogus suppliers and, thus, Tribunal made addition of 25 per cent of total purchases. Hon'ble Gujarat High Court upheld Tribunal's finding. Assessee has filed SLP against the decision of Hon'ble Gujarat High Court, which has been dismissed by the Hon'ble Supreme Court.
It will be clear from the above that profitability at 25% would be applicable in the cases of ABP. As a result the assessment is to be revised and the Assessing Officer is directed to proceed with a denovo assessment and the ABP are to be brought to tax at the rate of 25% of the amount of ABP. The Assessing Officer is to look into the facts and hence pass an order in conformity with this revisional order well within time. Assessing Officer is also directed to conduct requisite enquiries along the line discussed above and frame assessment order accordingly. In the process, adequate opportunities of being heard should be accorded to the assessee to file submission, details and to furnish their explanation. Order under Section 263 of the Act is passed accordingly.”
On perusal of the above, we find that the Learned PCIT has concluded that 25% of the alleged bogus purchases should be brought to tax in the hands of the Assessee and has directed the Assessing Officer to pass order in conformity. We note that no further inquiry/verification has been carried out by the Learned PCIT to bring on record any facts. This itself established that the case before is not a case of lack of adequate inquiry. we note that while the Learned PCIT has given general directions to the Assessing Officer to carry out requisite inquires and frame denovo assessment after granting the Assessee adequate opportunity of being heard, the same run contrary to specific direction to bring to tax 25% of the alleged bogus purchases in the hands of the Assessee. Further, the Learned PCIT has not invoked the provisions contained in Explanation 2 to Section 263 of the Act. Therefore, it cannot even be 8 Assessment Year 2018-2019 contended on behalf of the Revenue that the Assessment Order should be deemed to be erroneous in so far as prejudicial to the interest of Revenue on account of lack of proper verification.
The decision of the Learned PCIT is based upon the judgment of Hon’ble Supreme Court in the case of N. K. Protein Ltd. Vs Deputy Commissioner of Income Tax [2017] 84 taxmann.com 195 (SC). On the abovesaid judgment of the Hon’ble Supreme Court we find that the Special Leave Petition filed by the Assessee against the judgment of Hon’ble Gujarat High Court [N.K. Industries Ltd. v. Dy. CIT [2016] 72 taxmann.com 289 (Guj.)] was dismissed by the Hon’ble Supreme Court. Thus, the judgment of Hon’ble Gujarat High Court whereby the appeal preferred by the Assessee against the order of the Tribunal determining the profit element embedded in alleged bogus purchases at the rate of 25% and subjecting the same to tax was upheld. Thus, while the Assessing Officer estimated embedded profits in alleged bogus purchases to be 6% by relying upon the judgment of the Hon’ble Gujarat High Court, the Learned PCIT estimated the same to be 25% by placing reliance upon another judgment of the Hon’ble Gujarat High Court against which the Special Leave Petition preferred by the Assessee was dismissed. Therefore, in the facts of the present case, we hold that it cannot be said that the view taken by the Assessing Officer was not a plausible view. The Assessee had disclosed gross profit of 3.02% (as per the tax audit report for the relevant previous year). However, the Assessing Officer, relying on the decision of Gujarat High Court in case of Vrajendra Jagjivandas Thakkar (supra), made disallowance of 6% of alleged bogus purchases (in addition of the profit margin of 3.02% disclosed by the Assessee). It is settled legal position that where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, the order passed by the assessing officer on such issue cannot be treated as erroneous order prejudicial to the interests of the Revenue unless 9 Assessment Year 2018-2019 the view taken by the assessing officer is unsustainable in law [Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax 243 ITR 83 (SC)].
Given the facts and circumstances of the present case discussed hereinabove, we hold that the view taken by the Assessing Officer was a plausible view and the same cannot be subjected to revision under Section 263 of the Act merely for the reasons that the Learned PCIT does not agree with the same. Accordingly, the Order dated, 12/11/2024, passed by the Learned PCIT under Section 263 of the Act is set aside and the Assessment Order, dated 19/03/2024, passed under Section 147 read with Section 144B of the Act is reinstated. Thus, Ground No.1, 2 and 4 raised by the Assessee are allowed while Ground No.3, 5, 6, 7 and 8 are dismissed as having being rendered infructuous.
In result, in terms of Paragraph 13 above, the present appeal preferred by the Assessee is allowed.