GOLD STAR DIAMOND PRIVATE LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX - 5, MUMBAI

ITA Nos. 2964 & 2695/Mum/2018 1 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA Nos. 2964 & 2965/Mum/2018 (A.Ys.2011-12 & 2013-14) M/s Gold Star Diamond Vs. Pr. Commissioner of Private Limited, FE, Income Tax-5 4011th Floor, F Tower, Room No. 501, Aayakar Bharat Diamonds Bhavan, M.K.Road, Bourse, BKC, Bandra (E) Mumbai – 400 020 Mumbai – 400 051 स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No: AAACR4157Q Appellant .. Respondent

Appellant by : Nishant Thakker & Jasmine Amalsadwala Respondent by : Hemant Kumar Chimanlal Date of Hearing 27.09.2022 Date of Pronouncement 25.11.2022 आदेश / O R D E R Per Amarjit Singh (AM): These two appeals filed by the assessee are directed against the order of ld. Pr.CIT passed u/s 263 of the Act. Since both the appeals are passed on similar facts on identical issue, therefore, these appeals are adjudicated together by taking the ITA No. 2964/Mum/2018 as a lead case and its findings will be applied mutatis mutandis to other appeal. The assessee has raised the following grounds:

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“1. The Learned Pr. Commissioner of Income Tax has erred in law, facts and circumstances of the case by issuing notice and passing order under section 263 of the Income Tax Act, 1961 and setting aside the Assessment order u/s 143(3) of the Income Tax Act, 1961. 2. The Learned Pr. Commissioner of Income Tax Act has erred in law & facts and circumstances of the case by treating the Order erroneous and prejudicial to the Interest of the Revenue u/s 263 of the Income Tax Act, 1961 by ignoring the fact that the Learned Assessing Officer has made full inquiry and the Assessment Order passed u/s 143 (3) of the Income Tax Act, 1961 in very detailed manner and which carried every aspects of the nature of addition thereby rendering the notice and the subsequent order u/s 263 of the Income Tax Act, 1961 bad in law 3. Your Appellant craves leave to add to, alter, amend, delete and/or modify the above grounds of appeal on or before the final date of hearing.” 2. Fact in brief is that return of income declaring total income of Rs.nil was filed on 28.09.2021. Subsequently, the case was reopened by issuing of notice u/s 148 of the Act dated 28.02.2015 on the basis of information obtained that Shri Bhanwarlal Jain group through their entities was indulged in providing accommodation entries on bogus purchases. The assessee was one of such beneficiaries who had obtained bogus purchases from the following entities of Bhanwarlal Jain group:

Sr. No. Name of the concerns A.Y. Amount 1. Mayur Exports 2011-12 Rs.1,20,66,826 2. Parvati Exports 2011-12 Rs.4,13,15,104 3. Mukti Exports 2011-12 Rs.54,61,419 4. Megha Gems 2011-12 Rs.1,35,11,567 5. Pankaj Exports 2011-12 Rs.7,94,653 6. Maan Diamond 2011-12 Rs.4,14,590 7. Ankita Exports 2011-12 Rs.3,38,66,174 Total Rs.10,74,30,333/-

In the assessment order A.O had extensively elaborated the modus operandi of the Bhanwarlal Jain group and stated that as a result of search and seizure action it was conclusively proved that such entities were only created for providing hawala entries/accommodation entries. The A.O had discussed that against the bogus stock, bogus bills were

ITA Nos. 2964 & 2695/Mum/2018 3 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 issued to the processing houses in diamond which were engaged in cutting and polishing of diamonds/traders who usually had rough diamond from undisclosed parties in cash and require purchase bills to balance their accounts and to circumvent provisions of Sec. 40(3) of the Act. Bogus bills of purchases of diamonds were also taken by the diamond processing companies or traders who tend to inflate purchases and to defraud revenue by showing low profit. The A.O concluded that there was inflation of purchases by the assessee by taking accommodation entries from the concerns of Bhanwarlal Jain group, therefore, the gross profit was estimated at 9% of the total transaction to the amount of Rs.96,68,730/- and same was added to the total income of the assessee, after taking into the consideration the material fact that there was corresponding sale made against the impugned purchases. Subsequently, the ld. Pr.CIT(A) observed that the A.O had not disallowed the entire bogus purchases but instead made addition of Rs.96,68,730/- on account of profit embedded in such bogus purchases by applying rate of 9%. The ld. Pr.CIT was of the view that the AO passed the order without making inquiries which should have been made. He expressed his opinion that the amount of undisclosed income out of bogus purchases should have been substantially higher than but the A.O had estimated, therefore, he held that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. 3. During the course of appellate proceedings before us the ld. counsel vehemently contended that during the course of assessment proceedings the A.O has not disputed the sale made by the assessee against the purchases and the A.O has accepted corresponding sales made by the assessee. Therefore, the ld. CIT(A) is not justified in holding that 100% purchases should have been disallowed as per the order

ITA Nos. 2964 & 2695/Mum/2018 4 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 passed u/s 263 of the Act. During the course of appellate proceedings before us the ld. Counsel has also filed paper book comprising copies of document and various details filed before the A.O and Pr.CIT during the course assessment and 263 proceedings. The ld. Counsel also referred para 14 of the assessment order where after considering the submission of the assessee the A.O has categorically stated that the rate of purchases made from undisclosed parties was lower than the rate of credit purchases. The AO further stated that purchasing goods from grey markets and obtaining bogus bills from some other parties would provide some benefit to the assessee. The ld. Counsel also referred page no. 107 of the paper book comprising submission of the assessee made in response to the notice issued by the A.O u/s 142(1) of the Act. Vide this submission dated 22.03.2016 the assessee has provided copies of affidavits, confirmation of ledger account, ledger account, invoices and bank account highlighted the payment made to the supplier from whom the assessee had made purchases. By referring these document, the ld. Counsel contended that purchases were backed by purchase orders, invoices, ledger confirmation of the parties, bank statement evidencing payment made by cheques to these parties. The ld. Counsel has also referred page no. 50 to 58 of the paper book comprising copies of various detail as referred above. The ld. Counsel submitted that these document and information submitted before the A.O during the course of assessment proceedings were not controverted by the ld. Pr.CIT which were also brought to his knowledge during the course of proceedings u/s 263 of the Act. The ld. Counsel has also referred submission of the assessee dated 04.01.2016 made before the A.O in response to notice issued u/s 142(1) of the Act. The ld. Counsel has also submitted that once the similar matter on account of disallowance of bogus purchases

ITA Nos. 2964 & 2695/Mum/2018 5 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 was pending before the ld. CIT(A) for adjudication of the appeal filed by the assessee against the order dated 23.03.2016 passed by the A.O u/s 143(3) r.w.s. 147 of the act then the Pr.CIT should not have exercised the power u/s 263 of the Act by issuing show cause notice dated 14.03.2018. The ld. Counsel also referred decision of ITAT, Mumbai in the case of Sanghvi Diamonds Pvt. Ltd. Vs. Pr.CIT-5 ITA No. 3178 to 3180/Mum/2018 dated 30.11.2018. The ld. Counsel also referred the decision of M/s Vaghasiya Exports Bharat Diamond Bource Vs. Pr.CIT- 32, dated 28.09.2020, ITA No. 2370/Mum/2018 and the decision of Ramila Diamond ltd. Vs. Pr.CIT-5, dated 24.11.2020 ITA No. 2340 to 2342/Mum/2018. The ld. Counsel has also referred the decision of CIT Vs. Nirav Modi (2017) 390 ITR 292 (Bombay High Court). On the other hand the Ld. D.R. supported the order of Pr.CIT. The ld. D.R also submitted that it was proved from the investigation that entities of Bhanwarlal Jain were indulged in providing accommodation entries, therefore, purchases made by the assessee from these entities were not genuine. The ld. D.R also submitted that A.O has made estimated addition but the quantum of bogus purchases could have been substantially higher than the estimation made by the A.O. 4. Heard both the sides and perused the material on record. The case of the assessee was reopened on the basis of information gathered from the search and seizure action carried out u/s 132 of the Act in the case of Bhanwarlal Jain group on 03.10.2013. During the course of search in the case of Bhanwarlal Jain group it was found that the various entities of the group were indulged in providing accommodation entries of purchases without actually supplying any goods. The A.O noticed that assessee had made purchases to the amount of Rs.10,74,30,333/- from

ITA Nos. 2964 & 2695/Mum/2018 6 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 the 7 different concern pertaining to the Bhanwarlal Jain group. During the course of assessment the A.O observed that assessee has also made corresponding sale against the aforesaid unverifiable purchases made from the various concern of Bhanwarlal Jain group. Therefore, the A.O has considered that assessee had obtained bills of purchases from the said entities of the Bhanwarlal Jain group, however purchased goods from the grey market without any bills. After taking into account such facts and circumstances the A.O observed that from the grey market assessee had made purchases at lower rate by evading sale tax and other taxes. Therefore, the profit earned by the assessee on these purchases was estimated at 9% of such purchases. However, the Pr.CIT was of the view that presumption of the assessing officer was without any basis as there was no material on record indicating any purchases made by the assessee from the grey market and the A.O should have made detailed inquiry in this regard instead of estimating the gross profit on presumption basis. The Pr.CIT was of the opinion that the amount of undisclosed income arising out of bogus purchases could have been substantially higher than but the A.O has estimated in the assessment order. We have perused the material on record and noticed that during the course of assessment A.O has issued notice u/s 142(1) dated 01.04.2016. On perusal of the copies of document placed in the paper book it is noticed that assessee has already filed appeal against the order passed u/s 143(3) r.w.s 147 of the Act on the issue of disallowance made on the basis of bogus purchases before the ld. CIT(A) and the appeal filed was pending before the ld. CIT(A) at the time of passing order u/s 263 of the Act. The ld. Counsel after referring the decision of coordinate bench of the ITAT in the case of Sanghvi Diamond Pvt. Ltd. vide ITA No. 3178/Mum/2018 dated 30.11.2018 submitted that once the assessment

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order based on similar issued was the subject as the matter of pending in appeal before the ld. CIT(A) in that case the ld. Pr.CIT cannot revise the assessment order. The relevant operating para of the above referred decision of ITAT, Mumbai is reproduced as under:

“10.A careful reading of Sec. 251 of the IT Act, 1961 makes it clear that the CIT(A) while hearing the appeal may confirm, reduce or annul the assessment or may pass such order as he may think fit. However, the Ld. CIT(A) shall not enhance an assessment or penalty or reduce the amount unless the assessee has a reasonable opportunity on such enhancement or reduction. Explanation attached with sub Sec. (2) of Sec. 251 also makes it clear that while disposing the appeal the CIT(A) may consider and decide any matter arising out of the procedure in which the order appealed against were passed, not withstanding that such matter was not raised before the CIT(A) by appellant. Admittedly the appeal of assessee on addition of quantum assessment, on account of addition on the alleged bogus purchases pending before the CIT(A). Further, so far as issue of bogus purchases is concerned, the A.O examined the while passing reassessment order. During the re-assessment proceeding, the assessee contended that the purchases are genuine; the contention of assessee was not accepted by the Assessing Officer. The Assessing Officer made the addition on account of alleged bogus purchases by disallowing 12.5% of the disputed purchases after considering the explanation of the assessee. 11.Further careful reading of clause (c) of Explanation-1 of sub Sec. (1) of Section 263 of the Act prescribed that where any order referred in the sub section and passed by Assessing officer had been the subject matter of the any appeal after 01.06.1998, the power of Pr. CIT or CIT under this Sub Section and shall extend and shall be deemed always to have extended to such matter as had not been considered and decided in such appeal. As we have already noted that appeal of the assessee out of the same issue of alleged cash deposits is still pending before CIT(A) therefore, the issue on which the Ld. Pr. CIT revised the assessment order is still sub-judice before CIT(A). 12. The Hon’ble Madras High Court in CWT Vs Sampathmal Chordia (supra) in a Wealth tax matter held that Commissioner has no jurisdiction to pass an order under section 25(2) to revise valuation of property, when that valuation was subject-matter of an appeal. It was further held that that where the order sought to be revised is one passed by the Assessing Officer and had been made the subject-matter of an appeal, the power of the Commissioner would extend to such matters as had not been considered and decided in such appeal. 13. The Hon’ble Bombay High Court in Ranka Jewellers (supra) held that the power under section 263(1) can be exercised by the Commissioner where he considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Explanation (c ) to the provision provides that where any order referred to in sub-section (1) and passed by the Assessing Officer has been made a subject-matter of any appeal, the powers of

ITA Nos. 2964 & 2695/Mum/2018 8 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 the Commissioner under the sub-section shall extend to such matters as had not been 'considered and decided' in the appeal. In other words, the exercise of power under section 263(1) is in respect of an order passed by the Assessing Officer, where the order is regarded as being erroneous and prejudicial to the interest of the revenue. Where an order passed by the Assessing Officer is subject to an appeal that has been filed, the power of the Commissioner to invoke his revisional jurisdiction under section 263 can only extend to such matters which have not been considered and decided in the appeal. The words which have been used in the Explanation (c) to sub-section (1) of section 263 are 'considered and decided'. In other words, it is not merely a consideration that disables, but the matter is to be considered and decided in the appeal. The submission of the revenue, that the Commissioner (Appeals) had not decided the issue while dealing with the question of enhancement, could not be accepted. The power of the Commissioner (Appeals) is structured by the provisions of section 251. Section 251, inter alia, provides that in disposing of an appeal against an order of assessment the Commissioner (Appeals) shall have the power to confirm, reduce, enhance or annul the assessment. Consequently, when a request for enhancement was made to the Commissioner (Appeals), he had the jurisdiction in terms of section 251 to confirm, reduce, enhance or annul the assessment. A reading of the order passed by the Commissioner (Appeals) would lead to the conclusion that the Commissioner (Appeals) had considered and decided the issue. Once the issue was considered and decided by the Commissioner (Appeals), the remedy of the revenue could not lie in the invocation of the jurisdiction under section 263. Similar view was taken by coordinate bench in Rajal Enterprises Vs PCIT (supra). 14. Therefore, in view of the above factual and legal discussion the order passed by ld PCIT by invoking power under section 263 in invalid, hence the ground of appeal raised by the assessee is allowed and the impugned order passed is set aside.” The ITAT Mumbai in the case of Sanghavi Diamonds Pvt. Ltd. as supra after following the principles laid in the ratio of judicial pronouncements of Hon’ble jurisdictional High Court of Bombay in the case of Ranka Jewellers, decision of Hon’ble Madras High Court in the case of Sampathmal Chordia and after considering the explanation to section 263(1) held that invoking of power u/s 263 by the ld. PCIT is invalid where an order passed by the A.O is subject matter to a pending appeal before the CIT(A). Following the decision of the coordinate bench as supra, in the case of the assessee also the order passed by the A.O u/s 143(3) r.w.s 147 of estimating the gross profit @ 9% of impugned bogus purchases is also subject matter to an appeal pending before the ld.

ITA Nos. 2964 & 2695/Mum/2018 9 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 CIT(A) therefore, exercising of revisional power u/s 263 of the Act by the ld. Pr.CIT is invalid. The ld. Counsel has also referred the decision of Hon’ble jurisdictional Bombay High Court in the case of Ranka Jeweller Vs. ACIT (2010) 190 taxmann 265 (Bom) wherein held that Commissioner while exercising power u/s 263 can only extend to such matter which has not been considered and decided in appeal. Further on merit it is also noticed that on similar facts the case of the assessee was also reopened in assessment year 2013-14 and 2014-15 and no addition beyond 9% was made. Further during the year under consideration in reassessment proceedings the A.O has made specific inquiry pertaining to bogus purchase totaling to Rs.3,66,17,617/- made from the concerns controlled by the Bhanwarlal Jain group. The A.O has also found that assessee has also shown corresponding sales against the impugned bogus purchases. The relevant finding of A.O is reproduced as under: “4.1. During the assessment proceeding vide letter dated 01.02.2016 the assessee was asked to produce the above mentioned parties in cross examination in this office. However the assessee failed to produced the above parties for verification. Further, during the course of assessment proceedings the assessee was requested to explain as to why the purchase made from these parties should not be disallowed and added to its total income. The assessee was also requested to furnish all the documentary evidence in support of its claim of deduction of account of said purchase. In response to the same, the assessee has stated that the GP margin of purchase made from these parties which are higher than the GP margin of the Company. 14.2. From the facts of the case it can be concluded that the assessee did not make any genuine purchases from these suspicious dealers, as during the course of investigation, and as per the affidavit/statements by the proprietor/partner/ or operator of the firm admitted before the Income Tax investigation officer, that they have not done any genuine business. At the same time the assessee has purchased the goods from some other suppliers, may be without bills. It is a well known fact that if any person indulges in the practice of purchasing goods from the grey market and obtaining bogus bills of some other parties, would do so for getting some benefit. The magnitude of the benefit would depend on the facts of each case. The rate of purchase made from undisclosed parties is much lower than the rate of credit purchases, on account of evasion of sales tax and other taxes. Thus it is concluded that there is inflation of purchases in the books of the assessee and therefore the purchase rate as per purchase bills submitted by the

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assessee cannot be accepted. The assessee has contended that there is corresponding sales, but here the rate at which these items are purchased is unverifiable. The only course of action available is to ascertain a percentage of the cost on the purchases made from suspicious dealers, as the probable profit of the assessee. Hence, profit earned by the assessee on the purchases made from the suspicious dealers is estimated at 9% of such purchases. The transaction made with these parties is treated as bogus transaction, hence the enhance the profit to be 9% of the total transaction of made with the above concern's. 14.3. Accordingly, the addition on account of Gross profit ratio worked out as under: Sr. No. Name of the Concern Transaction % GP A.Y. Amount amount margin 1. Mayur Exports Rs.1,20,66,826/- 9% 2011-12 10,86,014 2. Parvati Exports Rs.4,13,15,104/- 9% 2011-12 37,18,359 3. Mukti Exports Rs.54,61,419/- 9% 2011-12 4,91,528 4. Megha Gems Rs.1,35,11,567/- 9% 2011-12 12,16,041 5. Pankaj Exports Rs.7,94,653/- 9% 2011-12 71,519 6. Maan Diamond Rs.4,14,590/- 9% 2011-12 37,313 7. Ankita Exports Rs.3,38,66,174/- 9% 30,47,956 Total 96,68,730 14.4. In view the above Gross Profit of the transaction made from the above parties totaling to Rs. 96,68,730/- is added to the total income of the assessee. The ITAT Mumbai in the case of Sanghavi Diamond Pvt. Ltd. after following the decision of Hon’ble jurisdictional Bombay High Court and Hon’ble Rajasthan High Court held that once A.O had taken a particular view on the basis of material on record the mere fact that different view could be taken should not be the basis for an action under section 263 of the Act. The relevant operating part of the decision of ITAT Mumbai in Sanghavi Diamond and Pvt. Ltd. is reproduced as under:

“15. We have also considered the submissions of the assessee that the twin condition for invoking the power under section 263 is not satisfied in the present case. The Hon’ble Bombay High Court in the case of CIT Vs Gabriel India Ltd. (supra) also clearly lays down that under section 263, there cannot be any substitution of the Assessing Officer's judgment by judgment of Commissioner. Further, Hon’ble Rajasthan High Court in CIT Vs Girdhari lal (172 CTR 92 Raj) held assessment was completed under section 143(3), read with section 148. The Commissioner (Appeals) issued a notice under section 263 to revise the assessment order made by the Assessing Officer on the ground that assessment was made in haste and in a stereotyped fashion. On appeal, the Tribunal took the view that merely because low profit was shown by the assessee in itself did not render the order erroneous and further observed that ITO had duly

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considered the explanation furnished and also considered the heavy losses in contract work due to competition in the line of business and held that if low GP or NP had been shown in the business, that did not mean that the order of the Assessing Officer was erroneous. The Hon’ble Gujarat High Court in CIT Vs Arvind Jewelers (259 ITR 502 Guj) held that the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous, that section will be attracted and incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the instant case, it was the finding of fact given by the Tribunal that the assessee had produced relevant material and offered explanation in pursuance of the notices issued under section 142(1) as well as section 143(2) and after considering those materials and explanation, the ITO had come to a definite conclusion. The Commissioner did not agree with the conclusion reached by the ITO. Section 263 did not empower him to take action on these facts to arrive at the conclusion that the order passed by the ITO was erroneous and prejudicial to the interest of the revenue. Since the material was there on record and the said material was considered by the ITO and a particular view was taken, the mere fact that different view could be taken, should not be the basis for an action under section 263 and it could not be held to be justified. The relevant part of the decision of the ITAT Mumbai in the case of Ramila Diam Pvt. Ltd. as supra is also reproduced as under:

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It is only with these two conditions are satisfied, the provisions of section 263 of the Act can be invoked. Merely, for the reason the that PCIT does not concur with the view of Assessing Officer, does not give powers to the PCIT to invoke revisional jurisdiction. In the instant case, we find that the Assessing Officer in reassessment proceedings made investigations and came to the conclusion that the assessee has not been able to link all purchases made from concerns belonging to Bhanwarlal Jain group to its sales. The Assessing Officer has highlighted this fact with the help of table in Para 5 at page 8 & 9 of the assessment order. Since, the sales made by the assessee were not disputed by the Department the entire alleged bogus purchases could not have been added. The logical assumption to match the sales is that the assessee must have made purchases from grey market and obtained corresponding bogus bills from entry providers. Ergo, it is only the profit element embedded in the bogus bills that has to be taxed. Thus, the Assessing Officer on the basis of the documents on record estimated GP at 12.5%. 7. The Hon'ble Jurisdictional High court in the case of Mohommad Haji Adam & Co. (supra) and Paramshakti Distributors Pvt. Ltd. (supra) has held that in case of bogus purchases, purchases cannot be rejected without distrusting the sales in case of a trader. The addition can be restricted to the extent of GP rate on such purchases to bring it at par with genuine purchases. In other words, it is only the profit element embedded in the bogus purchase bills that is to be brought to tax and the entire bogus purchases cannot be added. The Assessing Officer was right in taxing only profit by estimating GP on alleged bogus purchases. 8. As regards invoking of jurisdiction under section 263 of the Act by PCIT, we are of considered view that the PCIT has over stepped while exercising his revisional powers. The Assessing Officer has passed the order by estimating GP after examining the documents on record and considering various judicial pronouncements. The Assessing Officer has taken one of the possible views by making reasonable assumption that the assessee might have procured the goods from grey market. This assumption has been accepted by the Tribunal in various decisions where the revenue has accepted the sales/ turnover corresponding to alleged bogus purchases. The Hon’ble Supreme Court of India in the case of Malabar Industrial Co. Ltd. v. Commissioner of Income-tax (supra) in an unambiguous manner has held that where two views are possible and the Assessing Officer has taken one of the possible views to which CIT does not agree, this would not make the assessment order erroneous. The relevant extract of the judgement by the Hon’ble Apex Court is as under: “9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.”

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Similar view has been expressed by the Hon’ble Supreme Court of India in the case of Commissioner of Income-tax (Central) v. Max India Ltd (supra). In the instant case the assessment order may be prejudicial to the interest of revenue but it cannot be said to be erroneous. Since, both the conditions to trigger Sec 263 are not satisfied, the PCIT has erred in invoking his revisional power. 9. Thus, in the light of facts discussed above and the judicial pronouncements referred, the impugned order is quashed and the appeal of assessee is allowed.” Similarly relevant operating part of the decision of the ITAT Mumbai in the case of M/s Vaghasiya Exports vide ITA No. 2370/Mum/2018 is reproduced as under:

“7. After hearing both the parties and perusing the material on record, we note that in this case the assessment was framed under section 143(3) of the Act vide order dated 27.10.2011 thereafter the case of the assessment was reopened under section 147 of the Act after a communication was received by the AO from DIT (Inv.)-2, Mumbai to the effect that assessee is beneficiary of bogus hawala purchases from 9 parties aggregating to Rs.26,73,39,615/- and thus the income has escaped assessment. Thereafter, the assessment was framed under section 143(3) read with section 147 of the Act assessing the total income at Rs.48,88,440/- wherein an addition of Rs.40,10,094/- was made towards assessing the profit element in the bogus purchases of Rs.26,73,39,615/- calculated at 1.5% of the total alleged bogus purchases. The Ld. PCIT has exercised the revisionary jurisdiction on the ground that AO has not correctly assessed the income from bogus purchases by relying on the decision of Hon’ble Supreme Court in the case of N.K. Proteins vs. DCIT (supra) and Vijay Proteins Ltd. vs. CIT (supra). The undisputed facts are that the issue has been examined by the AO during the reassessment proceedings as the assessment was reopened only to examine the issue of escapement of income resulting from bogus purchases and the assessment was framed by the AO after making addition of Rs.40,10,094/-. Thus the Ld. PCIT proposes to exercise the revisionary jurisdiction only qua the same issue which appears to be incorrect and fallacious. In the present case, we note that the issue has been examined by the AO and a possible view has been taken while framing the assessment therefore, the issue is squarely covered by the decision of the jurisdictional High Court in the case of Grasim Industries Ltd. vs. CIT (supra). In the case of Grasim Industries Ltd. vs. CIT (supra) it has been held by the Hon’ble Bombay High Court that a possible view taken by the AO can not be regarded as unsustainable in law and the revisionary jurisdiction under section 263 can not be exercised. It was also held that a debatable issue on which more than one plausible views are reasonably possible and if the AO has taken one possible views it can not be said that assessment is erroneous and prejudicial to the interest of the Revenue. In the case of CIT vs. Nirav Modi (supra) which has been passed after considering the decision of the Hon'ble Apex Court in the case of Malabar Industries Company Ltd. vs. CIT (supra) wherein it has been held that in order to invoke the revisionary jurisdiction the twin conditions have to be satisfied namely (i) the

ITA Nos. 2964 & 2695/Mum/2018 14 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 assessment order should be erroneous and (ii) also prejudicial to the Revenue. The Hon’ble Court has held that where two views are possible and AO has taken one of the possible views there is no occasion to invoke the provision of section 263 even the Hon’ble Supreme Court has dismissed the SLP filed by the Revenue against this decision in CIT vs. Nirav Modi (2017) 77 taxmann.com 78 SC. Therefore, we are not in concurrence with the conclusion of the Ld. PCIT on this issue. We have also perused the decision relied upon by the ld DR but same are either distinguishable on facts or can not be followed in view of the legal position discussed above. In our considered view, the revisionary jurisdiction has been invalidly exercised and accordingly we set aside the proceedings under section 263 and the consequent order.” The ld. Pr.CIT nowhere disproved the material fact pointed out by the A.O that there were corresponding sales against purchases which substantiate that the case of the assessee was pertained to suppression of profit. We could not find any justification in the finding of the ld. Pr.CIT that case of the assessee is covered by the provision of clause (a) of Explanation 2 to Section 263(1) of the Act. The ld. Pr.CIT has not brought on record any specific deficiency in the assessment order passed by the A.O u/s 143(3) r.w.s 147 of the Act wherein addition of Rs.96,68,738/- was made after taking a view of estimating the gross profit @ 9% by the A.O on the basis of material facts as discussed supra on the basis of information received toward issuing of bogus purchase bills by the concern of Bhanwarlal Jain Group. The A.O has also taken into consideration the corresponding sales made against the purchases and relevant documents i.e copy of invoices, copy of affidavit of the seller copy of bank statement showing the payment made etc. and the A.O has also taken into consideration the circumstances in such cases of purchasing the material from grey market at lower rate by the assessee, therefore, after taking into consideration the decision of various court’s estimated the gross profit at 9% of the impugned purchases. The ld. Pr.CIT has not controverted the specific findings of the A.O that the assessee had shown corresponding sales against the purchases and also could not

ITA Nos. 2964 & 2695/Mum/2018 15 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 corroborate his view with any relevant material to demonstrate that gross profit estimated by the A.O at the rate of 9% was on the lower side. In view of the above facts and circumstances we consider that conclusion drawn by the ld. Pr.CIT in the order u/s 263 was of general nature and the A.O had taken one of the possible view as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC), therefore, we don’t find any justification in the decision of ld. Pr.CIT in treating the assessment made by the A.O has erroneous and prejudicial to the interest of the revenue. Therefore, we set aside the order of Pr.CIT passed u/s 263 of the Act and allow the appeal of the assessee. 6. The appeal of the assessee allowed. ITA No. 2965/Mum/2018 7. As the facts and the issue involved in this appeal are the same as supra in ITA No. 2964/Mum/2018, therefore, applying the same findings mutatis mutandis, this appeal of the assessee is also allowed.

Order pronounced in the open court on 25.11.2022 Sd/- Sd/- (Pavan Kumar Gadale) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 25.11.2022 Rohit: PS

ITA Nos. 2964 & 2695/Mum/2018 16 M/s Gold Star Diamond Pvt. Ltd. VS. Pr.CIT-5 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविवनवध, आयकर अपीलीय अवधकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file.

सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.