M/S. HARIS MARINE PRODUCTS,MANGALURU vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), BENGALURU, BENGALURU

Date of hearing : 21.07.2022 Date of Pronouncement : 29.07.2022 O R D E R

Per Padmavathy S., Accountant Member

“1. The order of revision passed by the learned Principal Commissioner of Income tax [Central], Bengaluru, under Section 263 of the Act dated 16/03/2022, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.

10. For the above and other grounds to be urged during the hearing of the appeal, the Appellant prays that the appeal be allowed in the interest of equity and justice.”

12. A search and seizure action u/s. 132 of the Act was carried out in the case of the associate concern of the assessee i.e., M/s. Mukka Sea Food Industries P. Ltd. and also at the residence of one of the partners of the assessee firm on 18.2.2018. The registered office of the assessee and the factory of the assessee firm at Ullal were subjected to survey u/s. 133A of the Act. Subsequently notice u/s. 153C of the Act dated 21.2.2019 was served on the assessee in response to which the assessee filed return of income on 27.7.2019 declaring total income of Rs.2,50,82,440 as against original return of Rs.2,42,18,160, thereby offering additional income of Rs.8,64,276.

Sl.No Name of the Bogus Supplier Purchases as Admitted Admitted per books u/s.132(4) in return u/s.153C 4 Raghav Poojari 8,64,276 44,04,412 8,64,276 5 Abdul Rasheed 15,63,500 66,88,221 - 6 Sayeed Ebrahim 8,27,700 60,72,877 - 7 Katakeriv Ebrahim Sayeed 53,91,670 53,91,670 - Total 86,47,146 2,25,57,180 8,64,276 14. The assessee filed a reply before the AO stating that the confirmation from the parties could not be obtained during the course of search proceedings and hence the additional income was offered to tax to buy peace and to cooperate with the department. The assessee submitted confirmation from some of the parties and stated that only for that part of the purchases for which confirmations could not be obtained were offered to tax in the return filed in response to notice u/s.153C. The assessee therefore prayed the income offered to buy peace cannot be treated as concealment of income and that no further income need to be added.

 The assessee has only filed the ledger extract of the parties as appearing in the books of the assessee, signed by the alleged suppliers.  The assessee has not furnished any explanation as to why the difference pointed out in the show cause notice should not be assessed to tax except stating that these parties are genuine and they have confirmed the sale.  It is pertinent to note that the accountant of the assessee firm on the date of search/survey had confirmed that no raw materials were received in respect of the purchase bills in respect of the parties referred to above.  The accountant has also stated that these purchases were recorded at the instance of the partner K.Mohammed Harris.  The statement of the accountant was confirmed by the partner who admitted that the firm was inflating its purchases to reduce its income.  Further it is very significant to note that parties who have issued these bills include employees of Mukka Sea Foods Industries Private Limited, associate concern of the assessee firm.  This corroborates the fact that bills were procured without purchases as these employees are full time employees of the associated concerns and under the direct control of the directors/partners vulnerable for manipulation.  The assessee has not admitted the purchases made from Abdul Rasheed (Sl.No.5 of the showcause notice) and Syed Ibrahim and Katakeri Ebrahim Sayeed (Sl.No. 6667 of the showcause notice).  It is to be noted that Syed Ibrahim and Katakeri Ebrahim Sayeed are one and the same but two ledger accounts are being maintained his name. Syed Ibrahim is a truck driver working for the assessee.  It is pertinent to note that the purchases booked in the name of Syed Ibrahim for A.Y. 2018-19 has been accepted as bogus and offered to tax in that assessment year.  It is to be noted that all these alleged supplies are the employees of sister concern Mukka Sea Foods Industries Private Limited and not a regular traders in fish.  The assessee has filed the confirmations only from these alleged suppliers who are the employees even now.  The case law relied upon by the assessee is not applicable to the facts of the case of the assessee, as here the accountant and the director had confirmed on the date of search itself that no materials were received in respect of the bills issued by these parties.  Relying on the case law, the contention of the assessee is that there cannot be sales without purchases and since sales is not disproved there cannot be inflated purchases.  This argument is not acceptable because in the case of the assessee the purchase is raw fish and the sale is fish meal, fish oil and fish paste which is variable due to many factors like protein content, quality, moisture and wastage depending on the breed and other manufacturing variables. 7.2 In view of the position of these alleged suppliers being under the control of the employers, the assessee was able to get their signature on the required papers and the amounts were credited to their accounts and withdrawn by one Sri. Ismail, relative of the partner. This fact has been admitted in the statement by the accountant and has been confirmed by the partner Harris during the search proceedings. 7.3 In the statement recorded on 09.02.2018 the partner Sri K Mohammed Harris declared additional income of Rs. 2,25,57,180 on the issue of inflated purchases for this year. The assessee has not furnished any reason till date as to why the declaration u/s 132(4) has not been adhered to in toto. 7.4 The basis for the declaration of Rs. 2,25,57,180 as additional income is explained by the partner in reply to Question No. 24 of the statement, is as follows: Raghav Pooiarev 44,04,412 Abdul Rasheed 66,88,221 SayeedEbrahim 60,72,877 Katakeri Ebrahim Sayeed 53,91,670 TOTAL 2,25,57,180 7.5 In view of the above discussion the following conclusions emerge:  The evidence of bogus booking of purchases were found and accepted during survey/search.  The claim of the assessee that declaration was made in order to conclude the proceedings and to avoid panic among fishermen considering the nature of the trade is not acceptable.  The fact that purchase inflation is being done to draw cash for the benefit of the partners is amply proved.  There is scope for manipulation as the alleged suppliers are employees of associated firms of the assessee or its sister concerns  The partner under whose instruction these entries were passed in the books has also accepted this modus operandi when confronted with evidence found.

 The assessee firm has declared additional income of Rs. 8,64,276 in the return of income filed in response to notice u/s 153C on this very same issue.  The assessee has never denied the evidence found during survey and confirmed the same in the statement regarding inflation of purchases.  As the partner K Mohammed Harris was aware of the issues he declared additional income on account of purchase inflation booked in the books of the firm.  Merely furnishing ledger extract signed by the suppliers does not prove the genuineness of purchases.  The assessee has conceded that there are bogus purchases and even admitted bogus purchases in the return filed in response to notice u/s 153C. 7.6 The admission made in statement under section 132(4) has great evidentiary value and is binding on a person who makes it. Therefore, the assessment can be made based on such admission by using the same in evidence. If in the course of such search, the assessee makes some admission, he debars the authorised officer from making further investigation. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made based on such admission. 7.7 In the case of B. Kishore Kumar vs. Deputy Commissioner of Income-tax, Central Circle-IV (1), Chennai the Hon'ble High Court of Madras in [2014] 52 taxmann.com 449 (Madras) held that where assessee himself stated in sworn statement during search and seizure about his undisclosed income, same was to be levied tax on basis of admission even without scrutinizing documents. 7.8 The Hon'ble Supreme Court of India has upheld the decision of the Hon'ble Madras High Court and the SLP was dismissed as reported in [2015] 62 taxmann.com 215 (SC)/[2015] 234 Taxman 771 (SC).

7.9 The important issue to be observed is that because the assessee had made the aforesaid surrender, the revenue had refrained from making any further enquiries into the matter. It was, therefore, not open to the assessee to retract from the earlier statement at the time of adjudication. 7.10 The issue relevant here is that the evidences point out the modus operandi of the assessee, confirmed by the partner himself during survey proceedings and the quantum being partly declared by him in the return of income substantiates the finding of purchase inflation as a mode to divert money for the benefit of partners. 7.11 In view of the discussion above it is evident that it is not the case of the assessee that the purchase inflation was not pointed out without evidence nor is the case that the statement was taken under coercion. So also several judicial decisions have held that admission by a person is a good piece of evidence and the same can be used against a person who makes it. The admission made in statement has great evidentiary value and is binding on a person who makes it. 7.12 The purchases as per books from the parties from whom bogus bills were admitted to have been taken [referred to in the statement u/s 132(4)] during the relevant assessment year is Rs. 86,47,146. The assessee has admitted Rs. 8,64,276 as additional income in the return of income filed in response to notice u/s 153C. The details of the purchase parties where inflation in purchases was accepted but not admitted in the return of income filed in response to 153C is as follows: ADDITION BILL PROVIDER PURCHASES ADMITTED 1 Abdul Rasheed 15,63,500 - 15,63,500 8,27,700 8,27,700 2 Sayeed Ebrahim 53,91,670 53,91,670 - 3 Katakeri Ebrahim Sayeed - 77,82,870 77,82,870 Total Accordingly taking into account the statement of the partner, the evidence found during the course of survey and details verified during the assessment proceedings Rs. 77,82,870 is added to the income under the head "Income from Business".”

18. The PCIT rejected the contentions of the assessee by stating that the AO did not make any verification and the appeal pending before the CIT(A) Panaji is for the addition of Rs.77,82,870 whereas the revision proceedings are initiated for the difference amount of Rs.1,39,10,034. The PCIT therefore set aside the order of the AO by stating that – “11. During survey proceedings, it was seen that the assessee had been inflating the expenses by claiming bogus expenses and total bogus purchases was worked out at Rs.2,25,57,180/- for AY 2017-18. In the assessment order an amount of Rs.86,47,146/- is brought to tax as bogus expenses. There is no enquiry or verification done by the AO during assessment proceedings on this issue. During the course of current proceedings, the assessee has submitted details in this regard which require thorough verification and enquiries by the Assessing Officer. The assessee is claiming that there was higher income assessed to tax for AY 2016-17, hence addition for AY 2017-18 was restricted to Rs.86,47,616/- to the extent of expenditure booked in the accounts. These facts were never placed before the AO and the AO has also failed to make the enquiries & verification in this regard before passing the assessment order. Hence, the submissions made by the assessee are not acceptable at this stage.

[a]. The order passed by the Assessing officer sought to be revised should be erroneous; & [b]. The order passed by the AO is prejudicial to the interests of the revenue.

“ …….. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. 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 Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income-Tax Officer 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 Income-tax Officer is unsustainable in law ………"

• CIT Vs. M/s. Sun Beam Auto Limited, reported in 332 ITR 167 (Del) • CIT v. Gabriel India Ltd., 203 ITR 108 (Bom) • CIT v. Max India Ltd., 295 ITR 282 (SC) • Sri Ashish Prasanna Kumar Jain, dated 19.9.2022.

“4. Being aggrieved by the order passed by the PCIT under section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under: "13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13-10-2015 placed at Page No. 1 of Paper Book shows the AO vide item no.(iii) has asked the information regarding details of unsecured loan outstanding as on 31-3-2013 and the loans were squared up amounts in the format prescribed therein. In compliance to thereof, the assessee has furnished complete details of the unsecured loans outstanding/ squared up vide para 3 of his letter dated 2-11-2015 placed as Annexure-2 at page 4 of paper book. The assessee has also furnished details consisting of copy of ledger account, copy of acknowledgment of income filed for A.Y. 2012-13 and 2013-14 and copy of bank statement reflecting the payment received was paid during the financial year 2012- 13 relevant to assessment year 2013-14 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL. This indicate that the assessee has furnished account confirmation of the depositor, acknowledgment of income of the parties, audited balanced sheet and profit and loss account of the parties and bank pass book and bank statement of the parties. During the course of assessee proceedings, form these facts it is clear that the assessee has not only proved the from these facts it is clear that the assessee has not only proved the identity of the lenders but also the genuineness of the transactions and credit worthiness of the lenders. Accordingly, the Ld. AO after verifying the details of unsecured loans being satisfied, accepted the submissions of the assessee which leads to infer that the Assessing Officer had made full enquiries of unsecured loans by raising the queries and calling for the all information in respect of the loan taken along with details evidences in support thereof and the same were also duly replied by the assessee and on receipt of all the details of evidences, the unsecured loans received by the assessee were accepted by the Assessing Officer and the assessment was finalised u/s.143(3) of the Act on 15-3-2016. We also note that there was audit objection in the case of the assessee. The language of audit objection and show-cause notice under section 263 is same meaning thereby that the show cause notice u/s.263 has been issued by the PCIT Without going through assessment records and without exercising his own application of his mind. The assessee has not only filed complete details of Income-tax Return, audited balance sheet, profit and loss account and bank statement. The assessee further explained that both the these unsecured loans stands fully repaid as on the date and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said company recorded in its balance sheet stands explained tax in its hands itself and hence, "there is no question of adding the same amount in the hands of the assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs. 1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries."

15. The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the show-cause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision: CIT v. Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem -270 ITR 0157 (MP,CIT v. Ganpet Ram Bishnoi - 296 ITR 0292 (Raj.), Cadila healthcare Ltd. v. Cl 7, Ahmedabadh-1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors v. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal v. CIT, Vamnesi [(2014) 41 taxmann.com 27 & (AII Trib.)]. It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahd. - Trib.). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee's claim of loan similar view were also expressed by the Hon'ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 27-11-2015 which is reproduced hereunder: "53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act,

provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it/s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "erroneous in so far as it/3 prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. "17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation.

Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.

of the Assessee."

5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law.

6. Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.”

28. The SLP against the above order of the Hon’ble High Court was dismissed by the Hon’ble Supreme Court, thereby the issue that Explanation (2) to Section 263 of the Act could be invoked only in a very gross case of inadequacy in enquiring or where the mandatory enquiries are not conducted has reached finality. The AO in the given case has conducted enquiry and perused the details submitted and has taken decision to make addition of bogus purchases recorded in the books accounts with proper application of mind. Therefore in our considered view, that the PCIT is not justified in revising the order of the AO. Accordingly, the impugned order of the PCIT is quashed.

Pronounced in the open court on this 29th day of July, 2022.