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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Coimbatore, dated 09.03.2021 passed u/s.263 of the Act, for the assessment year 2017-18.
The assessee has raised the following grounds of appeal:
1) The order of the learned Principal Chief Commissioner of Income Tax (PCIT) is bad and erroneous in law and against the principles of natural justice. 2) The learned PCIT erred in assuming jurisdiction u/s.263 when the order is neither erroneous nor prejudicial to the interest of revenue. 3) The learned PCIT grossly erred in not appreciating the fact that when the assessment made has been completed by making an ad-hoc addition on GP basis, question of order being erroneous on the ground that the confirmation from purchase parties were not obtained doesn't arise for GP addition covers everything, inter-alia the purchases also, besides the opening stock, sales and closing stock. In other words, when the Sales of Rs.8,75,37,081/- has not been disputed, considering the opening stock of Rs.35,30,925/- and Closing stock of Rs.55,36,550/-, the learned PCIT, erred in facts in disputing the purchases alone, for a person can only sell what he has. 4) The learned PCIT erred in not understating the fact that the appellant has been consistently filing his VAT & CST returns and that all the purchases made have been duly reflected in the said returns, despite the fact that the said returns along with the VAT Audit report in Form WW were being produced before him as well as the A.O. And for other reasons that may be adduced at the time of hearing, the appellant prays that this appeal be admitted, considered and justice be rendered.
The brief facts of the case are that the assessee, an individual is engaged in the business of wholesale and retail trading of food grains.
Consequent to seizure of cash said to be belonging to the assessee, the assessment has been completed u/s.143(3) r.w.s.153A of the Act, dated 31.12.2018 and determined total income by estimating gross profit @ 7.5% of sales. The case has been, subsequently taken up for revision proceedings u/s.263 of the Act, by the Principal Commissioner of Income Tax (in short “PCIT") on the ground that assessment order passed by the AO dated 31.12.2018, is erroneous in so far as it is prejudicial to the interest of the Revenue. The PCIT issued show cause notice dated 25.01.2021 and called upon the assessee to explain, as to why, the assessment order passed by the AO, shall not be revised on the ground that non-verification of total purchases claim to have made by the assessee amounting to Rs.8.65 Crs. According to the PCIT, although, the AO had examined purchases by issuing notices to the parties, but the assessee could file evidences to the extent of Rs.3.07 Crs. only. Although, the assessee could not justify remaining purchases with necessary evidences, the AO had simply estimated income of the assessee on total sales which rendered the assessment order to be erroneous and prejudicial to the interest of the Revenue. In response, the assessee submitted that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, because the very purpose of scrutiny assessment for the impugned assessment year is to verify purchases made by the assessee. The assessee had furnished all evidences, including name and address of parties from whom purchases are made. The AO had called for necessary details from the parties, for which, certain parties replied and filed all details. In some cases, the parties did not respond to notices.
Therefore, in the absence of proper evidences, the AO has rejected the books of accounts and estimated gross profit @ 7.5% on total sales and completed the assessment. Therefore, once, the issue on which the PCIT wants to exercise his jurisdiction, has been already examined by the AO, then there is no scope for the PCIT to revise the assessment order on very same.
The PCIT after considering relevant facts and also by relied upon certain judicial precedents, including the decision of the Hon’ble Apex Court in the case of CIT v. Durgaprasad More reported in 82 ITR 540, opined that assessment order passed by the AO is erroneous in so far as prejudicial to the interest of the Revenue and thus, set aside the assessment order passed by the AO and direct the AO to re-do the assessment afresh
:: 4 :: considering the issue discussed in the order passed u/s.263 of the Act. The relevant findings of the PCIT are as under:
8. The arguments of the assessee are carefully considered in the facts of the case. The assessee has stated that the appeal against the order of assessment has been filed before the CIT(A). In this regard, it is to be stated that it is since well-established that the powers of the Pr. Commissioner of Income Tax to revise an order found to be erroneous and prejudicial to Revenue would always continue to exist, on all issues, till the order of appeal has been made by the CIT(A), as the legislature in its wisdom had used the words “considered and decided”. The decision relied on are CIT vs. Eimco KCP Ltd (Mad) 147 ITR 603 and CIT vs. Subama Plantation and Trading Co. Ltd. (Cal) 238 ITR 319.
9. Reverting to the core of the issue in this case, it is to be stated that the assessee had failed in its duty of discharging the onus of proof to establish that all the purchases were genuine. The Apex Court while dealing with the issue of deciding the burden of proof, in the case of CIT vs. Durgaprasad More 82 ITR 840 and Sumati Dayal Vs.CIT 214 ITR 801 has held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real and that Taxing Authorities are entitled to look into surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities.
The Hon’ble Supreme Court also held that, it is no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden to prove that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. In the case of Durgaprasad More (Supra), the Hon’ble Court went on to add that a party who relies on a recital in a Deed has to establish the trust of this recital, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax.
The Courts have clearly cast the burden of proof on the assessee to establish that the purchases were all genuine. Some of the ways and means in which a purchase could be proven to be genuine and thereby help an assessee to discharge his onus are; Producing the books of accounts, bills, stock register, payment etc., filing confirmation and producing parties. Some indirect evidence could be production of delivery challans, lorry receipts, octroi payment proofs, confirmation from broker, etc.
Notwithstanding the fact that the assessee has not met its part of the obligation to prove the genuineness of the expenditure claimed to the satisfaction of the AO, the AO during the course of the scrutiny proceedings should have exhausted all the mode and means to establish that the purchases were genuine, in the availability of proof to the contrary, the expenses ought to have been disallowed.
On a careful consideration of the facts of the case and in the light of the circumstances detailed above. I have no hesitation in holding the order passed by the AO, as erroneous and prejudicial to the interest of the Revenue.
For the reasons mentioned above, the order under consideration passed u/s.143(3) on 31.12.2018 is hereby, set aside u/s.263 of the Act, with directions to the Assessing Officer to re-do the assessment afresh, considering the issues discussed in this order. The Assessing Officer shall give adequate opportunity to the assessee and pass fresh assessment order accordingly.
The Ld.AR for the assessee submitted that the PCIT erred in assuming jurisdiction u/s.263 of the Act, when the order is neither erroneous nor prejudicial to the interest of the Revenue. The Ld.AR further submitted that the subject matter of proceedings u/s.263 of the Act, in for unverified purchases for the impugned assessment year. The assessment for the impugned assessment year, had been completed after examining the books of accounts of the assessee, including purchases made from certain parties.
Therefore, once the AO had examined the issue of purchases, then there is no scope for the PCIT to revise the assessment order on very same issue on the ground that the AO ought to have carried out enquiries required to be carried out in accordance with law. Further, the assessee has challenged the assessment order on estimation of income and thus, on very same issue, the PCIT cannot assume jurisdiction.
The Ld.DR, on the other hand, supporting the order of the Ld.PCIT, submitted that the assessment order passed by the AO is erroneous, in so far as it is prejudicial to the interest of the Revenue, because the AO has accepted total purchases claimed by the assessee, even though, the assessee could not furnish necessary details for remaining purchases, which rendered the assessment order to be erroneous and prejudicial to the interest of the Revenue. Therefore, there is no error in the findings of the PCIT to revise the assessment order and their order should be upheld.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The provisions of Sec.263 of the Act, empowers the PCIT to revise the assessment order passed by the AO, in case, the PCIT satisfies that assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. In order to invoke jurisdiction u/s.263 of the Act, twin conditions must be satisfied. The first condition must be the assessment order passed by the AO should be erroneous and the second condition must be assessment order passed by the AO should also be prejudicial to the interest of the Revenue. Unless two conditions are satisfied, the PCIT cannot revise the assessment order. In this legal back ground, if you examine the facts of the present case, one has to understand whether the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. In this case, the PCIT assumed jurisdiction u/s.263 of the Act, on the issue of unverified purchases claims to have made by the assessee. The assessee has made purchases of Rs.8.65 Crs.
During the course of assessment proceedings, the assessee had furnished complete list of parties from whom he had made purchases. The AO had issued notices to all the parties and out of 28 parties, 7 parties have replied with necessary evidences and remaining parties did not respond to the notice issued by the AO. The AO, in the absence of necessary information regarding total purchases has taken a view and has estimated net profit @ 7.5% on total sales. The PCIT on very same issue of unverified purchases assumed his jurisdiction and held that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue.
In our considered view, the PCIT is erred in assuming jurisdiction u/s.263 of the Act, because assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, because, the AO had examined the purchases claims to have made by the assessee, during the course of assessment proceedings and after considering necessary facts has taken one of the possible view and has estimated gross profit @ 7.5% on total sales. The view taken by the AO is a possible view and thus, we are of the considered view that the PCIT cannot assume jurisdiction to revise the assessment order on very same issue by holding that the AO ought to have made further enquiries on the issue.
In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue and thus, we quashed the order passed by the PCIT u/s.263 of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on the 13th day of May, 2022, in Chennai.