M/S DIACH CHEMICALS & PIGMENTS PVT. LTD.,,KOLKATA vs. ACIT, CIRCLE-10(2), KOLKATA, KOLKATA

The present appeal has been preferred by the assessee against the order dated 26.02.2021 of the Principal Commissioner of Income Tax, Kolkata [hereinafter referred to as ‘PCIT’] passed u/s 263 of the Income Tax Act(hereinafter referred to as the ‘Act’) whereby the ld. PCIT exercising his revision jurisdiction has set aside the assessment with a direction to the Assessing Officer to pass assessment order afresh.

The brief facts of the case are that the assessee is engaged in the business of manufacturing of lead ingots. The assessee during the year disclosed total income of Rs.2,33,65,644/-. The Assessing Officer after examining the details relating to purchases of the raw material and sales of the assessee and after having gone through the accounts, accepted the net profit shown by the assessee @1.01%. However, he made some other additions which are not disputed before us. Thereafter, information was received by the PCIT from the DCIT, Kolkata that the assessee company had availed accommodation entry of Rs.92,04,868/- in the form of bogus billings through a shell entity M/s Dynamic Sales (India), controlled and operated Assessment Year: 2016-17 M/s Diach Chemicals & Pigments Pvt. Ltd by an entry operator namely Shri Sanjiw Kumar Singh. On the basis of the said information, the ld. PCIT exercising his powers u/s 263 of the Act, issued notice to the assessee as to why the assessment order be not set aside for want of necessary verification of the genuineness of the purchases made by the assessee from the alleged shell entity. In reply to the notice, the assessee submitted written submissions which have been reproduced by the ld. PCIT in the impugned order which are further reproduced as under:

Before us, the ld. counsel for the assessee has submitted that books of accounts of the assessee have not been rejected. The assessee furnished not only audited financial statements and tax audit report but also details of trade payable and copies of the VAT returns and details of excise duty paid. The ld. counsel in this respect has submitted that the assessee has produced the evidence of the sales made by the assessee which could not have been possible without the purchases of the raw material and thereafter manufacturing of the goods. The ld. counsel has further submitted that the assessee duly maintained stock register, day to day register showing the ingress and egress of the products. That the same has not been disputed either by the Assessing Officer nor by the PCIT. The ld. counsel has submitted that without the purchases being made, the sales were not possible. He, therefore, has contended that the ld. PCIT has erred in exercising his jurisdiction u/s 263 of the Act.

On the other hand, the ld. DR has submitted that before issuing the notice u/s 263 of the Act to the assessee, certain enquiries were made by the Department from which it was found that the alleged seller of the raw material did not exist at the given address, therefore, it was apparent that the purchases were not made by the assessee from the said parties. In view of this, he, therefore, has submitted that the bogus purchases were required to be added regarding which the Assessing Officer has failed to make necessary enquiries. The ld. DR has, therefore, has submitted that the ld. PCIT has rightly exercised his jurisdiction u/s 263 of the Act.

We have heard the rival contentions and gone through the records. In this case, there is un-rebutted evidence by the assessee such as the copy of the VAT return, the copy of the excise details, the copy of the stock register and daily register relating to the stock showing that there were purchases of raw material and sales of finished goods. The ld. DR has also not disputed the same. This fact has also not been denied that there cannot be sales of finished goods without the purchases of the raw material. Even if, the case of the Revenue is assumed as correct, what can be inferred is that the assessee might Assessment Year: 2016-17 M/s Diach Chemicals & Pigments Pvt. Ltd have purchased raw material from grey market at a lower price and thereby might have shown profit at a lesser rate. At this stage, the ld. counsel for the assessee has submitted that the net profit shown by the assessee for the year under consideration was marginally low as compared to the earlier assessment year. The net profit rate shown by the assessee in the earlier assessment year was at @1.05% and for the assessment year under consideration was @1.01%. He has submitted that the Assessing Officer duly considered the submissions of the assessee for a marginal difference in the rate of profit for the current year as compared to earlier year and has accepted the returned profit of the assessee. However, the ld. AR has been fair enough to state that at the most in this case, the net profit rate could have been enhanced, but it was not fair on the part of the ld. PCIT to set aside the entire assessment order and thereby pushing the assessee in a fresh round of litigation. The ld. DR also could not deny this argument of the ld. AR.

Though, the present appeal is against the order passed by the ld. PCIT u/s 263 of the Act, however, we find that the dispute can be resolved after considering the aforesaid submissions of the ld. representatives of both the parties, which not only would save the parties of harassment of facing another round of litigation but also could avoid multiplicity of litigation. Even otherwise, as per the provisions of section 263 of the Act, the ld. PCIT, either can modify the assessment order, enhance the assessment or may set aside the assessment for a fresh assessment, as he may deem fit, as per facts and circumstances of the case. It is a well-settled law that the appellate authority under the Act, has inherent powers as that of the lower authorities, which can be well exercised in the interest of justice. Considering the facts and circumstances of the case, as suggested by both the ld. representatives of the parties and since the ld. AR has also agreed that the net profit rate of the assessee may be reasonably enhanced so as to prevent the assessee for another round of litigation and for the purpose of finality of the proceedings, which has not been objected by the ld. DR, we direct the Assessing Officer to assess the net profit rate of the assessee @2% of the alleged bogus purchases. The order of ld. PCIT is modified accordingly. The directions given by the ld. PCIT for assessment afresh are set aside.