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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAJESH KUMAR
O R D E R
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 28.03.2018 of the Principal Commissioner of Income Tax [hereinafter referred to as the PCIT relevant to assessment year 2009-10.
The grounds raised
by the assessee are as under: “Order passed u/s. 263 is bad-in-law & liable to be quashed
1. The Ld. Pr. CIT erred in issuing notice u/s.263 of the Act based upon the proposal received from ITO / Jt. CIT and not by suo-moto examination of records & application of mind and thus, the revision proceedings u/s 263 of the Act are carried out upon the directions of ITO / Jt. CIT is contrary to the provisions of sec. 263 of the Act and hence, bad in law and liable to be quashed.
2 M/s. Vaghasiya Exports Without prejudice to the above: 2. The Ld. Pr. CIT erred in passing revision order u/s. 263 of the Act without appreciating that the reassessment order passed by the Ld. AO was neither erroneous nor prejudicial to the interest of the revenue and hence, the order passed under section 263 of the Act is bad-in-law and liable to be quashed.
The Ld. Pr. CIT failed to appreciate that the original assessment was completed u/s.143(3) of the Act and thereafter the assessment was reopened u/s. 148 of the Act based upon the information received and reasons recorded regarding alleged bogus purchases made from certain concerns operated by one Shri Bhanwarlal Jain and all the related details were called for, enquiries were made by the AO and after verifying and examination of the records and facts and circumstances of the case, made certain estimated addition, it cannot be said that the order of the AO is erroneous and thereby prejudicial to the interest of the revenue and hence, the order passed u/s.263 of the Act is bad in law and liable to be quashed.
4. The Ld. Pr. CIT failed to appreciate that directions given to the AO in para 6 of 263 order are already carried out by the AO in the reassessment proceedings and after examining all the details & explanations filed in support, and categorically recorded finding that against the goods purchased from concerns operated by Shri Bhanwarlal Jain, the assessee has also sold the goods and thus, the AO rejected the books of account and estimated GP on such purchases to cover leakage of revenue and hence, the order passed u/s.263 of the Act directing the AO to make fresh assessment after verifying the same details which are already verified by the AO while making the addition is without any justification, bad-in-law and liable to be quashed.
The Ld. Pr. CIT failed to appreciate that the revision power u/s.263 is not for substituting the view of Pr. CIT in place of AO and the discretion of the AO in arriving at conclusion after verification of facts could not be taken away by invoking provisions of s.263 of the Act and since the AO had applied his mind on the issues, the order of the AO is neither erroneous nor prejudicial to the interest of the revenue and hence, the order passed u/s.263 of the Act is bad in law and liable to be quashed.
The appellant craves leave to add, amend, alter or delete all or any of the aforesaid grounds of appeal
”
3. The only issue raised by the assessee is against the order of revisionary proceedings under section 263 and order passed by Ld. PCIT being without any valid jurisdiction.
The facts in brief are that the assessment in this case was framed under section 143(3) vide order dated 27.10.2011 3 M/s. Vaghasiya Exports assessing the income at Rs.8,78,350/- as against the declared income of Rs.7,55,103/-. Later on the case of the assessee was reopened under section 147 of the Act and assessment was framed under section 143(3) read with section 147 of the Act vide order dated 09.03.2016 assessing the income at Rs.48,88,440/-. Thereafter, the Ld. PCIT exercised revisionary jurisdiction by issuing show cause notice under section 263 on 16.03.2018 for the following reason: "2. The assessment u/s,143(3) } r.w.s.147 of the I.T. Act, 1961 was completed on 09.03.2016 in your case assessing your income at Rs.48,88,440/- in view of the information from DGIT(Inv) that you were a beneficiary of Bogus bills amounting to Rs. 26,73,39,615/- from Bhanwarlal Jain group of companies. 3. Perusal of records shows that, during the year, the AO has wrongly made an addition on adhoc basis @ 1.5% of the bogus purchases without any justification or reason stated in the order. Hence this assessment was erroneously completed under 143(3) ) r.w.s. 147. 4. The AO did not examine all the reasons for which the case was selected in scrutiny, thus leading to income of the assessee being under assessed. As such the assessment order passed by Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue on this issue and therefore need to be revised under the provision of Sec.263 of the I.T act.
5. In this regard, an opportunity is being accorded to you to show cause as to why proceedings u/s.263 of the I.T. Act should riot be initiated against you and assessment order passed be revised to as mentioned above. 6. Your reply must reach this office on or before 21-03-2018. If you want to be heard personally, you may appear before the undersigned on 22-03-2018 at 11.30 A.M. at R.No. 516 Aayakar Bhavan, Marine Lines, Mumbai-400020. In case of failure to comply with the terms of the show-cause notice, the assessment will be revised as per the materials available on the record and in accordance with the Law." 5. The assessee replied the said notice by submitting that there is no error in the order and therefore the revisionary jurisdiction exercised by the Ld. PCIT is bad in law. The Ld. A.R. submitted before the Ld. PCIT that the case of the assessee was reopened under section 147 of the Act on the basis of 4 M/s. Vaghasiya Exports information regarding bogus purchase by the assessee to the tune of Rs. Rs.26,73,39,615/- received from DGIT (Inv.). The Ld. A.R. submitted that the reassessment was framed vide order dated 09.03.2016 after considering all the relevant issues and consequently an addition of 1.5% of the bogus purchases was made to the income of the assessee to the extent of Rs.40,10,094/-. The Ld. A.R. submitted that the findings of the Ld. PCIT by considering and relying on the order of Hon’ble Supreme Court in the case of N. K. Proteins Ltd.(2017-TIOL-23- SC-IT) in SLP © CC No.769 of 2017 dated 16.01. 2017, wherein the Hon'ble Supreme Court upheld the Hon'ble Gujarat High Court decision was not correct wherein it has been held that once it comes to a categorical finding that the amount represents alleged bogus purchases from bogus suppliers it is not incumbent to restrict the disallowance, and thereby directed to make the addition of 100%. In the present case before us the ld. AR argued that the conclusion of the ld. PCIT that assessment framed under section 143(3) read with section 147 of the Act dated 09.03.2016 being erroneous and prejudicial to the interest of the Revenue, is wrong and against the facts of the case and case law. The Ld. A.R. submitted that it is only on this basis that the Ld. PCIT has set aside the reassessment order passed under section 143(3) read with section 147. The Ld. A.R. submitted that the revision on the basis of alleged bogus purchases is bad in law as the reassessment order is neither erroneous nor prejudicial to the interest of the Revenue as AO has passed the order after making enquiries and after due application of mind after calling for specific information/details from the assessee and that too after disallowing and adding to 5 M/s. Vaghasiya Exports the income of the assessee at the rate of 1.5% of the alleged bogus purchases. Thus it is apparently clear that the issue on which the assessment is set aside by the Ld. PCIT has been considered by the AO at great depth and only after considering all the relevant material and issues connected therewith the reassessment order was framed by the AO. The Ld. A.R. also submitted that even during the reassessment proceedings he made specific enquiry about the alleged bogus purchases by issuing notice under section 133(6) of the Act which were duly responded by the suppliers. The Ld. A.R. submitted that the reassessment as framed by the AO in accordance with the various judicial precedents of the jurisdictional High Court in the case of CIT vs. Nikunj Exim Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom.) and Babulal C. Bhurana vs. ITO (2006) 282 ITR 251(Bom). The Ld. A.R. also referred to the decision of CIT vs. Simit P. Sheth (2013) 356 ITR 451 (Guj) wherein it has been held that additions on the basis of estimation are to be made where purchases were held to be made from the grey market. The Ld. A.R. submitted that unless the view taken by the AO is unsustainable in law or against the facts of the case, the revisionary proceedings under section 263 by the Ld. PCIT is invalid and without jurisdiction. The Ld. A.R. relied on the decision of Grasim Industries Ltd. vs. CIT (2010) 321 ITR 92 (Bom.) and CIT vs. Nirav Modi (2017) 390 ITR 292 (Bom.). The Ld. A.R. also submitted that SLP filed by the Revenue before the Hon’ble Supreme Court also stands dismissed as reported in CIT vs. Nirav Modi (2017) 77 Taxman.com 78 SC. The Ld. A.R. submitted that where there are two possible views and AO has taken one of the possible views, then resort to revisional 6 M/s. Vaghasiya Exports jurisdiction can not be made. The Ld. A.R. submitted that the power of revision can only be exercised where there is no enquiry as required under law and this revisionary jurisdiction can not be initiated to set aside the assessment proceedings in the case of inadequate enquiry. The Ld. A.R. also referred to the decision as relied upon by the Ld. PCIT in the case of N.K. Proteins vs. DCIT SLP (CC) No.769/2016 dated 16.01.2017 and Vijay Proteins Ltd. vs. CIT (2015) 58 taxmann.com 44 (Guj) by submitting that the Hon’ble Supreme Court has dismissed the SLP filed by the assessee. But stressed the fact that mere disposal of SLP in limine by non speaking order in the case of N.K. Proteins (supra) will not result in declaration of any law under article 141 and consequently there is no merger of High Court decision with the Hon’ble Supreme Court. For this proposition, the Ld. Counsel relied on the decision of Hon’ble Supreme Court in the case of Kunhayammed vs. State of Kerala (2000) 245 ITR 360 (SC). Similarly, SLP against the decision of Hon’ble Gujarat High Court, confirming the order of Tribunal in the case of Vijay Proteins Ltd. vs. ACIT (1996) 58 ITD 428 Ahmedabad sustaining of 25% of the alleged bogus purchases, has been dismissed in Vijay Protein Ltd. vs. CIT SLP No.8956/2015 dated 06.04.2015. Therefore, the observations and opinion of Ld. PCIT that the law mandates to tax the entire bogus purchases can not be accepted. Finally, the Ld. A.R. prayed that in view of the aforesaid legal position the revisionary jurisdiction exercised by the Ld. PCIT may kindly be quashed along with the consequent order passed under section 263 of the Act.
7 M/s. Vaghasiya Exports 6. The Ld. D.R., on the other hand, relied heavily on the order of Ld. PCIT by submitting that the AO has just applied 1.5% of the alleged bogus purchases made from grey market and thus the order of the AO is erroneous in so far as prejudicial to the interest of the Revenue. The ld DR argued that once it is established that the purchases are bogus then 100% of the addition has to be made. The Ld. AR relied heavily on the decision of the Hon’ble Apex Court in the case of N.K. Proteins vs. DCIT SLP (CC) No.769/2016 dated 16.01.2017 and Vijay Proteins Ltd. vs. CIT (2015) 58 taxmann.com 44 (Guj). Besides the ld DR relied on a series of decision to prove his arguments namely i)Bhagirath Aggarwal Vs CIT (2013)31 taxmann.com 274(Delhi), and ii) Raoyal Rich Developers Pvt Ltd Vs PCIT (2019) 108taxmann.com382 (Bom).
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 8 M/s. Vaghasiya Exports 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 assessment order 9 M/s. Vaghasiya Exports 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.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28.09.2020.