YOGESH C. LAKKAD,MUMBAI vs. PR. CIT- 32, MUMBAI

Since, facts and issues involved in these appeals are identical, except the figures, for the sake of brevity, we propose to take up the appeal in ITA no.2464/Mum./2019 for the assessment year 2009–10 as a lead appeal and discuss the facts involved therein. ./2019 Assessment Year : 2009–10

Brief facts are, the assessee is an individual and carries on business of trading in iron, steel and industrial inputs through his proprietary concern National Trading Co. For the assessment year under dispute, the assessee filed his return of income on 15th September 2019, declaring total income of ` 8,03,930. Assessment in case of the assessee was completed under section 143(3) of the Act vide order dated 29th November 2011, determining the total income at ` 9,23,340. Subsequently, on the basis of information received from DGIT (Inv.), Mumbai, and the Sales Tax Department, Government of Maharashtra that the assessee is a beneficiary of accommodation entries provided by certain parties identified as hawala operators, the Assessing Officer re–opened the assessment under section 147 of the Act. In course of re–assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases of `4,13,91,177. In response to the query raised by the Assessing Officer, the assessee furnished certain documentary evidences.

As it appears, the assessee did not contest the addition made by the Assessing Officer.

When the matter stood thus, learned Principal Commissioner of Income Tax called for and examined the assessment records of the assessee and formed an opinion that the assessment order passed is erroneous and prejudicial to the interests of Revenue. Accordingly, he issued a show cause notice under section 263 of the Act to the assessee requiring him to explain why the assessment order should not be set aside. In response to the show cause notice, though, the 4 Yogesh C. Lakkad assessee filed his reply objecting to exercise of jurisdiction under section 263 of the Act and submitting that the assessment order is neither erroneous nor prejudicial to the interests of Revenue, however, learned Principal Commissioner did not find merit in the submissions of the assessee. Referring to the decision of the Hon’ble Gujarat High Court in N.K. Industries Ltd. and the decision of the Hon'ble Supreme Court in N.K. Proteins Ltd., learned Principal Commissioner held that the assessment order passed by the Assessing Officer making addition @ 4% of the bogus purchase is erroneous and prejudicial to the interests of Revenue, since, in the decision referred it was held that once the purchases were found to be bogus, 100% addition should be made. Accordingly, he set aside the assessment order with certain directions.

The learned Authorised Representative submitted, purely on the basis of information obtained from the Sales Tax Department the purchases made by the assessee were treated as bogus. He submitted, in the course of assessment proceedings Assessing Officer had enquired into the purchases made and the assessee had produced evidences to prove the genuineness of purchases. Further, the Assessing Officer had conducted enquiry independently to verify the genuineness of the purchases. Therefore, it cannot be said that the Assessing Officer has passed the assessment order overlooking the 5 Yogesh C. Lakkad information available with him. The learned Authorised Representative submitted, now it is fairly well settled that even if the purchases made are held to be non–genuine/bogus, however, the entire purchase cannot be disallowed, but only profit element embedded in such purchase can be considered for addition. In support of such contention, he relied upon the recent decision of the Hon'ble Jurisdictional High Court in PCIT v/s Mohommad Haji Adam & Co., etc., vide judgment dated 11th February 2019. Further, he submitted, learned Principal Commissioner has exercised his revisional power simply relying on the decision of the Hon'ble Supreme Court in N.K. Proteins (supra), which is factually distinguishable. Thus, he submitted, in the facts of the present case, exercise of power under section 263 is without jurisdiction. Hence, the order passed should be quashed.

The learned Departmental Representative strongly relying upon the observations of learned Principal Commissioner submitted, the Assessing Officer, though, has concluded that the assessee was unable to prove the genuineness of purchases, however, he has added only 4% of such purchases instead of adding the entire purchases. She submitted, the aforesaid decision of the Assessing Officer has not only made the assessment order erroneous but also prejudicial to the 6 Yogesh C. Lakkad interests of Revenue. Thus, she submitted, the order passed by the learned Principal Commissioner is valid.

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Undisputedly, in assessee’s case originally the assessment was completed under section 143(3) of the Act. However, subsequently, on the basis of information received by the Department from the Sales Tax Authorities indicating that certain parties from whom the assessee claimed to have made purchases have been identified as hawala operator by the Sales Tax Department, the Assessing Officer re– opened the assessment under section 147 of the Act. During the re– assessment proceedings, the Assessing Officer called upon the assessee to furnish supporting evidences to prove the purchases. It is evident, in response to the query raised by the Assessing Officer, the assessee did produce some evidences which of–course was not enough to satisfy the Assessing Officer. Therefore, the Assessing Officer himself has conducted enquiry by issuing notices under section 133(6) of the Act to the concerned parties. Thus, from the aforesaid facts it appears that the Assessing Officer has not overlooked the information/material available on record. Therefore, allegation of learned Principal Commissioner that while completing the assessment the Assessing Officer overlooked the materials on record is without any 7 Yogesh C. Lakkad basis. A reading of the impugned order of learned Principal Commissioner certainly gives an impression that the decision of the Hon'ble Supreme Court in N.K. Proteins Ltd. (supra) and the decision of the Hon’ble Gujarat High Court in N.K. Industries Ltd. (supra) have triggered the exercise of power under section 263 of the Act. In our view, the decisions referred by learned Principal Commissioner have been rendered in the context of specific facts involved therein, hence, cannot apply uniformly to all the cases. Pertinently, in the decision of N.K. Proteins Ltd. (supra), in course of search conducted in the premises of the assessee incriminating material such as various cheque books in the name of different parties were recovered. Thus, on the basis of such facts the Hon'ble Supreme Court upheld the addition of the entire purchases. However, the facts involved in the present appeal are different as the basis of addition is the information received from outside source i.e., the Sales Tax Department. Even otherwise also, no fault can be found with the Assessing Officer in making addition by estimating profit on the non–genuine purchases, as the same view has been expressed in various judicial precedents rendered in similar nature of dispute including the decisions of the Tribunal and the Hon'ble Jurisdictional High Court. In fact, the Hon'ble Jurisdictional High Court in Mohommad Haji Adam & Co. (supra) has held that even if the purchases are found to be bogus, however, the 8 Yogesh C. Lakkad entire purchases cannot be added if the sales are not doubted or disputed. The Hon'ble Jurisdictional High Court held that in such circumstances, the addition can be made by applying the gross profit rate of normal purchases. Therefore, in our considered opinion, the decision of the Assessing Officer by making addition applying the gross profit rate is in consonance with various judicial precedents available on the issue. Therefore, it cannot be considered to be an erroneous view as it is a possible view. Moreover, the allegation of learned Principal Commissioner that the Assessing Officer has overlooked the material on record and has not made any enquiry which ought to have been made, appears to be on wrong assumption of facts, hence, not tenable. In view of the aforesaid, we hold that in the given facts and circumstances of the case, the assessment order passed cannot be held as erroneous and prejudicial to the interests of Revenue.That being the case, exercise of power under section 263 of the Act to revise the assessment order is neither justified nor valid. Accordingly, we are inclined to quash the impugned order passed by learned Principal Commissioner under section 263 of the Act. Ground raised by the assessee is allowed.

In the result, assessee’s appeal is allowed.

Facts and issues raised in other two appeals under consideration being identical except the figures, our decision in the appeal being ITA no.2464/Mum./2019, vide Para–8 as aforesaid will apply mutatis mutandis to these appeals as well. Accordingly, the grounds raised in these two appeals are allowed.

In the result, all the appeals of the assessee are allowed. Order pronounced in the open Court on 16.08.2019