KARTICK BOSE ,KOLKATA vs. PCIT, CENTRAL - 1, KOLKATA , KOLKATA

Both the learned representative(s) at the outset takes us to the PCIT’s detailed discussion holding the regular assessment in question dated 24.03.2016 as an erroneous one causing prejudice to interest of the Revenue reads as under:-

After finding the assessment order dated 24.03.2016 being erroneous and prejudicial to the interest of revenue as discussed in .previous para, a notice dated 13.03.2018 is issued to the assessee asking it to explain as to why the above mentioned assessment order should not be revised as per the provisions of section 263 to correct the errors discussed in the previous para. ln response to this notice, Shri Jaydeep Chakraborty, Advocate appeared on 19.03.2018 alongwith Vakalatnama on behalf of the assessee company as its authorized representative, hereinafter referred as the Ld. AR and filed a written submission. This written submission is reproduced as under:- "That the main ground of objection for 263 is regarding the inflated purchases value. That Your Honour, we would like to bring to your notice that during the course of assessment proceedings the assessee produced all the relevant documents before the Ld. A.D. relating to its purchase and expenditure. A disallowance of 25% on purchase ad hoc without any evidence may kindly be reconsidered by Your Honour for this particular matter of the assessee Shri Kartick Bose (P AN- AOMPB2179K). To substantiate our plea relating to Your 263 notice, we have relied on the following case laws for Your Honour's kind perusal. Reliance is placed in the case of CIT v. Lalit Bahsin 290 ITR 245 (Del) where the Delhi High Court deleted the addition on the ground that A.O. arrived at conclusion primarily on imaginative basis and conjectures rather than on the basis of any record or books of account and hence deleted the addition. Reliance is also placed in the case of Omega Estates V s. ITO 106 .ITD 427 (Chennai) where the Chennai Bench of ITAT held that since the revenue Assessment Year 2013-14 Kartick Bose Vs PCIT, Cen-1,Kol. Page 3 could not prove that actual consideration was more than that recorded by the assessee and since books of account had not be rejected, there was no basis of making the estimated addition. Reliance is further placed in the case of K.P. Varghese Vs . ITO, Ernakulam and Another 131 ITR 597 (SC) wherein the Supreme Court held that assessee must be shown to have received more than what is declared or disclosed ~Y him as consideration and only then addition can be sustained. Reliance is also further placed in the case of Pioneer Himudyog P. Ltd. Vs. Assistant Commissioner of Income-tax (ITAT Kolkata) I. T.A. No. 338/Kol/2017 where it has been opined that without rejecting the books of account, the ad hoc disallowance made is not sustainable in the eyes of law especially when Assessee has maintained books of account with supporting. Reliance is also further placed in the case of Balbir Singh Vs. ACIT (ITAT Jaipur) where it has been opined that expenses can't be disallowed on estimation basis without verification of genuineness. Considering the above facts and circumstances it is very clear that the queries raised by you have duly been considered by the A.G. at the time of making assessment u/s 143(3), therefore, Your Honour is requested to drop the proceedings u/s :?63 of the I.T. Act 1961."

In the above written submission, the Ld. AR has mainly argued against the ad hoc disallowance of purchases contending that during the course of assessment proceeding, the assessee produced all relevant documents before the Ld. Af) relating to its purchases and expenditures and hence, as pleaded by him, a disallowance of 25% of purchases on ad hoc basis without any evidence may be reconsidered. In support of his argument, the Ld. AR has referred to certain judgments as mentioned in the above written submission. Here, the proceeding u/s 263 has not been initiated to make ad hoc disallowance out of purchases without any evidence but due to not making any enquiry or verification by the AO, even after making an observation in the assessment order that purchases are inflated. Due to not making requisite enquiry or verification of the genuineness of purchases shown by the assessee, the assessment order passed by the AO has become deemed to be erroneous in so far as prejudicial to the interest of revenue. Therefore, now the AO is required to make enquiry from the parties from whom purchases have been shown e quantity of clothes sold, rate of clothes sold b them to the assessee corn any and the genuineness of such sale made by them to the assessee company and if genuineness of sales made by them to the assessee company is not verified due to non-traceability of such parties or rate or quantity of such clothes sold by these parties to the assessee company is found to be inflated, an appropriate percentage of such purchases should be disallowed by the AO following the decision of Vijaye Protein (supra) in which 25% of purchases were disallowed due to purchase parties could not be traced out and genuineness of purchase bills could not be verified. Therefore, in this case also, the AO is directed to make necessary enquiries and verification of purchases to find out about the genuineness of purchases-and the bills shown in their names and then, depending upon the result of enquiries, make appropriate disallowance out of purchases keeping in view the rates laid down by Gujarat High Court in case of Vijay Proteins (Supra).”