NKG INFRASTRUCTURE LTD.,NEW DELHI vs. PR.CIT, C- 3 , NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘E’ NEW DELHI BEFORE SHRI G.D. AGRAWAL, HON’BLE PRESIDENT & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA Nos. 3825 to 3827/Del/2018 Assessment Years: 2008-09 to 2010-11 M/s NKG Infrastructure Ltd. vs Pr. CIT, 1107, Kailash Building, 26 K.G. Marg, Circle-3, New Delhi. New Delhi. PAN NO. AACCN1659D (Appellant) (Respondent) Assessee by Sh. Ved Jain, Adv. Sh. Pranjal Srivastav, Adv. Sh. Ashish Goel, CA Revenue by Smt. Shafali Swaroop, CIT DR Date of Hearing 25.07.2018 Date of Pronouncement 05.09.2018 ORDER PER BENCH Aggrieved by the orders dated 26/03/2018 passed under section 263 of the Income Tax Act, 1961 (“the Act”) for the assessment years 2008- 09 to 2010-11, assessee preferred these appeals.

2 2. Briefly stated, relevant facts, as could be culled out from the record and the submissions, are that the assessee is a flagship company of the NKG group which is engaged in the business of work of civil construction and execution of infrastructure sector projects. Facts and questions of law involved in all these three matters are similar. We, therefore, deem it just and convenient to dispose of all the three matters by way of this common order with reference to the facts involved for the assessment year 2008-09. Assessee originally filed the return of income for the assessment year 2008-09 on 26/09/2008, declaring a total income of Rs.16,81,42,890/-. 3. On 05/11/2009, there was a search and seizure operations under section 132(1) of the Act, in NKG group of companies and the assessee’s case was taken up for scrutiny under section 153-A of the Act. Assessee filed the return of income on 14/09/2010 declaring the income at Rs.21,26,39,300/-. Learned Assessing officer, however, assessed the income of the assessee at Rs.22,87,10,229/- and the assessee accepted the same by not filing any appeal. Subsequently, there was another search and seizure operations under section 132(1) of the Act on 23/08/2012 in NKG group of companies and again the case of the assessee was taken up for scrutiny under section 153-A of the Act. Assessee filed the return of income on 1/7/2014 declaring an income of Rs.22,87,10,229/-. 4. Learned Assessing Officer, during the assessment proceedings, called for the detailed information and considering the same, passed the assessment order dated 31/03/2016 wherein he had taken the gross profit margin on sales

3 turnover at the rate of 9%. Inasmuch as the assessee’s margin was below 9% in respect of the assessment years 2008-09 and 2009-10, learned Assessing Officer added the difference; whereas in respect of the gross profit of the assessee was more than 9% for the assessment year 2010-11, no addition was made in respect of such year. 5. Subsequently the Principal Commissioner of Income Tax issued notice dated 23/01/2018. By way of the impugned order revising the assessment order dated 31/03/2016, held that such an order passed under section 143(3) of the Act read with section 153-A of the Act was erroneous insofar as it is prejudicial to the interest of revenue, since the Learned Assessing Officer failed to complete the assessment order in accordance with his own findings. According to the Pr.CIT, having reached a conclusion that a particular amount represented the purchases from bogus suppliers, it was not incumbent upon the Assessing Officer to restrict the disallowance to a certain percentage which is less than the entire amount of such bogus purchases. The decision of the Learned Assessing Officer, to restrict the disallowance to a sum of Rs.5,36,53,777/- out of the total amount of the bogus purchases claimed to have been made from Sharma group of Rs.107 crore during the relevant assessment year 2008-09, was not sustainable in law. 6. Assessee challenged the impugned order both on the aspect of law and on merits stating that assessment made by Ld. AO does not fall within the provisions of Explanation 2(d) of Section 263(1) of the Act; that no order u/s 263 of the Act can be made when order sought to be revised is itself illegal

4 being barred by limitation; that CIT has no jurisdiction u/s 263 to substitute his opinion for the opinion of the learned AO; that where two views are possible and one of the possible views has been taken by the Ld. AO in the order passed u/s 143(3), then provisions of section 263 cannot be invoked; that where sales are accepted, entire addition of purchases not warranted; and lastly that real income theory should be followed by the Revenue authorities. 7. First contention advanced on behalf of the assessee is that the assessment order dated 31/03/2016 was barred by limitation under section 153-B of the Act, as such, it is non-est in the eyes of law, which the Learned Principal Commissioner of Income Tax could not have revised by assuming jurisdiction under section 263 of the Act. 8. Per contra, it is the argument of the Ld. DR that the assessee had accepted the assessment order without preferring any appeal and, therefore, the assessee is precluded from taking such a plea for the first time before the Tribunal. Basing on the assessment order, the Ld. DR submitted that the assessee filed application before the Income Tax Settlement Commission for the assessment years 2007-08 to 2013-14 on 18/02/2015 offering additional income. The application was admitted by the settlement commission vide its order under section 245-D(1) of the Act dated 26/02/2015. By order dated 09/04/2015, the Settlement Commission declared the application invalid as the assessee failed to make full and true disclosure. Basing on this factual matrix, Ld. DR submitted that the limitation period got extended till 31/03/2016 in

5 view of the provisions of the 2nd proviso to Explanation to section 153 of the Act. 9. We have gone through the record carefully in the light of the submissions made on either side. In view of the rival contentions on the aspect of limitation, as stated above, the contention between the parties is that in case of search, whether the provisions of section 153 or section 153-B of the Act, that is applicable. 10. For proper appreciation of this contention, it is necessary to refer to Section 153 and 153A of the Act, as they stood at the relevant point of time. Section 153 was reading thus,- Section 153: (1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of— (a) two years from the end of the assessment year in which the income was first assessable ; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub- section (4) or sub-section (5) of section 139, whichever is later : Provided that in case the assessment year in which the income was first assessable is the assessment year commencing on or after the 1st day of April, 2004 but before the 1st day of April, 2010, the provisions of clause (a) shall have effect as if for the words "two years", the words "twenty-one months" had been substituted : Section 153-B of the Act was reading that,- '153B. Time limit for completion of assessment under section 153A.—

6 (1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of assessment or reassessment,— (a) in respect of each assessment year falling within six assessment years referred to in clause (b) of sub-section (1) of section 153A, within a period of two years from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed; xxx xxx xxx xxx xxx xxx (3) The provisions of this section, as they stood immediately before the commencement of the Finance Act, 2016, shall apply to and in relation to any order of assessment or reassessment made before the 1st day of June, 2016. Explanation.—In computing the period of limitation under this section— xxx xxx xxx xxx xxx xxx (v) in a case where an application made before the Income-tax Settlement Commission is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which an application is made before the Settlement Commission under section 245C and ending with the date on which the order under sub-section (1) of section 245D is received by the Principal Commissioner or Commissioner under sub- section (2) of that section; or xxx xxx xxx xxx xxx xxx shall be excluded: Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in clause (a) or clause (b) of this sub-section available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly:

7 11. A reading of section 153 makes it clear that, no order of assessment shall be made under section 143 or section 144 at the time after the expiry of two years from the end of the assessment year in which the income was first assessable, and many provisos are provided to the section; whereas section 153- B starts with the expression that “notwithstanding anything contained in section 153”, and states that the Assessing Officer shall make an order of assessment or reassessment in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in class (b) of subsection (1) of section 153-A etc. 12. Admittedly the assessment involved in this matter is under section 153A of the Act. While section 153-B specifically refers to the order of assessment under section 153-A of the Act, there is no such reference to section 153-A in section 153 of the Act. On a careful reading of these two provisions of law under section 153 and section 153-B of the Act, it occurs to our mind that the provisions under section 153-B of the Act are applicable to the facts of the case and section 153 has no relevance at all, lest we are afraid that it would attribute redundancy to the wisdom of legislature in enacting the non-obstante clause in Section 153-B of the Act. 13. It is further clear from the above that the Learned Assessing Officer shall make the order of assessment within a period of two years from the end of the financial year in which the last of the authorizations for search under section 132 was executed and this period of two years shall be reckoned after excluding the period between the date on which application made before the Income Tax

8 Settlement Commission and the date on which the order under sub section (1) of section 245-D was received by the Principal Commissioner or Commissioner under sub section two of that section. This is subject to the further rider that if after exclusion of this particular period, the period of limitation available to the Assessing Officer for making an order of assessment is less than 60 days, such remaining period shall be extended to 60 days and the aforesaid period of limitation shall be deemed to be extended accordingly. 14. Admittedly, in this case the search was conducted on 23/08/2012, assessee filed the return of income on 17/11/2014, application before the Income Tax Settlement Commission was filed on 18/02/2015, and order under section 245-D (2C) of the Act was passed on 09/04/2015. It is, therefore, clear that under the provisions of section 153-B of the Act, learned Assessing Officer had to pass the order of assessment within two years, after excluding the period spent before the Income Tax Settlement Commission. It means the limitation period for conclusion of the impugned assessment proceedings expires by 31/03/2015. Even if we allow the period of 60 days from the date of the order of the learned settlement commission on 09/04/2015, the order should have been passed by 07/06/2015. It is, therefore, clear that the orders passed on 31/03/2006 is not clearly within the period of limitation prescribed under section 153-B of the Act. 15. Basing on this, the Ld. AR submits that the assessment order in this case is barred by limitation and is non-est in the eye of law. Taking forward this argument and placing reliance on the decision of the Hon’ble Apex Court

9 reported in Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117, Ld. AR submitted that the learned Principal Commissioner of Income Tax cannot assume jurisdiction under section 263 of the Act to revise the assessment order, which is non-est in the eye of law, being barred by limitation. 16. In Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117 Hon’ble Apex Court held that " It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties." 17. In the light of this decision, in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016 ITAT, Mumbai Bench of the Tribunal considered the question as to whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263, and held that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 147 of the Act can be challenged.

10 18. While following the above decision of the ITAT, Mumbai, a Kolkata Bench of the Tribunal in the case of M/s. Classic Flour & Food Processing Pvt. Ltd. Vs. CIT ITA Nos.764 to 766/Kol/2014, observed that: 10. The ITAT Mumbai bench made a reference to another decision of the Hon'ble Supreme Court in the case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193 and the decisions in the case of Indian Bank vs Manilal Govindji Khona (2015) 3 SCC 712. The ITAT Mumbai bench also held that if order of assessment passed u/s 147 of the Actwas illegal and nullity in the eyes of law then that order cannot be revised by invoking powers u/s 263 of the Actby CIT. The Mumbai Bench has in this regard placed reliance on the decision of Hon'ble Delhi bench of the Tribunal in the case of Krishna Kumar Saraf vs CIT in ITA NO.4562/Del/2007 order dated 24.09.2015 wherein it was held as follows :- " 17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for

11 passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended. Because the provisions of limitation are provided in the same 20. In view of above discussion ground no.3 is allowed and revision order passed u/s 263 is quashed. " 19. We are, therefore, convinced with this argument of the Ld. AR and hold that the assessment order is barred by limitation, the assessee can challenge the validity of the same during this appellate proceedings relating to the examination of the validity of the order passed under section 263 of the Act. Respectfully following the decision of the Hon’ble Apex Court in the case of Kiran Singh (supra); the decisions of the Tribunal in West life Development Ltd (supra) followed by the Delhi Tribunal in Chennai Industries (ITA 1398- 99/Del/2012); and the Kolkata Tribunal in M/s Classic Floor And Food Processing Private Ltd (supra), we hold that the order which was barred by limitation cannot be revised under section 263 of the Act by the Learned principal Commissioner of Income Tax. 20. Be that as it may, the next contention of Ld. AR is that non-consideration of the dismissal of the SLP (C) CC No. 769 of 2017, by order dated 16/01/2017 by the Hon’ble Apex Court by the Learned Assessing Officer renders the assessment order erroneous insofar as it is prejudicial to the interest of the revenue, under explanation 2(d) to section 263 (1) of the Act, is incorrect inasmuch as the dismissal of an SLP cannot be taken to be the judgement of the Supreme Court referred to in such an explanation. He placed reliance on the

12 decision reported in Kunhayammed & Ors vs State Of Kerala, [2001] 245 ITR 360. 21. On this aspect Ld. DR submits that in view of the decision of the Hon’ble Gujarat High Court in the case of NK Proteins Ltd Vs. DCIT 2016 TIOL 3165 HC AHM IT, as approved by the Hon’ble Apex Court in SLP, the learned principal Commissioner of Income Tax is justified in directing the learned Assessing Officer to make the addition of the entire bogus purchase to the income of the assessee. 22. We have gone through the record in the light of the decisions relied upon by either side. Ld. Commissioner of Income Tax, on examination of record, found that having reached a conclusion that a particular amount represented alleged purchases from bogus suppliers, it was not incumbent upon the Learned Assessing Officer to restrict the disallowance to certain percentage which is less than the entire amount of the bogus purchases. 23. Learned Commissioner of Income Tax (Appeals) further recorded that section 263 of the Act confers powers upon the Prl. Commission Of Income Tax to call for and examine the records of a proceedings under the Act and revise any order if he consider the same to be erroneous and prejudicial to the interests of Revenue. He further stated that Explanation 2 to section 263 (1) has been introduced w.e.f. 01/06/2015 in the Act deeming an order passed by the Assessing Officer to be erroneous insofar as it is prejudicial to the interests of revenue if any of the conditions mentioned therein obtains in the case of the

13 order under examination. Then the Learned Commissioner of income tax referred to clause (d) of explanation two of the section 263 (1) of the Act which says that for the purposes of this section it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous insofar as it is prejudicial to the interests of the revenue, if, in the opinion of the Prl. Commission or Commissioner, “the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdiction of High Court or Supreme Court in the case of the assessee or any other person”. 24. According to the learned principal Commissioner of income tax the Hon’ble Apex Court in SLP (C) CC No. 769 of 2017, by order dated 16/01/2017 approved the decision of the Hon’ble Gujarat High Court in the case of NK industries vs. DCIT where it was held that, where the entire purchases shown on the basis of fictitious invoices have been debated in the trading account, since the transaction was found to be bogus, “the Tribunal having once come to a categorical finding that the amount of Rs.2,92,93,288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs.73,23,322/-”. 25. According to the Learned principal Commissioner of Income Tax, the Learned Assessing Officer not considering the dismissal of the SLP by the Hon’ble Supreme Court and not adding the entire amount of purchases, takes the assessment order within the mischief of Eexplanation 2 (d) to section 263(1)

14 of the Act and thereby renders the assessment order erroneous insofar as it is prejudicial to the interest of the revenue. 26. On the aspect, whether the dismissal of SLP could be taken to be the judgement rendered by the Hon’ble Supreme Court, in Kunhayammed & Ors vs State Of Kerala, [2001] 245 ITR 360, Hon’ble Supreme Court held that,- “.......The Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding a petition for special leave to appeal. What is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate jurisdiction over it. If the order impugned before the Supeme Court cannot be reversed or modified at the SLP stage obviously that order cannot also be affirmed at the SLP stage. To sum up our conclusions are :- (i) Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. First stage is upto the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal. (iii) Doctrine of merger is not a doctrine of universal or unlimite application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136

15 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter. iv) An order refusing special leave to appeal may be a non- speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed. v) If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. (vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation. (vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before Supreme Court the jurisdiction of High Court to entertain a revew petition is lost thereafter as provided by sub-rule (1) of Rule (1) of Order 47 of the C.P.C.

16 27. Having thus made the law clear, Hon’ble Apex Court proceeded to observe that, - The earlier order of the High Court was sought to be subjected to exercise of appellate jurisdiction of Supreme Court by the State of Kerala wherein it did not succeed. The prayer contained in the petition seeking leave to appeal to this Court was found devoid of any merits and hence dismissed. The order is a non- speaking and unreasoned order. All that can be spelled out is that the Court was not convinced of the need for exercising its appellate jurisdiction. The order of the High Court dated 17.12.1982 did not merge in the order dated 18.7.1983 passed by this Court. So it is available to be reviewed by the High Court. 28. In view of the above authoritative pronouncement of the Hon’ble Apex Court to the effect that the Hon’ble Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding a petition for special leave to appeal, what is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate jurisdiction over it, and if the order impugned before the Supreme Court cannot be reversed or modified at the SLP stage obviously that order cannot also be affirmed at the SLP stage, we find it difficult to hold that the dismissal of the SLP preferred by the assessee against the orders of the Hon’ble Gujarat High Court in NK Proteins Ltd vs. DCIT (supra) render the assessment order erroneous insofar as it is prejudicial to the interest of revenue, taking the case covered by clause (d) of Explanation 2 to section 263 (1) of the Act. On this score, we are unable to endorse the view of the learned Principal Commissioner of Income Tax.

17 29. Now we shall refer to the propriety of the exercise of jurisdiction under section 263 of the Act by the learned Principal Commissioner of Income Tax. It is the contention of the Ld. AR that it is not a case of lack of enquiry or inadequate inquiry conducted by the Learned Assessing Officer before passing the assessment order. According to him Learned Prl. Commissioner of Income Tax also does not dispute the correctness of the enquiry conducted by the Learned Assessing Officer or the conclusions reached by him pursuant to such enquiry. 30. With reference to the plausibility of the view taken by the Ld. Assessing Officer, it is the further submission of the Ld. AR that the total sales accepted in this matter ought to be to the tune of Rs.107,25,03,637/- whereas if we accept the analogy of the Learned Principal Commissioner of income tax, the income of the assessee would be Rs.100,52,55,984/- and the profit margin would be at approximately 93.7% which is quite impossible in the line of business of the assessee. Considering this improbability only, learned Assessing Officer must have taken a conscious decision having regard to the facts and circumstances of the case; that since it cannot be said that the view taken by the Learned Assessing Officer is not a probable one, the assumption of jurisdiction by the Learned Prl. Commissioner of Income Tax is bad under law. Basing on this, the Ld. AR submits that where two views are possible and one of the possible views has been taken by the learned AO, the provisions under section 263 cannot be invoked by the Learned Principal Commissioner of Income Tax to substitute his opinion for the opinion of the learned AO.

18 31. In this respect Ld. DR argued that in the assessment order while referring to the statements made by Sharma, it was recorded that all the circumstances discussed in the assessment order lead to the only conclusion that the material purchased from the Sharmas was bogus. Assessee never challenged the factual findings rendered by the learned AO in his order by preferring any appeal against the same. Inasmuch as the assessee accepted such factual findings, she submits that, it is not open for the assessee now to contend that in this matter no interference is required at the end of the Learned Principal Commissioner of Income Tax. When the learned AO reached a factual conclusion that the entire purchase relating to the earth material from Sharmas was bogus, it was not incumbent upon the learned AO to restrict the disallowance to a particular percentage instead of adding the value of entire bogus purchases to the income of the assessee. Inasmuch as this factual finding of the learned AO is not in dispute, it cannot be said that the view taken by the learned AO is one of the probable and plausible views or that the Learned Principal Commissioner of Income Tax is not justified in correcting the error committed by the learned AO in exercise of jurisdiction under section 263 of the Act. 32. Ld. DR placed reliance on a decision reported in BSES Rajdhani Power Ltd vs. PCIT (2017) 399 ITR 228 (Delhi) and Rajmandir Estates Private Limited vs. PCIT (2016) 386 ITR 162 (Calcutta) for the principle that the non- consideration of larger claim of depreciation and consideration of only part of it by the Learned Assessing Officer, who did not go into the question with respect to the whole amount, was an error that could be corrected under section 263 and

19 the Learned Principal Commissioner of Income Tax has power to consider all aspects which were subject matter of Assessing Officer’s order, if, in his opinion, they were erroneous, despite assessee’s appeal on that or some other aspect. The other decisions relied upon by Ld. DR are not applicable to the facts of the case inasmuch as in all such cases the record speaks that there was a finding as to the Learned Assessing Officer failing to carry out adequate enquiry. 33. Ld. DR further placed reliance on the decision reported in CIT vs. La Medica (2001) 250 ITR 575 for the principle that once it was accepted that supplies were not made by the said supplier to whom payments are alleged to have been made, question of purchases having been made from some other source could not weighed with the Tribunal as a factor in assessee’s favour. Further, reliance is placed on the decision reported in Sanjay Oilcake Industries vs. CIT (2009) 316 ITR 274 (Gujarat) wherein it was held that when certain additions were made on account of inflated purchase price and alleged sellers were not traceable and the documents had been made by account payee cheques, entire amounts so deposited had been withdrawn by the bearer cheques, the Tribunal was not justified in sustaining the addition. 34. Assessment order clearly indicates that before passing assessment order dated 31/03/2016, Learned Assessing Officer conducted a thorough inquiry on the aspects including the purchases made by the assessee from Sharma group aggregating Rs.63.90 crores and having considered the contentions of the assessee, Learned Assessing Officer reached a conclusion that the material

20 purchased from the Sharma’s was bogus, and since the assessee itself offered rate of gross profit in business at approximately 8%, however, to recover any further leakage of revenue 0.25% was to be added to the rate offered by the assessee. Basing on this premise, Learned Assessing Officer recalculated the gross profit at 9% of the sales turnover by rejecting the books of accounts of the assessee under section 145 of the Act. According to the AO, the difference between 9% of the turnover, the aggregate amount of the gross profit already declared by the assessee and the additions made during the earlier assessment under section 153-A of the Act had to be added. 35. Such a fact is evident from the notice dated 03/02/2015 to be found at page number 212 to 215 of the paper book, wherein vide para No. 4 thereof, Learned Assessing Officer noted that in the relevant assessment year the assessee had made a payment of approximately Rs.623.90 crores to Sh. Guruprasad Sharma, Sh. Dhir Chandra Sharma, Smt. Geeta Sharma and Smt. Vinay Sharma on account of purchase of earth and grit material to carry out civil contract works of the business and called upon the assessee to furnish certain details thereof. Assessment order reads that the assessee furnished the details. Having considered such details Learned Assessing Officer reached the conclusion that the alleged material purchased from Sharmas was bogus and the gross profit requires to be recalculated at 9% of the sales turnover. He did so, after rejecting the books of accounts. By such calculation the Learned Assessing Officer reached the additional income to be added at Rs.5,36,53,777/-.

21 36. Now as rightly submitted by Ld. AR, there is nothing placed on record to show that in the line of business of the assessee who is in the business of work of civil construction and execution of infrastructure sector projects, the profit rate is something approximately 94%. We are conscious of the fact that in civil contracts of construction and execution of infrastructure sector projects the profit rate cannot be 94%, inasmuch as law acknowledges the fact, under section 44-AD as it stood prior to the amendment by Finance Act, 2009 that in the case of an assessee engaged in the business of civil construction, a sum equal to 8% of the gross receipt shall be deemed to be the profits and gains of such business chargeable to tax. In such a situation, we find strength in the argument of Ld. AR that being conscious of this fact of the profitability of the business of work of civil construction and execution of infrastructure sector projects, Learned Assessing Officer proceeded to estimate the gross profit of the assessee in respect of the alleged bogus purchases at 9%, as such it is not a case of lack of enquiry or inadequate enquiry, so as to enable the Learned principal Commissioner of income tax to exercise direction under section 263 of the Act. 37. In the circumstances, we find strength in the argument of the Ld. AR that Ld. Pr. CIT is not justified in setting aside the assessment order and substituting his opinion u/s 263 of the Act for the opinion of the Assessing Officer. All documents in support of purchase made were submitted before Ld. AO. Ld. AO has made additions by rejecting books of accounts of the assessee after going through the material available on record. Thus, AO during assessment proceeding has examined this issue. It is not a case where AO has not applied

22 his mind. The AO, after obtaining the details and other evidences, was satisfied and hence accepted the contention of the assessee. Thus AO, being satisfied after the reply, the Prl. Commissioner of Income Tax cannot sit over the judgment of AO to review the order under section 263 of the Act. It is not the case of lack of enquiry or a matter of inadequate enquiry so as to trigger the jurisdiction under section 263. 38. Our this view is fortified by the decision of the Hon’ble Jurisdictional High Court in the case of ITO vs. D.G. Housing Projects Ltd. (2012) 343 ITR 329, CIT vs. New Delhi Television Ltd. (2014) 360 ITR 44 (Delhi), Tirupati Infraprojects Pvt. Ltd. vs. Principal CIT in ITA No. 3316/Del/2015, CGG Marine Resources vs. DCIT (2012) 51 SOT 141 (Delhi). No doubt, Section 263 of the Act confers power on the Principal Commissioner of Income Tax to examine an assessment order so as to ascertain whether it is erroneous insofar as prejudicial to the interests of the Revenue, but it shall not be construed to have conferred jurisdiction upon him to substitute his opinion for the opinion of the Assessing Officer when the Ld. Assessing Officer, being satisfied with the record, passes the assessment order and more particularly in the circumstances when it cannot be stated that there is either lack of enquiry or inadequate enquiry. 39. It is pertinent to note that as is held by the Hon’ble Apex Court in CIT vs. Max India Ltd. 295 ITR 282 (SC), where two views are possible and one of the possible views have been taken by the Ld. Assessing Officer while passing the assessment order, then the provisions of Section 263 of the Act cannot be

23 invoked. In this case, the peculiarity is that the sales are accepted creating a situation where, if we accept the view taken by the Ld. CIT(A), it would show the gross profit of the assessee at 93.73% for the AY 2008-09 which in itself is quite an improbable on its face. So by estimating the gross profit of the assessee at 9% after disallowing the bogus purchasers the Ld. Assessing Officer had taken a pragmatic view which renders the issue not amenable to the Ld. CIT(A) to the jurisdiction u/s 263 of the Act. 40. In view of our above findings, we are of the considered opinion that the exercise of jurisdiction under section 263 of the Act by the Ld. Principal Commissioner of Income Tax is not warranted, that such an order cannot be sustained and is liable to be quashed. We accordingly quash the impugned order. 41. In the result all the three appeals of the assessee are allowed. Order pronounced in the open court on 5th September, 2018 Sd/- sd/- (G.D. AGRAWAL) (K. NARASIMHA CHARY) PRESIDENT JUDICIAL MEMBER Dated: 5th September, 2018 Kavita