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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI N.K.PRADHAN, AM
सुनवाई की तायीख / : 08.10.2018 Date of Hearing घोषणा की तायीख / : 31.10.2018 Date of Pronouncement आदेश / O R D E R Per Saktijit Dey, J. M.: The aforesaid appeal has been filed by the assessee challenging the order dated 28.03.2016 passed by the learned Principal Commissioner Of Income Tax – 29, Mumbai under section 263 of the Income Tax 1961 for the assessment year 2011-12.
Rajal Enterprises 2. Briefly, the facts of the case are the assessee, a partnership firm, is engaged in the business of executing civil contract work. For the assessment year under dispute the assessee had filed its return of income on 29.09.2011 declaring total income of `.13,76,240/–. The return of income filed by the assessee was initially processed under section 143(1) of the Act. Subsequently, on the basis of information received from DGIT (Investigation), Mumbai and the Sales Tax Department, Government of Maharashtra that the assessee is one of the beneficiary of the accommodation entries provided by way of bogus purchase bill issued by M/s.Daksha Enterprises, an entity identified as a hawala operator by the Sales Tax Department, reopened the assessment under section 147 of the Act. During the re–assessment proceeding the Assessing Officer called upon the assessee to prove the genuineness of purchases of `.51,36,299/– claimed to have been made from M/s. Daksha Enterprises. That besides, to ascertain the genuineness of purchase made the Assessing Officer conducted independent inquiry by issuing notice under section 133(6) of the Act. The aforesaid notice issued by the Assessing Officer was returned back unserved by the postal authority. Therefore, the Assessing Officer called upon the assessee to produce the concerned party to prove the genuineness of purchases. As observed by the Assessing Officer, the assessee expressed its inability to produce the concerned party. However the assessee filed some documentary evidences like copies of purchase bills, bank account copy showing payment made to the party, copies of the ledger account, copies of purchase bills and subsequent sale of goods purchased from the said party, Rajal Enterprises copies of challan showing payment of VAT etc. After examining the evidences submitted by the assessee the Assessing Officer was of the view that the assessee was unable to prove the genuineness of purchases made from the concerned party. However, he observed that the purchases and corresponding sales made by the assessee have been recorded in the books of accounts. Therefore, relying upon the decision of Hon'ble Gujarat High Court in case of CIT V/s. Simit P. Seth 356 ITR 451 and the decision of the same High Court in case of CIT V/s. Bholanath Polyfab Pvt. Ltd. estimated the profit @ 10% of the alleged bogus purchases and made an addition of `.5,13,630/–. After completion of assessment as aforesaid, learned PCIT in exercise of power conferred under section 263 of the Act called for and examined the assessment records of the assessee. After examining the assessment record learned PCIT was of the view that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue, as, while restricting the addition to 10% of the bogus purchases the Assessing Officer has not considered the decision of the Hon'ble Supreme Court in case of N.K.Protein Ltd. V/s. DCIT [2017] 84 taxman.com 195. Accordingly, he set aside the assessment order passed with a direction to the Assessing Officer to pass a fresh order keeping in view the observations made by him in the revision order.
The learned Authorised Representative submitted, the exercise of jurisdiction under section 263 of the Act by the PCIT is illegal and without jurisdiction as the conditions of section 263 of the Act are not satisfied. He submitted, the Assessing Rajal Enterprises Officer after reopening the assessment on the basis of information available with him has completed it after conducting necessary enquiry. Therefore, it cannot be said that the Assessing Officer has not made any inquiry with regard to purchases made by the assessee. He submitted, the allegation made by the PCIT that the Assessing Officer has not considered the decision of Hon'ble Supreme Court in case of N.K. Protien (Supra) is totally misconceived, since, the said decision of the Hon'ble Supreme Court was not available at the time of completion of assessment. Further, the learned Authorised Representative submitted, considering the fact that the purchases and corresponding sales were recorded in the books of account the Assessing Officer made addition by applying the gross profit rate of 10%. He submitted, the aforesaid decision of Assessing Officer is in consonance with the decisions of the Hon'ble Gujarat high court as well as the decisions of the Mumbai Benches of the Tribunal in similar issue of bogus purchases. Thus, he submitted, the order passed under section.263 of the Act needs to be quashed.
The learned Departmental Representative, though, agreed that the decision of the Hon'ble apex court in case of N.K. Protein (supra) was delivered after the assessment order was passed by the Assessing Officer, however, he justified the exercise of power under section.263 of the Act by the PCIT 5. We have considered rival submissions and perused material on record. Factual matrix of the case reveals that on the basis of specific information received indicating that the purchases made by the assessee are bogus, the Assessing Officer reopened the Rajal Enterprises assessment under section 147 of the Act. It is also evident, in course of assessment proceeding the Assessing Officer has conducted necessary inquiry by calling for various information from the assessee as well as independently to ascertain the genuineness of the purchases made by the assessee. After examining the material available on record the Assessing Officer, though, was of the view that the assessee has failed to prove the genuineness of purchases made, however, he found that not only the assessee has shown the purchases made in the books of account but has also recorded the corresponding sales effected. Thus, he proceeded to make addition of the profit element embedded in the bogus purchases by estimating the same at 10%. Thus, a reading of the assessment order makes it clear, the Assessing Officer not only has conducted due inquiry to ascertain the genuineness of the purchases made by the assessee but has made addition on account of bogus purchases in terms with the principle laid down in various judicial precedents. It is observed, learned PCIT has held the assessment order to be erroneous and prejudicial to the interest of revenue primarily for two reasons. Firstly, due to non-consideration of the decision of hon’ble Supreme Court in case of N. K. Protein (supra) and secondly, due to lack of proper inquiry. As regards the second allegation of the PCIT, we are unable to agree with the same. The assessment order clearly reveals that the Assessing Officer made necessary inquiry to find out genuineness of purchases. As regards the allegation of non- consideration of the decision in case of N.K. Protein (supra), it is relevant to note, the said decision was rendered by the hon’ble apex court on 16.01.2017 which is much Rajal Enterprises after the completion of assessment on 02.03.2016. Therefore, there is no occasion on the part of the Assessing Officer to consider the said decision. That being the case, the exercise of power under section 263 of the Act for non-consideration of the aforesaid decision of the hon’ble apex court is wholly misconceived. In any case of the matter, the addition to be made on the basis of bogus purchase is a purely factual issue and varies from case to case depending upon the facts of each case. In case of N.K. Protein (supra) the facts involved clearly reveal that there was a search and seizure action carried out in case of N.K. Protein during which various incriminating material including blank cheque books in the name of different entities were found which conclusively proved that the assessee had not made any purchases. Thus, in the context of those facts 100% addition on account of bogus purchases was upheld. Whereas, in the case of the present assessee no such facts are involved. In any case of the matter, when the assessee was able to link the purchases with corresponding sales, the logical conclusion which one can arrived at is, the assessee might not have purchased goods from the declared source but from some other parties. In that event, only the profit element embedded in the bogus purchases can be considered for addition. Therefore, the decision of the Assessing Officer to restrict the addition to 10% of the bogus purchases is in tune with the consistent view of the tribunal and different high courts in similar nature of cases. That being the case, in our view, the exercise of power under section.263 of the Act in the facts of the present case is invalid. Accordingly, the impugned order passed by the leaned PCIT under section Rajal Enterprises 263 of the Act deserves to be quashed. Accordingly, we do so. Consequently, the order passed by the Assessing Officer is restored.
In the result, assessee’s appeal is allowed. Order pronounced in the open court on 31.10.2018.