SPECTROCHEM PRIVATE LIMITED,MUMBAI vs. PR.CIT-4, MUMBAI

The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-4, Mumbai (Pr. CIT), under Section 263 of the Income Tax Act, 1961 (hereinafter "the Act"), dated 23.03.2018 for A.Y. 2010-11.

The assessee assailing the order of the Pr. CIT has raised before us the following grounds of appeal:- “1 On the facts and in the circumstances of the case and in law, the learned Pr CIT erred in assuming jurisdiction and passing the order under section 263 of the Income Tax Act, 1961 on the ground that the original reassessment order dated March 21,2016 was erroneous and prejudicial to the interest of the revenue having failed to appreciate that the re-assessment was framed by the AO after making due inquiries and on the basis of evidences filed and available on record.

Briefly stated, the assessee company, which is engaged in the business of manufacturing of chemicals had filed its return of income for A.Y. 2010-11 on 20.09.2010 declaring total income of Rs. 1,99,10,240/-. The original assessment was framed under Section 143(3) of the Act on 11.02.2013, determining the total income at Rs. 1,99,10,240/-. Subsequently, on the basis of the information received that the assessee had taken bogus bills from two parties, viz. (i) M/s. G.R. Trade Link – Rs. 1,50,436/-; and (ii) M/s. M.R. Corporation – Rs. 17,30,560/-, the case of the assessee was reopened and reassessment order under Section 143(3) r.w.s. 147 of the Act was passed on 21.03.2016 determining the total income of the assessee company at Rs. 2,01,45,370/- .

On a perusal of the records it was observed by the Pr. CIT that though the AO while framing the reassessment had categorically observed that the entire purchases aggregating to Rs. 18,80,996/- claimed by the assessee to have been made from the aforementioned parties were bogus, but however had restricted the addition only to the extent of Rs. 2,35,125/-. Being of the view that the reassessment order passed by the AO was erroneous to the extent prejudicial to the interests of the revenue, the Pr.CIT issued a show cause notice under Section 263 of the Act, dated

Aggrieved, the assessee has assailed before us the order passed by the Pr. CIT under Section 263 of the Act. The learned Authorised representative (for short „A.R‟) for the assessee, at the outset of hearing of the appeal submitted that as the AO while passing the assessment order had taken a possible view, hence the Pr. CIT had exceeded his jurisdiction and wrongly revised the said order under Section 263 of the Act. It was the contention of the learned A.R. that in respect of the issue of bogus purchases two views are possible viz. (i) addition of the profit element involved in making of such purchases from the open/grey market be made; or (ii) disallowance of the entire amount of bogus purchases be carried out. It was averred by the ld. A.R that now when the AO by restricting the addition to the extent of the profit element involved in making of purchases from the open/grey market, had thus taken one of the possible views, therefore, the reassessment order passed by him was not open for revision under Section 263 of the Act. In support of his aforesaid contention the M/s. Spectrochm P. Ltd. learned A.R. relied on the judgement of the Hon'ble Supreme Court in the case of CIT vs. Kwality Steel Suppliers Complex (2017) 395 ITR 1 (SC). It was further averred by the learned A.R. that even the case of the assessee was reopened on the ground that income chargeable to tax in respect of the aforementioned bogus purchase had escaped assessment. The learned A.R., in order to buttress his contention that the AO had rightly restricted the addition only to the extent of profit element involved in making of the purchases under consideration, submitted that in case the assessee would not have made any purchase of the goods under consideration then there would not have been any corresponding sale as had been accounted for by the assessee in its books of account. The learned A.R. in his attempt to dislodge the reliance placed by the Pr. CIT on the judgement of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd. (supra) submitted that as the order of the Hon'ble Supreme Court dismissing the Special Leave Petition (SLP) of the assessee in the said case was not available at the time when the reassessment order was passed by the AO, hence on the said count itself the said order could not be characterised as erroneous. The learned A.R. further submitted that as the facts involved in the case of N.K. Proteins Ltd. (supra) were distinguishable as against those involved in the case of the present assessee, hence the same could not be applied for drawing adverse inferences in the hands of the assessee. In support of his aforesaid contention the learned A.R. drew our attention to the order passed by a coordinate Bench of the Tribunal viz. ITAT, “F” Bench, Mumbai in the case of DCIT vs. M/s. Fagioli India P. Ltd. in & 4558/Mum/2015; dated 28.07.2017 and the order of the ITAT, “I” Bench, Mumbai in the case of M/s. Batliboi Environmental Engineering Ltd. Vs. DCIT in ITA No. 2840/Mum/2015;dated 15.03.2017. It was further submitted by the learned A.R. that as a subsequent reversal of the legal position by the Hon'ble Supreme Court would not authorise the Department to rectify or reopen a concluded assessment which was framed on the basis of extant law, thus the Pr. CIT in the present case had clearly traversed beyond the scope of his jurisdiction. In order to fortify his aforesaid claim reliance was placed by the learned A.R on the judgements

Per contra, the learned D.R. took us through the reassessment order passed by the AO under Section 143(3) r.w.s. 147 of the Act, dated 21.03.2016. The learned D.R. drawing our attention to the observations of the AO submitted that he had categorically stated that not only the assessee had failed to place on record any irrefutable documentary evidence to substantiate the genuineness and veracity of the bogus purchase transactions, but rather no evidence of resale/utilisation of the goods could also be proved. The learned D.R. submitted that the AO, despite observing that the assessee had failed to establish any details of the usage of material in its business, thus instead of making disallowance of the entire purchase of Rs. 18,80,996/- had rather whimsically in contradiction of his own observations restricted the addition only to the extent of Rs. 2,35,125/-. The learned D.R. rebutting the contention of the assessee that the addition was made only to the extent of the profit element involved in making of the aforementioned purchases submitted that the said averment so raised was absolutely in the thin air as there was no mention of the said fact by the AO in the reassessment order. Still further, pointing out the infirmity in the order of the AO, it was submitted by the learned D.R. that though the assessee had made purchases of Rs. 18,80,996/- from the aforementioned parties, however, the same was stated by the AO in the reassessment as Rs. 41,002/-. In the backdrop of his aforesaid contention it was claimed by the learned D.R. that pursuant

We have heard the Authorised Representatives of both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, it is a matter of fact apparent from the record that the assessee had made bogus purchases aggregating to Rs. 18,80,996/- from the aforementioned parties viz. (i) M/s. G.R. Trade Link – Rs. 1,50,436/-; and (ii) M/s. M.R. Corporation – Rs. 17,30,560/-. We find that the concluded assessment of the assessee company was reopened under Section 147 on the basis of information received by the AO from the DIT(Inv), Mumbai that the assessee had made the aforesaid bogus purchases. On a perusal of the reassessment order, it emerges that though the AO had categorically observed that not only the assessee had failed to substantiate the genuineness and veracity of the purchases claimed to have been made from the aforementioned parties, but rather even the utilization/consumption of the material claimed to have been purchased from the aforementioned bogus suppliers also could not be proved. In the backdrop of the aforesaid facts the AO, after being satisfied that no M/s. Spectrochm P. Ltd. genuine purchases were made by the assessee from the aforementioned parties, though specifically observed that the assessee had failed to establish the usage of the material claimed to have been purchased in its business, but thereafter had restricted the addition only to the extent of an amount of Rs. 2,35,125/-. We find from a perusal of the reassessment order that not only the AO had failed to record any reasoning for restricting the addition to the extent of the amount of Rs. 2,35,125/-, but rather even the sustaining of the addition only to the said extent clearly militates against his own observation that no such material was purchased and consumed in the business of the assessee. We, thus, in terms of our aforesaid observations are of the considered view that as the reassessment order passed by the AO under Section 143(3) r.w.s. 147 of the Act was blatantly erroneous and prejudicial to the interest of the revenue, thus the Pr. CIT remaining well within the scope of his jurisdiction had validly revised the order under Section 263 of the Act.

We shall now deliberate on the judicial pronouncements which had been pressed into service by the learned A.R. in order to drive home his contention that the order passed under Section 263 was in clear transgression of jurisdiction on the part of Pr. CIT. We find ourselves to be in agreement with the claim of the learned A.R. that as held by the Hon'ble Supreme Court in the case of CIT Vs. Kwality Steel Suppliers Complex (2017) 395 ITR 1 (SC) where two views are possible and the AO has taken one possible view then the jurisdiction to revise the order in exercise of powers vested under Section 263 of the Act is clearly ousted. However, in the case before us, as observed hereinabove, as the view taken by the AO can safely or rather inescapably be held as being in contradiction of his own observation recorded therein, thus, the aforesaid judicial pronouncement would not assist the case of the assessee before us. We shall now advert to the reliance placed by the learned A.R. on the judgements of the Hon'ble Supreme Court in the case of DCIT vs. Simplex India Ltd. (2013) 358 ITR 129 (SC) and Mapco Industries Ltd. vs. CIT (2009) 319 ITR 208 (SC), to canvas before us that a subsequent reversal of M/s. Spectrochm P. Ltd. the legal position by a judgment of the Hon'ble Supreme Court would not authorise the Department to rectify or reopen a concluded assessment which had been framed on the basis of extant law. In the backdrop of the aforesaid settled position of law it is the contention of the learned A.R. that as the dismissal by the Hon'ble Supreme Court of the SLP in the case of N.K. Proteins Ltd. vs. DCIT (2017) 84 taxmann.com 195 (SC), which had formed the basis of the revision of the reassessment order was not available on the date on which the reassessment order was passed by the A.O, therefore, there could be no valid assumption of jurisdiction by the Pr. CIT by referring to the said order of the Hon‟le Apex Court. We are afraid that the aforesaid view of the learned A.R. is absolutely misconceived. On a perusal of the order passed by the Pr.CIT under Section 263, we find that the reassessment order passed by the AO under Section 143(3) r.w.s. 147 was revised by the Pr. CIT after taking cognisance of the fact that though the AO had categorically observed that not only the purchases of Rs. 18,80,966/- claimed by the assessee to have been made from the aforementioned havala parties were found to be bogus and it was evident from record that the material claimed to have been purchased from the said parties had not been consumed in the business of the assessee, however, the addition was restricted by him only to the extent of Rs. 2,35,125/-. We find that the reliance placed by the Pr. CIT on the order passed by the Hon'ble Supreme Court while dismissing the SLP in the case of N.K. Proteins Ltd. vs. DCIT (2017) 84 taxmann.com 195 (SC), was only to support his aforesaid view that where the purchases are found to be bogus, then the disallowance of the entire amount of such purchases was liable to be made in the hands of the assessee. We are unable to persuade ourselves to subscribe to the claim of the learned A.R. that on the aforesaid count infirmity emerges in the assumption of jurisdiction on the part of the Pr.CIT to revise the order under Section 263. We, thus, in terms of our aforesaid observations are of the considered view that as the reassessment order passed by the AO restricting the disallowance pertaining to bogus purchases only to the extent of Rs. 2,35,125/- clearly militated against his own observations, thus the Pr.CIT remaining well

Before parting, we may herein observe that the validity of the assumption of jurisdiction by the Pr. CIT for revising the order passed by the AO under Section 143(3) r.w.s. 147 can also safely be related to Para (a) of Explanation 2 to Section 263 of the Act, as per which if, in the opinion of the Pr.CIT or CIT, the order is passed without making enquiries or verification which should have been made by the AO, the same shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. We, thus, being of the considered view that as no infirmity does emerge from the order passed by the Pr.CIT under Section 263 of the Act, uphold the same.

In the result, the appeal filed by the assessee is dismissed.