JALALABAD SOLVEX PRIVATE LTD,JALALABAD vs. PR COMMISSIONER OF INCOME TAX , AMRITSAR-1, PR COMMISSIONER OF INCOME TAX
Facts
The assessee, Jalalabad Solvex Pvt. Ltd., filed an appeal against the order of the PCIT who had invoked Section 263 of the Income Tax Act to set aside the assessment order. The PCIT held that the Assessing Officer (AO) had failed to conduct proper inquiry and verification regarding bogus purchases made by the assessee, making the assessment order erroneous and prejudicial to the revenue. The assessee had made purchases from two parties, which were later identified as bogus, and the AO had added a profit of 2% on these purchases.
Held
The Tribunal held that the AO had conducted sufficient inquiry and taken a plausible view in the matter. The assumption of jurisdiction by the PCIT under Section 263 was not legally justified, as the AO's assessment order was neither erroneous nor prejudicial to the interest of revenue. The Tribunal found no perversity or lack of inquiry on the part of the AO.
Key Issues
Whether the PCIT was justified in assuming jurisdiction under Section 263 of the Income Tax Act based on alleged lack of inquiry by the AO regarding bogus purchases, and whether the AO's assessment order was erroneous and prejudicial to the revenue.
Sections Cited
Section 263, Section 147, Section 144B, Section 143(2), Section 133(6), Section 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. UDAYAN DASGUPTA & SH. KRINWANT SAHAY
Per Udayan Dasgupta, J.M.:
This appeal is filed by the assessee against the order of the ld. PCIT, Amritsar- 1, passed u/s 263 of the Act, 1961 dated 17th January, 2024, setting aside the assessment order passed by the AO, NFAC, Delhi, u/s 147 r.w.s. 144B of the Act, 19 61 dated 30/03/2022, considering the assessment order to be erroneous so far as it is prejudicial to the interest of revenue.
2 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
The grounds of appeal taken by the assessee-company, in the memorandum of
appeal in form 36 are as follows:
“1. That the ld.Pr.CIT-1, Amritsar has erred in law and on facts invoking the provisions of section 263 of the Act simply on the basis of Audit Objections without there being application of mind on his part.
That the ld.Pr.CIT-1, Amritsar has erred in law and on facts in holding that the assessment order passed by the AO u/s 143(3) read with section 144B is erroneous in so far as prejudicial to the interest of revenue on the issue of net profit rate applied by him on the amount of bogus purchases.
That Pr.CIT has erred in law and on facts in ignoring that the case of the assessee was reopened u/s 148 only on the ground of bogus purchase and reassessment was framed by AO by making addition of Rs.669434 by applying net profit rate of 2% on such purchases keeping in view the facts of the case as well as relying on various judgments and case laws cited before him.
That the ld.Pr.CIT-1, Amritsar has erred in law in completely ignoring the fact that the provisions of section 263 are not applicable in this case as this is not a case of no enquiry or lack of enquiry before framing the re-assessment since assessment was framed after detailed examination and study of all the necessary details, written submissions and various case laws cited before A.O.
That while setting aside the order u/s 263 the ld.Pr.CIT-1, Amritsar has erred in holding that the net profit rate of 2% adopted by the AO does not even cover the expenditure incurred on arranging these bogus purchases ignoring the fact that the net profit rate of 2% is arrived at by the AO after accounting for all the expenses as the addition made was .over and above net income declared by the assessee,
That the ld.Pr.CIT-1, Amritsar has erred in holding that the assessment order framed falls within the Explanation 2 of section 263(1) of the Act on the ground that AO failed to make the necessary enquiry or verification.
That the ld.Pr.CIT-1, Amritsar has erred in ignoring various case laws cited before him holding that CIT cannot acquire jurisdiction u/s 263 merely because another view is possible.
3 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT 8. That the order passed by Pr.CIT-1, Amritsar is bad in law and on facts.
That the appellant craves leave to add or amend the ground of appeal before the appeal is heard and disposed off.”
The facts of the case in brief are that the assessee is running a solvex plant and
is engaged in the business of production of rice bran oil and Rice bran extract d-
oiled,( cake ) for which rice bran ( or rice grains )is the raw material required in the
extraction process. Regular return filed in normal course was processed u/s 143(1) of
the Act 61 and subsequently, on the basis of information gathered and or received by
the AO , that the assessee has made bogus purchase of rice barn from two different
parties (sellers) ,namely, M/s Natural sales Enterprise (Prop. Mr. Avinash Chander)
and M/s Universal Foods Corporation (Prop. Mr. Naresh Kumar), reassessment
proceedings has been initiated, after necessary enquiry, and after obtaining necessary
approval from appropriate authorities.
During reassessment proceedings, the assessee produced books of accounts,
filed copies of ledger accounts of the two sellers, supporting stock register,
accounting for the purchase of rice bran, copies of purchase invoices , issued by the
above sellers, and corresponding bank details to submit that all transactions of
purchase of raw material from the two concerned sellers, are duly accounted for in
regular books of accounts, and entered in stock book, and respective payments made
4 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT through bank channel. The said raw materials as entered in stock register, has been
processed and the extracted rice bran oil and the rice bran extracted d-oiled,( cake)
has been sold to customers and the sales are duly invoiced, recorded in regular books
of accounts and has formed a part of the total turnover for the year under appeal.
As observed by the AO in the assessment order (page- 4 paragraph –14) the
sellers of raw materials ( rice bran) Mr. Avinash Chander and Mr. Naresh Kumar,
the proprietors, of their respective concerns, has admitted on oath that the bills and
invoices issued by them in favour of the assessee, recording supply of goods, are
issued without any actual delivery , which means that these are only paper
transactions without any physical movement of goods and are simply accounting
entries , without any physical delivery of goods.
Thereafter, the AO, vide details discussed in the assessment order, has
completed the assessment by treating the purchase amount of Rs. 3,34,71,694/- made
from the above two sellers, as bogus purchase, and has taxed the income embedded
in such bogus purchase, @ 2% (two percentage), under the head business profits by
making an addition of Rs.6,69,434/- to the returned income.
Subsequently, the Ld. PCIT, Amritsar, assumed jurisdiction u/s 263 of the
Act’61 , on the ground that the proper investigation and enquiry has not been made
5 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
by the Assessing Officer, which has resulted in the order passed being erroneous and
prejudicial to the interest of Revenue.
The relevant portion of the shows cause notice is reproduced as under:
“3. While examining the record, it is observed that during the assessment proceedings, the assessee company could net establish the genuineness of such purchases before the Jurisdictional Assessing Officer, meaning thereby that the assessee could not satisfactorily establish the genuineness of purchases made from M/s. Natural Sales Enterprises and M/s. Universal Foods Corporation. Further, the assessee itself came forward with a submission that in case of any doubt regarding the genuineness of the purchases, then GP rate can be applied in respect of these purchases. Statements of the proprietors of M/s. Natural Sales Enterprises (Prop. Sh. Avinash Chander Lota), Fazilka and M/s. Universal Foods Corporation (Prop. Sh. Naresh Kumar), Fazilka were recorded during the assessment proceedings and both of the proprietors admitted on oath that they issued only invoices/bills in respect of sales and no supply of goods were made at all. However, the AO failed to investigate the above submissions of the assessee as well as the statements of the duo concerns obtaining documentary evidences.
Keeping in view the above facts, it is required to examine/investigate the issue in detail on which the case has been reopened for scrutiny. Assessment order passed by Assessing Officer is erroneous and prejudicial to the interest of revenue as he failed to investigate, genuineness of the transactions. The AO has accepted GP rate @2% offered by the assessee without considering/investigating the facts of the case that these purchases are in fact bogus purchases.
6 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT 8. In course of proceedings before the Ld. PCIT, submissions has been filed in
details , by the assessee, which has been reproduced by the ld. PCIT in page nos. 3
to 29 of the revisional order.
The summary of such submissions by the assessee was that during the course
of assessment proceedings u/s 143(2), the Assessing Officer has specifically asked
the assessee to establish the genuineness of the purchases made and the assessee has
replied to the said notices by providing all details as required to establish the
genuineness of the purchases made. It is seen that the assessee has filed copies of
audited accounts, ledger accounts, purchase and sale book, copy of purchase bills,
day to day stock register along with the quantity-wise details of stock traded, goods
manufactured,( oil extracted and cake ) sold during the year and held as closing stock
at the end of the year and the same is also reconciled with the yield chart as reflected
in the audit report. The assessee further submitted that purchases which has been
alleged to be bogus, has been duly recorded in the regular books of account including
the stock register and the corresponding sales made are reflected in the audited
accounts and has formed a part of the total turnover. It has been further submitted by
the assessee that during assessment proceedings , various queries has been raised by
the AO vide notice dated 29.01.2021, 28.06.2021 and 08.12.2021 and detailed replies
were filed in respect to such queries explaining each and every issues raised in such
notices the summary of which is reproduced for ready reference :
7 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
“5. That the notices received and replies filed in chronological order are as following:-
Date ot Notice S. Notice Detail Reply Detail Description No Notice
i 29-01- Enquiry notice u/s Reply to the enquiry 2021 Notice u/s 133(6) dated 29/01/2021 received 133(6) notice u/s 133(6) prior to initiation of assessment proceedings filed
[DIN: ElA'AST/S/133(6)/2020- 21/1030173501(1)' ii 31-03- Notice Under 2021 Notice u/s 148 dated 31-03-2021 received Return of income section 148 filed in response to the notice under section [DIN: TBA/AST/S/148/2020-
21/1032083993(1)] 148 iii 28-06- Notice under section 143(2) issued on Notice under 2021 Objections the 28/06/2021 providing the details of section 143(2) reopening reassessment of proceedings read with section assessment filed by 147 the assessee
8 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
iv 08-12- Notice under The assessee has 2021 section 142(1) filed the required information in the Notice under section 142(1) issued on 08- 12- reply dated 2021 asking for the information:- 02/01/2022 and 28/02/2022. 1 Brief note on your business/sources of income 2. Copy of all financial statements (P & L, Balance sheet and annexures, 26AS statement Computation of total income etc.) 1. Copy of purchase ledger 2. Copy of sales ledger 3. Details of Business relation with M/s Natural Sales Enterprises and M/s Universal Food Corporation
Copies of ledgers, supporting evidences . including bills/vouchers relating to transactions with the above parties
V 11.02.2022 The learned AO has disposed off the objections filed Disposal of by the assessee vide department issue letter dated objection by 11/02/2022. The AO has discussed the judgment the quoted by theassessee in the objections department
9 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
vi 23.03.2022 Show Cause Detailed show cause notice of 5 pages issued by the Reply to show notice learned AO discussing the whole case at length. The cause notice filed show cause notice assessee concluded by the learned by the AC is reproduced as following:-
‘16. The cases of bogus purchase issue has been dealt by the various ITAT/HC. According to the decision of ITAT/HC only the profit element embedded in purchases would be subjected to tax. Considering the various pronouncement in this regard, I am hereby adding 2% of total bogus purchase amounting to Rs. 6.69.434/- (3,34,71,694 *2%) as profit of the year under consideration and brought to tax as income under the head Profits and Gains from Business Profession or 17. Based on the facts and circumstances and materials available on record and subject to the above discussion, the assessment completed by making an addition to the tune of Rs.6,69,434/- as business income for the year under consideration. The above assessment is completed as under:- Total income Returned Rs. 5,47,760/- Add:- Addition u/s 69C of the Act Rs.6,69,434/- Total Income Assessed: Rs. 12,17,194/- Assessed u/s 147 rws 144 of the IT Act, 1961 Calculate interest w/s 234A/234B/234C as applicable. Demand Notice w/s 156 of the IT Act, 1961 and challan are appended herewith."
vii 30.03.2023 Assessment order u/s 147 The assessment order has the assessment, notice r.w.s 144B issued during assessment and correspondingly replies filed by the assessee. The learned AO is fully conscious of all the facts of the case and has applied his mind by relying upon the various judgment of Hon’ble High Court/ITAT.
The assesseefurther explained that the Rice Bran Oil extracted out of the Rice
Bran so purchased from the above two sellers has been duly accounted for in the
10 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
books and the purchase and the corresponding sales , has been considered for the
purpose of reflection of the gross profit and if the said purchases made are treated as
bogus, then the gross profit rate will be abnormal, resulting in an extraordinary yield
which is neither possible nor practical in course of normal production activity.
The assessee has also explained the yield of finished goods manufactured by
way of chart as under:
Particulars Raw material Finished goods Finished goods Percentage of yield consumed quantity manufactured manufactured quality 105531 Rice Bran Rice Bran oil 17458.50 16.54%
De-oiled Rice Bran 87023.65 82.46%
Total 100% Total 104482.15 99.01%
The purchase alleged to be bogus i.e. Rice Bran of 22,618.00 Quintals if not considered then the yield chart would have shown the following results:- Particulars Finished goods Percentage of yield Raw Percentage of Finished goods material Raw manufactured manufactured consumed Material quality quality Consume Rice Bran 829113.36 I 00% Rice Bran Oil 17458.50 21.06%
87023.65 104.96% Deoiled Rice Bran
Total 829113.36 100% Total 104482.15 126.01%
That the above chart clearly explains that if the purchases from the aforesaid parties not considered it would result to yield of finished goods of 126.01% against the consumption of raw material of 100% which is not possible”
11 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT He further submitted that the assessee has got no relation with the sellers M/s
Natural Sales Enterprises and M/s Universal Food Corporation( other than normal
business relations ) , and the entire purchase which has been made from these two
parties during the financial year 2013-14 relevant to assessment year under appeal
has been made in normal course of business and all payments for purchase of goods
has been made through banking channels. The ld. Assessing Officer has also
accepted the corresponding sales of Rice Bran Oil extracted from the said Rice Brans
(Raw materials), the purchase of which are being alleged as bogus.
Thereafter, the assessee relied on the numerous cases laws and judgments of
various Courts and Tribunal in his written submission filed before the Ld. PCIT to
argue the point that even in case of bogus purchases the entire purchase cannot be
disallowed and it is the profit percentage embedded in such bogus purchase which is
required to be brought to tax. In the instant case, the assessee pointed out before the
ld. PCIT that the Assessing Officer after making necessary inquiries which is evident
from the assessment order itself has arrived at a conclusion that the purchases are
bogus a conclusion which is also evident by the statement recorded on oath of the
two sellers, who has submitted that the invoices issued by them are only paper
invoices without any actual delivery of goods. It was also submitted by the assessee
before the Assessing Officer, relying on various judgments of various Courts and
Tribunal, that even if it is considered that the purchases are bogus then the fair rate of
12 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT profit which is embedded in such bogus purchase may please be brought to tax. It is
on this aspect of the matter, the assessingofficer proceeded to consider the entire
purchase as bogus and applied a rate of 2% ( two percentage )of the entire bogus
purchase as the profit element embedded in such transactions and has made an
addition of Rs. 6,69,434/- to the returned income.
It is seen from the revision order that the ld. PCIT has considered the
explanations and submissions of the assessee and after duly considering the same, he
has proceeded on the basis of Explanation-2 to section 263(1) of the Act, 1961 and as
per the opinion of the Ld . PCIT, the assessment order has been passed without
making inquiries or verification which should have been made, and he has observed,
that the AO had concluded that the appellant had made bogus purchase from two
parties , amounting to Rs.3,34,71,694/-, and the AO had applied an extra margin of
profit @ 2% on the amount of these bogus purchases, but has not given any rational
for adopting the extra net profit @ 2% of bogus purchases.
The relevant observation of the ld. PCIT is reproduced as follows:
“10. It is observed from the assessment order that the AO had concluded that the appellant had made bogus purchases from two parties amounting to Rs. 3,34,71,694-.The AO had further applied the extra margin of net profit @2% of the amount of these bogus purchases. The AO had mentioned that it had relied on certain case laws, but none of them had been specifically quoted in me operative part of assessment order. The AO had not given any rational for adopting the extra net profit @2% of bogus purchases, whereas, the
13 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
various case laws have given adoption at variable rates depending upon the nature of business and use of bogus purchases for manufacturing or trading. The AO failed to bring any data and its analysis on record, or investigation/verification which justifies the percentage of IMP adopted @2%. This percentage may not even cover the expenditure made by the assessee for arranging these bogus transactions. If there are no extra profits associated with bogus accommodation purchase entries why a businessman would enter into such transactions? In view of the above, it is observed that the assessment proceedings completed u/s 143(3) r.w.s. 144B of the Act, 1961 have come within the meaning of the explanation (2) of section 263 of the Act as the Assessing Officer had failed to make necessary inquiries or verification forming the basis of adopting the additional net profit @2% of bogus purchases i.e. Rs. 6,69,434/- (3,34,71,694 @2%).
In the result, I am of the considered opinion that the assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 144B of the I.T. Act, 1961 is erroneous in so far as it is prejudicial to the interest of revenue Therefore, the assessment order is hereby set aside only on the specific issue of determination of additional net profit embedded in theses bogus purchases made by the assessee. The assessing Officer is directed to make assessment after giving reasonable opportunity of being heard to the assessee.”
Now, in course of hearing before the Tribunal, the ld. AR of the assessee
submitted that in the instant case, the ld. PCIT was legally wrong in assuming
jurisdiction u/s 263 on three specific reasons. Firstly, he submitted at the very onset,
that in this particular case, assumption of jurisdiction by the Ld. PCIT has been done
on the basis of CIT Audit objection.It support of his contention he filed before the
Tribunal a copy of the Audit, memo dated 30.03.2022 objection No. CIT(Audit),
Chandigarh/2022 23/ITO/Audit/Bhatinda/10463, to argue his case that an Audit was
14 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT conducted, and in course of the same the Audit team has raised objection to the
application of the rate of 2% adopted by the Assessing Office in respect of total
bogus purchase amounting to Rs.3.34 cores and the Audit team has also pointed out
an identical case in the case of M/s S.S. Solvex Pvt. Ltd. (PAN: AAACJ 8552B,
Jalalabad) for the assessment year 2014-15 where the assessment has been
completed u/s 147 by making a hundred per cent addition of total bogus purchase.
Therefore, as per the audit memo, the suggestion was that the entire bogus purchase
amounting to Rs.3.34 crores were required to be added to the assessee’s total income
u/s 69 of the Act. It was also pointed out in the audit report that even if it is to be
presumed that the assessee company has made purchase from the gray market and the
said purchases have been shown in the books of account from entities such as M/s
Natural Sales Enterprises and M/s Universal Food Corporation and as such the
payments that has been made to these sellers through banking channels himself must
have been received back in cash by the assessee.
The ld. AR of the assessee further submitted that on the basis of this audit
objection, the Ld PCIT has assumed jurisdiction u/s 263, by issuing the show cause
notice dated 10/02/2023 , the contents of which are almost identical to the contents of
the audit objections pointed out by the audit team . He further submitted and relied
upon the judgment of the jurisdictional High Court in the case of CIT v. Sohna
Woollen Mills 296 ITR 238 (P&H) to argue that the jurisdiction u/s 263 of the Act
15 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT cannot be exercised on the basis of audit objections. He further relied upon co-
ordinate Bench decision in the case of Sartaj Singh v. PCIT [2016] 48 ITR (Trib) 604
Asr Bench wherein the Hon’ble Tribunal has given an identical findings based on the
jurisdictional High Court judgment in the case of CIT v. Sohna Woollen Mills 296
ITR 238 (P&H) has held as under:
"Revision-Erroneous and prejudicial order-AO taking possible view- Mere audit objections, and merely because a different view can be taken are not enough to hold that the order of the AO is erroneous or prejudicial to the interest of the Revenue-AO accepted the case of the assessee that out of sale consideration of the machinery sold by it, sum of Rs. 1 lakh was received for the sale of permit in respect of 1,200 spindles- There was no error in the view taken by the AO-CIT not justified in invoking jurisdiction under s.263 on the strength of an audit note."
Similar view has been taken by the Hon’ble Calcutta High Court in the case of
Jeevan Lal (1929) Ltd. v. Addl. CIT [1977] 108 ITR 407 (Cal.)
The second legal objection raised by the ld. AR was that in the instant case, the
ld. PCIT was wrong in referring to Explanation-2 to section 263, of the Act because it
has been inserted by the Finance Act, w.e.f. 01.06.2015, and he submitted that the
amended provisions are not applicable to the case of the assessee as the relevant
assessment year in this case is AY 2014-15 which is prior to the amended provisions
and there are numerous decision of various Courts where it has been held that
16 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
Explanation-2 to Sec 263(1) of the Act 61, inserted by the Finance Act, 2015, is
effective from 01.06.2015 and it is not applicable retrospectively.
In support of his contention, he relied upon the following case laws:
“1. Pr. CIT V ShivshahiPunarvasan Prakalp Ltd (2023) 331 CTR (Bom) 593 2. Satish Kumar V Pr.CIT Jalandhar ITA NO.258/ASR/2019 (ASR Bench ITAT) 3. Arun Kumar Garg HUF V PR.CIT IT No.3391/Del/2018 4. Metcaps Engineering and Mahendra Construction Co (JV) V CIT ITA Bo.2895/Mum/2014 dated 11.9.2017 5. Shantikrupa Estate Pvt. Ltd ITA No.l252/Ahd/2015 dated 9.9.2015 6. Reliance Money Infrastructure Ltd V PCIT ITA No. 3259/M um/2017 dated 6.10.2017”
Lastly, the ld. AR submitted that in the instance case, the Assessing Officer has
taken a plausible view in the matter and has estimated the income embedded in such
alleged bogus purchase, @ 2% which is over and above, the income already declared
by the assessee, that is in addition to the normal net profit as disclosed by the
assessee in the profit & loss account. He further submitted that the AO before
applying the rate of percentage has also considered the fact that the entire sales which
are co-related to this bogus purchase has already been accounted for in gross turnover
and the GP rate declared by the assessee considering this sale is reflected at 4.86%
which inclusive of the sales made out of the alleged bogus purchase. In this case, the
17 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT Assessing Officer has made further addition of 2% on the ground, being profit
percentage embedded in such bogus purchase. The ld. AR further submits that in this
case, the AO has adopted a plausible view after conducting enquiries and has applied
his mind and has verified all records and thereafter has arrived at a particular
percentage. The view adopted is a plausible view and if the ld. Commissioner does
not agree with such view taken by the AO, the order cannot be treated as an
erroneous or prejudicial to the interest of the Revenue and in support of his
contention, he relied on the following judgments for support:
“1. Pr. Commissioner of Income Tax v. Cartier Leaflin P. Ltd. [2023] 146 taxmann.com 281 (SC)
CIT v. Nirav Modi [2017] 77 taxmann.com 78 SC
Grasim Industries Ltd. v. Commissioner of Income Tax, Central-1, (Bombay HC) [2010] 188 Taxmann.com 327
M/s Vaghasiya Exports v. Pr. CIT-32 (Mumbai ITAT) ITA No. 2288/Mum/2019.
Finally, before concluding the ld. AR has specifically pointed out that in the
instant case, full inquiry has been made by the AO because he has verified the
purchase bills, stock register, bank statements, the quantitative details of stock which
were all produced before him by the AO and after making necessary inquiries and
after going through the statement recorded by the sellers, he arrived at a conclusion
that the purchases are bogus and as such this cannot be termed as the case of no
18 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT inquiry. As such, the ld. AR of the assessee concluded his argument by stating that in
the instant case, since a plausible view has been taken by the Assessing Officer the
assumption of jurisdiction u/s 263 is not proper and the revision order passed by the
Ld PCIT setting aside the matter for afresh adjudication is not as per procedure of
law and the same should be quashed.
Per contra, the ld. CIT-DR relied on the order of the Ld PCIT , and submitted
that the on the facts of the case, when it has been already established upon enquiry
that the purchases are bogus , then adoption of profit rate of only two percentage of
bogus purchase , is not at all appropriate and the act of the AO is prejudicial to the
interest of the revenue and as such the Ld PCIT was legally justified in setting aside
the order for fresh assessment with necessary direction.
We have heard the rival submissions and considered the materials on record. We find that in the instant case the main grievance of the Ld PCIT, is that, in spite of the fact that the AO after conducting inquiries and making necessary verification , in course of assessment proceedings , has concluded that the purchase made by the assessee amounting to Rs. 3.34 crores , from the two sellers , namely Natural sales Corporation and Universal Food Corporation , are bogus purchase , made without actual delivery of goods , and the profit percentage applied by the AO for determining the income embedded in such bogus purchase has been adopted at a very low percentage, ( two percentage ) which is not to the satisfaction of the Ld PCIT.
20.1 The Ld PCIT , in paragraph - 9 of his order u/s 263, has cited by way of an example , the decisions of the Hon’ble Apex Court in the case of M/s Vijay Protein
19 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT and has also cited decisions of various High courts , where different rates of percentage, has been applied, for determining the profits embedded in bogus purchases , which ranges from six percentage to twenty five percentage, obviously which is dependent on the nature of business and the circumstances under which such business is carried out.
20.2 Now the pertinent question that arises in the instant case is, what further enquiry is to be made regarding the purchase of raw materials made from the two sellers , because in this case after making enquiry , and after examination of the sellers in course of assessment , as evident from the assessment records , it is already concluded by the AO , that purchases are bogus , and , as such any further enquiry to determine the nature of purchase is immaterial because it is already accepted that it is not genuine ( and the assessee has not challenged the said finding of the AO in higher appellate forum ) . Now in such cases the AO has to proceed to the next stage for completion of assessment proceedings and the next question that arises at this stage , considering the nature of the business of the assessee which is “ extraction of oil from rice brans”, what will be deemed to be the appropriate percentage of profits embedded in such bogus purchase , and how to determine that percentage. It is to be noted that SALES of rice bran oil has been disclosed in books and audited accounts and accepted for purpose of determining the turnover and there cannot be any production and sale of oil without the availability and utilization of raw material, which leads to the natural conclusion that goods might have been obtained from grey market and the said purchases are subsequently coloured by fake invoices, issued by the two parties ( above mentioned ) . Against this backdrop, the AO has applied a percentage of 2% (two percentage ) of the bogus purchase amount ( may be considering the fact that the disclosed net profit rate of the assessee is only 0.38%
20 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT (zero point three eight percentage, as per audited accounts ) to determine the profits embedded in such bogus purchases.
20.3 As such in the instant case the AO has taken a possible views after due application of mind which cannot be termed as perverse and the same is in conformity with various judicial precedents as discussed above.
20.4 In the case of Grasim Industries Ltd Vs CIT [ 2010 ] 321 ITR 92, the Honb’le Bombay High court, has held that a possible view taken by the AO cannot be regarded as unsustainable in law and the revisionary jurisdiction u/s 263 cannot be exercised. In fact the AO has conducted enquiry and has applied his mind by raising queries and examining the documentary evidences produced before him and after conducting necessary enquiry , has taken a possible view in the matter, which is a legally acceptable view and has proceeded for estimation of the profits embedded in the bogus purchase , as such there cannot be any basis to invoke the provisions of section 263 to revise the assessment.
20.5 We further observe that various High courts has laid down the law that powers of revision cannot be exercised on the ground that the assessing officer should have gone deeper into the matter or should have made a more elaborate discussion .
20.6 Some of the judgments all expressing almost the similar views in the matter are as under :
(1) CIT vs Hindusthan Marketing and Advertising Co Ltd 196taxmann368( Delhi High Court ) : Whether in view of the fact that ITO had made reasonably detailed enquiries , had collected relevant materials and discussed facets of case with assessee , order of Commissioner to direct fresh assessment by going deeper into matter would not form a valid or legal basis to exercise jurisdiction under section 263 - Held YES. (2) CIT vs Jain Uday fabrics pvt ltd [2024]165taxmann.com833 Punjab and Haryana High Court,
21 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT
(3) PCIT vs Anindita Steels Ltd [2022] 137 taxmann.com203 ( Calcutta High Court )
(4) CIT vs Goyal Private family Specific Trust [1987]35taxmann.522( Allahabad )
20.7 Under the circumstances we are of the opinion that the AO after careful examination of the submissions made by the assessee and after conducting detail enquiry , has arrived at a logical conclusion that the purchases are bogus , and has taken a plausible view , to arrive at and determine , the quantum of profits imbedded in such bogus purchase of Rice Bran , on a percentage basis , which is a course permissible in law , than the said assessment cannot be treated as erroneous so far it is prejudicial to the interest of revenue , merely because the Ld PCIT is of the opinion that estimation of profits should have been at higher rates.
20.8 On this issue various High courts has laid down the law , that where the AO after applying his mind has made enqueries and has taken a plausible view and passed an assessment order same cannot be disturbed by invoking the explanation 2 of section 263 merely because the view taken was not acceptable by the Ld PCIT.
(1) Gujrat High Court in the case of PCIT vs National Diary Development Board [2024] 158 taxmann.com514, (2) Calcutta High Court in the case of Britannia Industries Ltd [2023]146taxmann.com246, (3) Bombay High Court in the case of PCIT vs ShivshahiPunarvasanPrakalp Ltd [2023]155taxmann.com408 (4) Calcutta High Court in the case of CIT vs M K Foundation [2023]148taxmann.com314 (5) Karnataka High Court in the case of CIT vs Chemsworth Pvt Ltd [2020]119taxmann.com358 (6) Gujrat High Court in case of PCIT vs S.N.Trade Link Pvt Ltd [2022]145taxmann.com73
As such, after taking into consideration the entire factual aspect of the matter , we find that in the instant case , there is no perversity or lack of enquiry on the part of the assessing officer to render the decision erroneous under explanation 2 to section 263 of the Act 61 , and the order passed by the AO , is neither erroneous nor
22 I.T.A. No. 117/Asr/2024 Jalalabad Solvex Pvt. Ltd. v. Pr. CIT prejudicial to the interest of revenue , and we hold that the assumption of jurisdiction u/s 263 by the Ld PCIT in the instant case is not legally justified and the consequential order passed u/s 263 of the Act 61, is hereby set aside. As such the appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate
Tribunal) Rules, 1963 as on 29.01.2025
Sd/- Sd/- (Krinwant Sahay) (Udayan Dasgupta) Accountant Member Judicial Member *GP/Sr.PS* Copy of the order forwarded to: (1)The Appellant: (2) The Respondent: (3) The CIT concerned (4) The Sr. DR, I.T.A.T
