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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
These are the 3 appeals filed by the Assessee under consideration involving Assessment Years 2009-10 to 2011-12. These appeals are filed against the revision order of Pr.CIT-3, Pune, passed u/s.263 of the Act commonly dated 23-03-2017.
Assessee has raised common grounds in these three assessment years. For the sake of completeness and reference, grounds for A.Y. 2009-10 are extracted here as under :
“Without prejudice to each other) 1. On the facts and in the circumstances of the case and in law the Ld. Pr. CIT-3, Pune wrongly assumed the jurisdiction under S. 263 of the Act as the issue is not only highly debatable but the same has been decided in favour of the assessee by various judicial verdicts of High Court including the jurisdictional Bombay High Court and various
Benches of Tribunals including the jurisdictional Pune Bench. Since the assumption of jurisdiction is illegal and without jurisdiction the order passed by the Ld. Pr. CIT-3, Pune u/s 263 be cancelled.
On the facts and in the circumstances of the case and in law the quite elaborate submissions were made before Pr. CIT-3, Pune in response to the show-cause notice u/s 263 of the Act. Pointing out that one of the plausible views was taken by the A.O. which was sustainable in law. The Ld. Pr. CIT-3 himself admitted in his order under S. 263 that various contrary contentions are available. In such circumstances and since the issue was highly debatable the same was beyond the purview of the Revisional Powers of the Ld. CIT under S. 263 of the Act. The action taken u/s 263 to set aside the order of assessment be cancelled.
On the facts and in the circumstances of the case and in law the Ld. Pr. CIT-3 was supposed to pass a final order under S. 263 and not simply set aside the assessment to the file of the A.O. for framing the assessment afresh. The action of the Ld. CIT taken under S. 263 is illegal and be not sustainable as it is not sustainable in law. It be set aside.
On the facts and in the circumstances of the case and in law the Ld. Pr. CIT-3, Pune also was not justified in setting aside the order of the A. O. holding it as erroneous and prejudicial to the interests of revenue because A. O. had not examined the sundry creditors balances without pointing out that how they are erroneous and prejudicial to the interests of revenue. O
On the facts and in the circumstances of the case and in law appellants reserves his right to raise any legal ground at the time of hearing.
The appellant craves to leave, add/amend or alter any of the above grounds of appeal.”
From the above, as per the assessee, the revision order of the
Pr.CIT is unsustainable (1) as the issue involved is highly debatable
one and (2) the decision of AO in making addition of only 20% on
account of the bogus purchases in the reassessment constitutes one of
the plausible view. Further, assessee raised Ground No.4 mentioning
that the order of AO is not erroneous and prejudicial to the interest of
revenue not only on account of the said bogus purchases but also the
sundry creditors balances/other claims made in the return of income.
Briefly stated relevant facts for the A.Y. 2009-10 are that the
assessee is a company and is engaged in the business of interior
decorators and manufacturing of furniture. Assessee filed the return of
income declaring total income of Rs.69,54,350/-. There is no scrutiny
assessment in this case u/s.143 of the Act. On receipt of information
from the DG (Investigation), Pune regarding Hawala/Bogus purchases
as supplied by the Sales Tax Department, AO noticed that assessee is
one of beneficiary and made purchases of goods from 4 of the parties
whose name appear in the list of bogus purchases. The total of such
purchases works out to Rs.33,60,731/- for the A.Y. 2009-10. As per
the provisions of section 147/148 of the Act, AO recorded the reasons
on 06-09-2013 and held that he had reason to believe that an amount
of Rs.33,60,731/- has escaped assessment for A.Y. 2009-10.
Accordingly, a notice u/s.148 was issued on 28-10-2013. In response
to the said notice, assessee filed return of income reporting the same
income of Rs.69,54,350/- as returned in the original return of income
u/s.139(1) of the Act. Similarly, as per the AO, an amount of
Rs.14,46,461 and Rs.2,94,989/- for the A.Yrs. 2010-11 and 2011-12
respectively escaped the assessments and relevant assessments were
reopened.
During the re-assessment proceedings, there was thorough
scrutiny into the transactions of alleged bogus purchases of
Rs.33,60,731/-. Assessee filed various documents and details
demonstrating the trail of goods as well as on the payments involving
the banking channels. However, in response to the AO’s demand for
producing the sellers of the goods, the assessee could not do the same.
Further, the AO perused the goods receipt register and held that the
assessee failed to produce the stock register. On this issue, assessee
submitted that there is no need for him to maintain the stock register.
AO considered the above submissions, documents, registers furnished
by the assessee and, relying on various decisions including the
judgment of Hon’ble Bombay High Court in the case of Nikunj Eximp
Enterprises Pvt. Ltd. 216 taxmann 171 and the decision of Ahmedabad
Bench of the Tribunal in the case of Vijay Proteins Ltd. Vs. ACIT 58 ITD
428 (Ahmedabad Tribunal), held making entire addition of
Rs.33,60,731/- is not proper. He also analysed the GP ratios of the
assessee over the years and held that making addition of GP of the said
bogus purchases would meet the ends of justice. Relevant lines from
Para 7 & 8 of the assessment are extracted here as under :
“7 . . . . . . . . . . . . .Now, to arrive at the reasonable and correct profitability, the GP ratio of 20% is taken as yardstick. The assessee has also submitted that there is 20 to 22% of GP ratio in their line. In the year under consideration, the assessee has shown GP ratio of 14.51%. Therefore, the assessee has reduced GP ratio by bogus purchases. . . . . . . . . . . . . . . . . . . . . . . 08. Now, to calculate the reasonable amount of addition on account of these bogus purchases, there are various methods which are discussed. a. First method is adding the whole amount of such bogus purchases which comes out to be Rs.33,60,761/-. This is also unreasonable because bogus purchase is nothing but inflated purchase shown in the accounts to reduce the actual profit earned. b. Second method is calculating 20% of the total turnover of the assessee for the year under consideration, i.e. 20% of Rs.9,99,73,467/- which comes out to be Rs.1,99,94,693/-. This is not reasonable as the bogus purchases are only 3.3% of the total turnover.
c. Third method is calculating 20% of such bogus purchases which comes out to be Rs.6,72,146/-.
I am of the opinion that 20% of the total purchases made from such alleged parties is needed to be added back to the income as it is the most reasonable amount amongst all.”
Accordingly, the AO restricted the addition to 20% of the said
purchases after due scrutiny of details and the judgmental laws. Thus,
the assessment attained the finality.
Subsequently, the Pr.CIT-3, Pune verified the assessment records
of the assessee and analysed the above narrated facts of the case
relating to bogus purchases and issued a show cause notice dated
03-03-2017 to the assessee calling for explanation as to why the
provisions of section 263 of the Act should not be invoked and why the
assessment may be set aside. Assessee filed a letter dated Nil giving
written submissions contesting the said proposal of the Pr.CIT. In
support, assessee relied on various decisions in this regard.
Subsequently, the Pr.CIT-3, Pune analysed the details furnished by the
assessee in response to the same and held some of the details were not
filed by the assessee and held that AO completed the re-assessment
without finally obtaining the details from the assessee. Further, the
Pr.CIT held that AO failed to verify the genuineness of the purchases
and failed to make entire addition of Rs.33,60,731/- of the purchases.
He also found fault with the AO in restricting the addition to
Rs.6,72,146/-, i.e. 20% of the said bogus purchases.
Further, in para 6 of the revision order, Pr.CIT dealt with the
scope relating to incorrect assumption of law and fact and held that it is
a case of incorrect application of law and in support, Pr.CIT relied on
various decisions in this regard. Eventually, the Pr.CIT held that the
AO has not verified all the relevant issues leading to reduction in the
correct taxable income. Therefore, as per the Pr.CIT, the order passed
by the AO is prima-facie erroneous in so far as it is prejudicial to the
interest of revenue.
Further, on the issue of sundry creditors, Pr.CIT held that the AO
failed to examine sundry creditors, other purchases, valuation of stock,
various claims of expenses debited to the profit and loss account,
making the order of the AO as erroneous and prejudicial to the interest
of the revenue. Accordingly, the Pr.CIT restored the matter to the AO
for proper verification of the said issues and pass a fresh assessment
order in accordance with law.
Aggrieved with the said revision order of the Pr.CIT, assessee filed
the present appeal with the grounds mentioned above.
Before us, Ld. Counsel for the assessee submitted that the main
issue examined by the AO in the reassessment proceedings revolves
around the said issue of bogus purchases only. The reasons recorded
by the AO before issuing the said notice u/s.148 of the Act also
evidences the above. Further, bringing our attention to the various
pages of the paper book, Ld. Counsel for the assessee demonstrated the
fact relating to furnishing of relevant purchase bills from the alleged
suppliers for the years under consideration. Further, bringing our
attention to various paragraphs of the assessment order, Ld. Counsel
submitted that every aspect of the issue of bogus purchases was
thoroughly examined by the AO before making an adhoc addition of
20% of the bogus purchases of Rs.33,60,731/-. In the process, AO
relied on various decisions to support the GP additions only and not the
entire such purchases. Therefore, according to Ld. AR for the assessee,
the view taken by the AO is one plausible view.
Further, mentioning that the issue of making entire addition is
again a debatable issue. Ld. AR submitted that making addition on
account of GP ratio is also a matter of huge debate and relied on
various decisions on the issue. Further, justifying the addition @20% of
the bogus purchases made by the AO in the re-assessment, Ld. Counsel
submitted that there are various decisions to support the addition made
by the AO. Therefore, there is no erroneous assumption of law in this
case. Further, he submitted that when the trail of goods are
satisfactorily explained along with the transactions of payment for the
purchase of goods, the assessee cannot be found fault on these bogus
purchase of goods.
Further, on the issue of sundry creditors, Ld. Counsel for the
assessee submitted that sundry creditor balances are being carried
forward and no addition is called for on this account as the Pr.CIT did
not make out a case of cessation of liabilities. Ld. AR submitted that
the said balances are genuine. The provisions u/s.41(1) of the Act did
not allow making of any additions when there is no cessation of
liability. If the revenue’s case is cessation of liabilities, the onus is on
the AO to demonstrate the same. AO cannot make addition on this
account in the fresh assessment as the assessee complied with the
provisions of the Act. Further, he mentioned that AO is not under any
obligation to examine the sundry creditors account or the
claims/deductions in the return of income. Making the re-assessment
on the said issue was never the issue as per the reasons recorded by
the AO at the time of reopening of the assessment. Therefore, it is not
the case of the Revenue that AO picked up the issue and concluded the
issue without enquiries or verification which he should have been done.
Further also, on the other issues listed in Para 6.2 of his order, Ld. AR
submitted that there is no error in the reassessment order that makes
the order erroneous in so far as it is prejudicial to the interest of
revenue.
On the other hand, Ld. DR for the Revenue relied heavily on the
order of the Pr.CIT. AO’s failure to make addition of 100% of entire
bogus purchase of Rs.33,60,731/- constitutes the order erroneous and
AO’s failure to conduct investigation to sundry creditors also makes the
order erroneous in so far as it is prejudicial to the interest of the
revenue. However, on debatability of the issue relating to bogus
purchases, Ld. DR has nothing to mention.
We heard both the parties and perused the orders of the Revenue
on the issue of bogus purchases and the need for making addition of
entire such purchases, copies of decisions etc. We have also gone
through the purchase bills, other documents filed in the form of paper
book by the assessee. The case of the Pr.CIT in the revision order is
that the AO failed to make enquiries before completing the assessee on
the claims relating to bogus purchases and the sundry creditor
balances. We shall take up all the issues in the subsequent paras.
Regarding the allegation of the Pr.CIT relating to bogus
purchases, we find the AO has taken up this issue in the re-assessment
proceedings u/s.148 of the Act and called for details relating to the
purchase of goods, delivery of goods and payment details for the said
purchases. At the end of the scrutiny or investigation, AO came to the
conclusion of making GP addition of the bogus purchases @20% would
meet the ends of justice. AO relied on various decisions for arriving at
this decision. Accordingly, AO made addition @20% amounting to
Rs.6,72,146/-. Therefore, in our view, it is a case of taking plausible
view by the AO on the issue under consideration. In the revision order,
the Pr.CIT did not agree with the said view and restored the issue to the
file of AO for fresh assessment implying in favour of making addition of
entire such purchases. In this process, Pr.CIT ignored the fact relating
to existence of various views on this issue. We have also noticed on
the issue of bogus purchases, there are various views inviting debates
on the requirement of making entire additions or GP additions of
various rates or various GP rates etc. Therefore, making addition on
account of bogus purchases constitutes a debatable one. As such, the
AO has taken one prevailing view in this matter. Therefore, thrusting
another view by the Pr.CIT in his revision order in our view is outside
the scope of provisions of section 263 of the Act. Therefore, it is not a
clear cut case of erroneous assumption of law as made out by the
Pr.CIT. Hence, the revision order on this issue is unsustainable in law.
Accordingly, relevant grounds raised by the assessee on this aspect are
allowed.
Regarding the other issue of sundry creditors, we find this issue
was discussed by the Pr.CIT in para 6.2 of his order. This issue was not
at all taken up in the re-assessment proceedings. The reasons recorded
by the AO supports the same. Normally, such issues are taken up in
the regular assessment u/s.143(3) of the Act. In this case, there is no
such order passed by the AO at the relevant point of time. Further, it is
not the case of the Revenue that the issue of sundry creditors was not
examined by the AO under CASS etc. In this regard, we also perused
the relevant lines from Para No.6.2 and the same is extracted here as
under :
“6.2 Further, perusal of the records shows that the Assessing Officer in the re-assessment proceedings failed to examine sundry creditors shown by the assessee company, the details of other purchases, valuation of stock and various expenses as claimed by the assessee company in its profit and loss account, which makes the order not only erroneous but prejudicial to the interest of revenue.”
Therefore, we find the issues above narrated by the Pr.CIT are
general and casual. It is not the case of the Pr.CIT that the above
issues were allowed by the AO after due process of verification of
scrutiny of the account. As such, AO is not under any mandate to
examine sundry creditors account. Further, it is also not the case of
the Pr.CIT that there is something erroneous about the sundry creditors
account and therefore, the AO failed to make proper/adequate enquiries
on this issue. In our opinion, the Pr.CIT’s finding is too general and the
same is unsustainable. He failed to make out a case that allowing
claims of the assessee on this issue amounts to erroneous order of the
AO in so far as it is prejudicial to the revenue. In the absence of any
categorical finding on erroneous assumption relating to loss of revenue,
the finding of the Pr.CIT is not sustainable. Therefore, we are of the
opinion that the direction given by the Pr.CIT is quashed. Accordingly,
the re-assessment order of the AO is restored. The grounds raised by
the assessee are allowed.
In the result, appeal of the assessee is allowed.
ITA Nos. 909 & 910/PUN/2017 A.Yrs. 2010-11 & 2011-12
Since the facts, issues, decision of the AO/Pr.CIT, arguments and
counter arguments are same as that of appeal ITA No.908/PUN/2017
for A.Y. 2009-10, the decision given in the said A.Y. 2009-10 applies to
these assessment years too. Therefore, with similar reasoning, we allow
the grounds raised by the assessee for the A.Yrs. 2010-11 & 2011-12
too.
To sum up, all the appeals of the assessee are allowed.
Order pronounced in the open court on this 09th day of May, 2018.
Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 09th May, 2018. Satish
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. CIT-3, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” Pune; 4. गाड� फाईल / Guard file. 5.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार स स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune