M/S. SHANDAR INTERIORS PVT. LD.,PUNE vs. PR. COMMISSIONER OF INCOME-TAX : 3, 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.

“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.

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.

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.

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.

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.

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.

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.

the present appeal with the grounds mentioned above.

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.

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.

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.

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.

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.

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.

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.

ITA Nos. 909 & 910/PUN/2017 A.Yrs. 2010-11 & 2011-12

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.

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

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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