RAHUL CABLES PVT.LTD,,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.

“1. On the facts and in the circumstances of the case the CIT has erred in invoking provision of sec.263 overlooking the legal position that the order of the Assessing Officer cannot be regarded as erroneous within the meaning of Explanation 2 to sec.263(1) of the I.T. Act, 1961.

From the above, as per the assessee, the revision order of the

Pr.CIT is unsustainable as the Pr. CIT invoked section 263 of the Act

against the AO’s order adding only 20% of the bogus purchases in the

reassessment. Assessee argues that AO’s decision constitutes one of

the plausible views in the matter and a debatable issue. Further,

Ground No.2 also raises the issue of AO’s failure in conducting

enquiries with regard to the claim relating to sundry creditors balances

and other claims in the return of income.

assessee is a company and is engaged in the business of cables,

electrical, electronic and telephonic goods as a dealer. Assessee filed

the original return of income on 31-10-2009 declaring total income of

Rs.2,51,15,300/-. 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 the assessee is one of

beneficiary of the same and made purchases of goods from 19 of the

parties whose name appear in the list of bogus purchases. The total of

such purchases works out to Rs.3,47,78,546/- for the A.Y. 2009-10. As

per procedure laid down in 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, out of the above, an amount of Rs.69,55,709/- has

escaped assessment for A.Y. 2009-10. Accordingly, a notice u/s.148

was issued on 06-09-2013. In response to the said notice, assessee

submitted that the original return filed on 31-10-2009 u/s.139(1) of the

Act declaring total income of Rs.2,51,15,300/- may be treated as return

filed in response to notice u/s.148 of the Act.

Similarly, as per the AO, an amount of Rs.42,09,223/- and

Rs.22,20,410/- for the A.Yrs. 2010-11 and 2011-12 respectively

escaped the assessments and relevant assessments were reopened

the transactions of alleged bogus purchases of Rs.3,47,78,546/-.

Assessee filed various documents and details demonstrating the trail of

goods as well as 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 comply with the same as the same is

outside his scope. 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 that making entire

addition of Rs.3,47,78,546/-is not proper. He also analysed the GP

ratios of the assessee over the years and held 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 conclusion for amount of Rs.3,47,78,546/-, the financials of the assessee were examined for the period relevant to A.Y. 2008-09 to 2011-12.

. . . . . . . . . . . . . . . . . . . . . . 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.3,47,48,546/-. 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.1,21,31,76,927/- which comes out to be Rs.24,26,35,385/-. This is not reasonable as the bogus purchases are only 2.8% of the total turnover.

c. Third method is calculating 20% of such bogus purchases which comes out to be Rs.69,55,709/-.

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, after due verification of facts and the judgmental

laws, the AO restricted the addition to 20% of the said purchases.

Thus, the assessment attained the finality.

of the assessee and analysed the above narrated facts of the case

relating to bogus purchases and a issued show cause notice dated

23-02-2017 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 against the said proposal of the Pr.CIT.

In support, assessee relied on various decisions in this regard.

Subsequently, the Pr.CIT analysed the details furnished by the assessee

and held that AO completed these assessments without fully 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.3,47,78,546/- of the purchases. He also found fault with

the AO in restricting the addition to Rs.69,55,709/-, i.e. 20% of the said

bogus purchases.

Further, in 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 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 too, Pr.CIT held that the

AO failed to examine sundry creditors, valuation of stock, other

purchases and 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 re-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.69,55,709/-. In doing so, 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. In support of his submissions, Ld. Counsel relied

on the following case laws and filed the copies of the same :

assessee submitted that sundry creditor balances are being carried

forward and no addition is called for on this account as the CIT did not

make out a case of cessation of liabilities. Ld. Counsel submitted that

the said balances are genuine. There is no cessation of liabilities.

There is no scope for application of provisions u/s.41(1) of the Act for

making of additions as implied by the Pr.CIT as there is no case of

cessation of liability on any of the liabilities. 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 by the AO. 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.3,47,78,546/- 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 assessment

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.69,55,709/-. 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. 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 creditor account. Further, it is also not the case of the

Pr.CIT that there is something erroneous about the sundry creditor

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 of law/fact leading to loss

of revenue, the finding of the Pr.CIT is not sustainable. Therefore, we

are of the opinion that the directions given by the Pr.CIT are liable to be

quashed. Accordingly, the re-assessment order of the AO is restored.

The grounds raised by the assessee are allowed.

ITA Nos. 1169 & 1170/PUN/2017 A.Yrs. 2010-11 & 2011-12

counter arguments are same as that of appeal ITA No.1168/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 04th day of May,

2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य पुणे Pune; �दनांक Dated : 04th May, 2018 सतीश

आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. Pr.CIT-3, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” Pune; 4. गाड� फाईल / Guard file. 5.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune