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Income Tax Appellate Tribunal, BENCH ‘B’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM ]
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH ‘B’ KOLKATA [Before Hon’ble Shri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM ] ITA Nos.509&510/Kol/2017 Assessment Years : 2010-11 & 2011-12
Om Foregoing & Engineering (P)Ltd. -versus- Pr. C.I.T.-1, Kolkata Kolkata (PAN:AAACO 3336 L) (Appellant) (Respondent)
For the Appellant: Shri A.K.Tibrewal, FCA For the Respondent: Md.Usman, CIT(DR)
Date of Hearing : 05.12.2017. Date of Pronouncement : 13.12.2017.
ORDER PER N.V.VASUDEVAN, JM:
These are appeals by the Assessee against two orders both dated 13.02.2016 of CIT(A)-1, Kolkata passed u/s 263 of the Income Tax Act, 1961 (Act) for A.Y. 2010- 11 and 2011-12. 2. The facts and circumstances under which the order u/s 263 of the Act was passed by CIT in both the assessment years are identical.
The Assessee is a company. It is engaged in the business of manufacturing and supplying of alloy steel. For A.Y 2010-11 and 2011-12 an order of assessment u/s 147 r.w.s. 143(3) of the Act was passed on 13.03.2015. The assessments for A.Y.2010-11 and 2011-12 were reopened u/s 147 of the Act on the basis of information received by the AO from the office of the DGIT (Investigation) Mumbai. The information received from DGIT was that sales tax department of Maharashtra has forwarded information that bogus purchase bills were being issued by some of the dealers to several companies. Some of the beneficiaries of such bogus bills issued by the entry operators in Mumbai were persons from Kolkata and a list of such persons was also received. The assessee’s name was also found as a beneficiary in such list. There ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
were in all four purchases which were considered as bogus based on the information received from DGIT(Investigation) Mumbai, by the AO. In A.Y.2010-11 two purchases from M/s. Divya Enterprise of Rs.12,76,205 and M/s. Kamal Traders of Rs.20,54,707/- were considered as bogus. In all sum of Rs.33,30,912/- was considered as bogus purchases for A.Y.2010-11.
As far as A.Y.2011-12 is concerned there were four bogus purchases from the following parties :
i) M/s. Tushar Enterprise : Rs.3,15,172/-
ii) Arihant Sales Corporation : Rs.2,97,710/-
iii) Divya Enterprise : Rs.32,67,888/-
iv) Kamal Traders : Rs.34,03,534/-
In all the bogus purchases for this year was Rs.72,84,304/-.
The AO while concluding the assessment u/s 147 of the Act in his order dated 30.03.2015 for both the assessment years issued notice u/s 143(2) and 142(1) of the Act calling upon the assessee to furnish several details. The assessee had furnished confirmation from the dealers who were alleged to have issued bogus purchase bills. Their addresses were also furnished. Most importantly, the assessee gave details of the payments made to the parties in A.Y.2010-11 and 2011-12 which are given as Annexure –I for A.Y.2010-11 and Annexure-II for A.Y.2011-12. The bank statement evidencing encashment of cheques for purchases were also given to the AO. The AO after taking cognisance of all the details filed came to the conclusion that 3% of the bogus purchases should be treated as income of the assessee for both the assessment years. According to the A O the practice of obtaining false purchase bills is only to inflate the value of purchase. The actual purchase value from the grey market would be much lower than the real market value and bogus purchase bills at higher value are obtained to inflate cost of purchases and reduce profit as per books of Accounts. . The AO was also of the view that from the quantities of stock filed by the ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
assessee, it was clear that the sales were made to the Government and reputed organisations and therefore the sales made by the assessee cannot be disbelieved. In these circumstances, the AO was of the view that 3% of the bogus purchase would be the real benefit to the assessee in resorting to obtaining bogus purchase bills. Accordingly the AO made an addition of Rs.1,09,420/- being 3% of Rs.33,30,912/- being value of bogus purchases in A.Y.2010-11 and in A.Y.2011-12 the AO made an addition of Rs.2,38,633/- being 3% of the bogus purchases worth Rs.72,84,304/-. The following were the relevant observations of the AO in this regard :-
A.Y.2010-11
“However as per information received from the sales tax department communicated by the DGIT ( Inv.\). Mumbai as mentioned earlier, the assessee company has inflated its purchase by procuring false purchase bills from the concern called Divya Enterprise and Kamal Traders during the relevant AY.
It is sometimes a common practice in the businesses to inflate its purchases by procuring false purchase bills at a higher value where as the actual purchase is made from the grey market prevalent in the economy at a much lower price through' brokers or others. Normally. these are made in quantities for which verifiable transporters arc not claimed for avoiding requirement of further enquiries and / or evidences. The relevant pan of the submission of the assessee dated 5-9-2014 is reproduced below :
“ .....It is needless to point out that here the goods were purchased from the above party in small quantity vide challans which were carried inward to our godown through HAND' CARTS / LORRIES, The cartage charges were paid in cash to Thelawallas ( hand cart pullers) ..
The assessee relied mainly on the issue that sale was also made to the corresponding purchases and also referred to several case laws in this 'regards .The assessee also submitted copies of stock register showing inward quantities, outward quantities,. Closing quantities in support of his quantitative purchases and sales. Copies of sales. bills were produced.
It cannot be ruled out that, .considering the nature of goods with which the assessee Company traded during the relevant year are generally purchased by a trader from the wholesale market of the city where the price remains competitive but transactions are made in kachcha bills. The traders get the option to suppress both purchase and corresponding sales / turnover. In this case the assessee made ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
sales to government and other reputed organizations and perhaps did not get chance to suppress sales. As a result . there was necessity for the assessee co. to introduce purchase bills to manage its profit to a desired and consistent rate .The attempt of the assessee co failed due to detection or the concerned sales tax authority and communication in this regard by office by the DGIT ( Inv) . Mumbai . However. in consequence to the findings of the sales tax department it may easily be inferred that the assessee eo. made purchases at a rate which is much lower than the rate claimed by it of Rs 12,76,205 + Rs.20,54,707 totalling to Rs.33,30,912.
As such . it can be inferred that the assessee earned profit at a higher rate than the rate reflected in the audited accounts by selling the goods as above, It is seen from the Audited accounts that the rate of gross profit declared by the assessee from its regular business for the year is 9.48%. The purchase as discussed above would earn gross profit at a higher rate which is estimated at 3% above the rate' declared from regular business Based on the discussion as .above the additional profit earned by the assessee is computed as Rs (33,30.912 X 109.5-/100) X ( 3 / I 00) which is Rs 109420/- which is added to the income of the assesse. “ A.Y.2011-12
“ However . as per information received from the sales tax department communicated by the DGIT ( Inv.\). Mumbai as mentioned earlier, the assessee company has inflated its purchase by procuring false purchase bills from the concern called Tushar Enterprise, Arihant Sales Corporation, Divya Enterprise and Kamal Traders during the relevant AY.
It is sometimes a common practice in the businesses to inflate its purchases by procuring false purchase bills at a higher value where as the actual purchase is made from the grey market prevalent in the economy at a much lower price through' brokers or others. Normally. these are made in quantities for which verifiable transporters arc not claimed for avoiding requirement of further enquiries and / or evidences. The relevant pan of the submission of the assessee dated 5-9-2014 is reproduced below :
“ .....It is needless to point out that here the goods were purchased from the above party in small quantity vide challans which were carried inward to our godown through HAND' CARTS / LORRIES, The cartage charges were paid in cash to Thelawallas ( hand cart pullers) ..
The assessee relied mainly on the issue that sale was also made to the corresponding purchases and also referred to several case laws in this 'regards .The assessee also submitted copies of stock register showing inward quantities,
ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
outward quantities,. Closing quantities in support of his quantitative purchases and sales. Copies of sales. bills were produced.
It cannot be ruled out that, .considering the nature of goods with which the assessee Company traded during the relevant year are generally purchased by a trader from the wholesale market of the city where the price remains competitive but transactions are made in kachcha bills. The traders get the option to suppress both purchase and corresponding sales / turnover. In this case the assessee made sales to government and other reputed organizations and perhaps did not get chance to suppress sales. As a result . there was necessity for the assessee co. to introduce purchase bills to manage its profit to a desired and consistent rate .The attempt of the assessee co failed due to detection or the concerned sales tax authority and communication in this regard by office by the DGIT ( Inv) . Mumbai . However. in consequence to the findings of the sales tax department it may easily be inferred that the assessee co. made purchases at a rate which is much lower than the rate claimed by it of Rs 3,5,172 + Rs.297710 + Rs3267888 + Rs.3403534 totalling to Rs.7284304/-.
As such . it can be inferred that the assessee earned profit at a higher rate than the rate reflected in the audited accounts by selling the goods as above, It is seen from the Audited accounts that the rate of gross profit declared by the assessee from its regular business for the year is 9.48%. The purchase as discussed above would earn gross profit at a higher rate which is estimated at 3% above the rate' declared from regular business Based on the discussion as .above the additional profit earned by the assessee is computed as Rs (7284304 X 109.2-/100) X ( 3 / I 00) which is Rs 238633/- which is added to the income of the assesse.”
The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interest of the revenue in as much as the AO had not examined the addition to be made in the light of the provision of section 69C of the Act. Section 69C of the Act reads as under :- “ 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof , or the explanation, if any, offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year: ]”
ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
The CIT was of the view that once the purchase was held to be bogus the entire purchase has to be considered as unexplained expenditure and the entire value of purchase which were considered as bogus ought to have been added to the total income of the assessee. Since the AO failed to make the aforesaid addition his order was erroneous and prejudicial to the interest of the revenue.
In reply to the aforesaid show cause notice the assessee submitted that full and complete details of purchases and sales and copies of all bills of purchases from the four parties were filed to show that the purchases were genuine and that all payments for such purchases were made by account payee cheques. The assessee submitted that the purchases were made from the four parties in course of its business of trading for re-sale. The Assessee pointed out that it furnished the details of corresponding sales of the purchases made from the four parties and filed evidence being corresponding sale bills and challans etc. The assessee also furnished a statement showing the source of the funds against the purchases made from the aforesaid four parties The Assessee pointed out that it produced its audited books of accounts including Cash Book, Bank Statements and Stock Register and claimed that when the sales are not doubted and accepted as genuine then the corresponding purchases have to be accepted. 9. The assessee pointed out that the Assessing Officer, on examination of the documents and evidence and the books of accounts found that there was no discrepancy in the stock of the goods and on the basis of the evidence and material on record he came to a conclusion that addition of 3% of disputed purchases alone should be added as income. The assessee argued that the aforesaid view of the Assessing Officer is a possible view and in tune with the facts of the case and decisions rendered by judicial forums on similar facts. The assessee drew attention of CIT to the following decisions where, on similar facts, it has been held that the alleged bogus purchases could not be disallowed but addition of certain percentage could, at best, be added .
ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
(i) In CIT vs. Smith P. Sheth [2013] 38 taxmann.com 385 (Gujarat) –The Hon'ble Gujarat High Court held that where purchases were not bogus but were made from parties other than those mentioned in books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of assessee (ii) In CIT vs. Satyanarayan P. Rathi [2013] 38 taxrnann.com 402 (Guj) - The High Court of Gujarat held that where purchase of raw material was not made from party from whom assessee claimed but such material was purchased from open market incurring cash payment, only profit element of such purchases and not entire purchases was to be added to income of assessee. 10. With regard to the allegation of the CIT in the show cause notice u/s 263 of the Act that the Assessing Officer did not examine the applicability of section 69C of the Act and did not make addition of the whole amount of alleged bogus purchases and therefore the assessment order passed by him was erroneous, the assessee submitted that the provisions of section 69C are not applicable. The assessee pointed out that the source of payments for purchases were explained and the purchases were duly recorded in its books of accounts and the payments for such purchases were made from the disclosed bank account of the assesse. The assessee placed reliance on the following decisions in support of its claim that Section 69C of the Act was not applicable in the facts and circumstances of the assesseee’s case.
(i) ACIT vs. Shri Ramila Pravin Shah [ITA No. 5246/Mum/2013]dt. 5.3.2015 -In this case the Assessing Officer noticed that the Sales Tax Department of Government of Maharashtra has listed out names of certain dealers, who were alleged to have, been providing accommodation entries without doing actual business. The Assessing Officer noticed that. the assessee made purchases to the tune of. Rs.28.08 lakhs from some of the parties, whose names found place in the list provided by the Sales Tax Department. The AO took the view that the purchases to the tune of Rs.28.08 lakhs have to be treated as unexplained expenditure. Accordingly, he assessed the same u/s 69C of the Act. On appeal before Ld. CIT(A), deleted the addition made under section ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
69C of the Act relying on the decision of Hon’ble Bombay High Court in the case of ClT vs. Nikunj Eximp Enterprises Pvt. Ltd [2013] 35 Taxmann.com 215 (Cal) wherein the High Court held that when purchases were all supported by bills and once the sales are accepted the purchases cannot treated as ingenuine. The addition made under section 69C was deleted. (ii) CIT vs. Radhika Creation [2011] 10 taxmann.com 138 (Delhi) - In this case the issue before Hon'ble Delhi High Court was as to whether addition could be made under section 69C of the Act in respect of expenditures debited in the books of accounts but were found to be unauthenticated. The Hon'ble Delhi High Court held that the focus of section 69C is on source of expenditure and not an authenticity of expenditure itself and. therefore when expenditure in question was shown in regular books of account of assessee, the Tribunal was justified in deleting the addition by holding that source of expenditure was explained. 11. The assessee thus submitted that the Assessing Officer was wholly justified in not adding back the entire amount of alleged bogus purchases in as much as the payments were made by account payee cheques from the disclosed bank account and were duly recorded in the regular books of accounts which were produced before the Assessing Officer and he verified the same. The Assessing Officer made other Inquiries also as would be evident from the assessment records and thereupon he came to conclusion that the addition of the entire amount of alleged bogus purchases could not be made under section 69C of the Act and decided to make addition of Rs.2,38,633 for possible inflation of purchases. 12. The estimated addition was made by him after making inquiry and after considering the entire facts of the case. Thus the Assessing Officer's view was one of the legal view and therefore the assessment order passed by him could not be held to be erroneous. The assessee relied on the observations at Page 88 of the judgment of Hon'ble SC in the case of Malabar Industrial Co. Ltd. (2000) 243 ITR 83 (SC) "For example, when an Income-tax Officer adopted one of the courses permissible In law and it has resulted in loss of Revenue; or where two views are ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income- tax Officer is unsustainable in law."
The view of the Assessing Officer by not making addition under section 69C of the Act could not be held to be unsustainable in law in view of the judgment of Hon'ble Delhi High Court in the case of Radhika Creation (supra).
The CIT however was of the view that the AO did not make any enquiry in the light of the provision of section 69C of the Act and for failure to make enquiry which he ought to have made the order of the AO to be held as erroneous and prejudicial to the interest of the revenue. In this regard the CIT placed reliance on the decision of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises vs ACIT 99 ITR 375. The CIT ultimately set aside the order of the AO by concluding as follows :- “11. It may be further noticed. that in order to provide clarity on the issue of "erroneous in so far as it is prejudicial to the interest of the revenue", a new Explanation has been inserted to clarify that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. if, in the opinion of the Principal Commissioner or Commissioner. (a) The order is passed without making inquiries or verification which, should have been made; (b) The order is passed allowing any relief without inquiring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) The order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
This amendment takes effect from 1-6-2015.
12 Having regard to the facts and circumstances of the case and in the light of the aforesaid decisions of Hon'ble Supreme Court and Hon'ble High Court and in accordance with the amendment made in Section-263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 30.03.2015 passed by the A.O. is erroneous in so far as it is prejudicial to the interests of the ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 30.03.2015 is liable to set-aside. Therefore, I set aside the said assessment order directing the present A.O. to frame the assessment afresh after considering the aforesaid observations, Hon'ble Supreme Court and Hon'ble High Court decisions and the provisions of Sec.69C of I.TAct. 1961.
In the result, the assessment order 147 dated 30.03.2015 for A.Y.2012-13 is set aside to the file of the Assessing Officer with a direction to pass a fresh assessment order after considering the aforesaid observations, as per law and after giving an opportunity of being heard to the assessee.
Aggrieved by the aforesaid orders of CIT the assessee has preferred the present appeals before the Tribunal.
We have heard the submissions of the ld.counsel for the assessee, who firstly reiterated the submissions as were made in reply to the show cause notice u/s 263 of the Act. The ld. Counsel further submitted that in the impugned order the CIT has relied on the Explanation 2 to section 263 of the Act (extracted in paragraph 9 of this order ) which was inserted in the Act by the Finance Act 2015 w.e.f. 01.04.2015. It was submitted by him that it has been held in the following decisions of ITAT that the aforesaid amendment cannot over ride the statutory requirements of a conclusion by CIT in an order passed u/s 263 of the Act that an order in question was erroneous and prejudicial to the interest of the revenue. i) ITA No.3205/Del/2017in the case of M/s Amira Pure Foods Pvt. Ltd. vs Pr.CIT order dated 29.11.2017. ii) ITAT ‘ B’ Bench in ITA No.2690/Mum/2016 and 2691/Mum/2016 in the case of Shri Narayan Tatu Rane vs ITO, Mumbai order dated 06.05.2016.
He also submitted that the question of application of section 69C of the Act in the present case is not warranted. In this regard he drew our attention to the decision of the Hon’ble Delhi High Court in the case of CIT vs Radhika Creation (supra).
ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
Our attention was also drawn to the decision of the Hon’ble Allahabad High Court in the case of Pr.CIT vs Rama Shankar Yadav (2017) 85 Taxman.com 173 (All) wherein it was held that the provision of section 69C of the Act are not mandatory and that Assessing Authority has full discretion either to add or not to add unexplained expenditure in income of assessee based upon sound judicial principles .
The other submissions made before the CIT were reiterated.
The ld. DR, on the other hand, relied on the order of the CIT. According to him the AO has passively accepted the submissions of the assessee. He ought to have added the entire value of bogus purchase or should have made enquiries on this line. Failure to do so rendered his order erroneous and prejudicial to the interest of the revenue.
We have given a very careful consideration to the rival submissions. First aspect which we need to see is as to what was the enquiry made by the AO while completing the order of assessments for A.Y.2010-11 and 2011-12 which assessments were reopened based on the information received from DGIT (Mumbai) about the assessee having obtained bogus receipts from parties in Mumbai evidencing purchases. In a Notice dated 22/07/2014 for A.Y.2011-12 (copy at page 22 to 23 of paper book) the AO called upon the assessee to give quantitative details of purchases and sales and details of opening and closing stock. In A.Y. 2010-11 and 2011-12 the AO has acknowledged in the order of Assessment that during the course of assessment proceedings the assessee filed various submissions ad account statements including copy of bills etc showing purchases from the four parties which according to the information received from DGIT(Mumbai) were bogus. The assessee also filed details of corresponding sales against purchases from the aforesaid four parties. These details are placed at page 46 to 48 and 57-60 of the assessee’s paper book for A.Y.2010-11 and 2011-12 respectively. The assessee also filed confirmation from the four parties the purchases from whom it was alleged by the revenue to be bogus. These ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
confirmations are placed at pages 40 to 45 and 41 to 56 of the assesse’s paper book for A.Y.2010-11 and 2011-12. The assessee also filed all copies of sales bills of all sales effected by it during the previous year relevant to A.Y.2010-11 and 2011-12. These details are available at page 69-153 and 91-203 of assessee’s paper book for A.Y.2010-11 and 2011-12 respectively. The statement showing the source of funds and the mode of payment for the purchases which were claimed by the revenue to be bogus were also furnished. These details are given as Annexure –I and Annexure-II respectively for A.Y.2010-11 and 2011-12 to this order.
In the light of the information received from DGIT (Investigation), Mumbai, and the evidence filed by the assessee claiming that purchases from the aforesaid four parties were genuine, the AO concluded that the purchases from the four parties were not genuine.. This conclusion was based only on the information received by the AO from the DGIT (Investigation), Mumbai. After drawing the above conclusion the issue before the AO was as to whether the entire value of purchases should be added to the total income. Towards this objective the AO examined the sales and found that the quantity of purchases and corresponding sales matched. The Stock Register for A.,Y.2010-11 and 2011-12 filed by the assessee before the AO are at pages 33 to 39 and 36 to 40 of the paper book filed by the assessee for A.Y.2010-11 and 2011-12 respectively.
On examination of the details the AO found that the sales were made to Government and reputed parties and therefore the sales as claimed by the assessee were genuine. Once the sales are genuine corresponding purchases also cannot be denied. The only possibility in the given circumstances was to proceed on the theory that the purchases were made by the assessee in the grey market at a lesser price and the bogus bills were obtained to show higher purchase price and reduce the profit margin as per the books of accounts. The AO adopted this course and estimated the possible suppression of Revenue. The course adopted by the AO was therefore a possible view in law. ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
In the impugned order the CIT is of the opinion that the AO ought to have invoked the provisions of sec.69C of the Act and ought to have added the entire value of bogus purchases and that he failed to make enquiries while completing the assessment on the applicability of the provisions of Sec.69C of the Act to the facts and circumstances of the assessee’s case . Section 69C of the Act provides that where, in any financial year, the assessee has incurred an expenditure and he offers no explanation about the source of such expenditure or part thereof or the explanation, if it is offered by him, is not, in the opinion of the AO, satisfactory., the amount covered by that expenditure or part thereof, may be deemed to be income of the assessee for such financial year. In the present case, the assessee has shown the expenditure on purchases in the books of accounts and explained the source of payment through banking channels. In such circumstances, there was no basis to say that applicability of the provisions of sec.69C of the Act were not enquired into by the AO while concluding the assessment. The Hon’ble Allahabad High Court in the case of Pr. CIT vs Ram Shankar Yadav (supra) held that provisions of Sec.69C of the Act are not mandatory and the AO has discretion to add or not to add unexplained expenditure based on sound judicial principles.
In the impugned order, the CIT has observed that the AO ought to have made enquiries from the alleged bogus purchase bill/entry providers and held that purchases were bogus. The AO has already held that the purchases were bogus and the only question before him was as to whether the entire purchases ought to be added as income or only a portion of the purchases towards inflated cost.
The CIT has made reference to Explanation-2 to Sec.263 of the Act introduced by the Finance Act, 2015. Explanattion-2 so introduced sets out cases in which order of the AO can be deemed as erroneous. The said explanation does not dispense with compliance or existence of (i) there being no enquiry made by the AO; (ii) the AO’s conclusion being contrary to CBDT Circular or (iii) against decision of Jurisdictional High Court or Supreme Court. In the present case the CIT in the impugned order has ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
not brought facts to show the existence of absence of enquiry especially when the AO has already concluded that the purchases by the assessee from four parties mentioned by the DGIT(Investigation) Mumbai in its report were bogus. The decision of the Mumbai and Delhi ITAT in the case of M/s. Shri Narayan Tatu Rane (supra) and M/s. Amira Pure Foods (P) Ltd (supra) cited by the ld. AR clearly supports the view that Explanation – 2 to sec.263 of the Act will not be of any assistance to the plea of the revenue unless the facts and circumstances set out therein exists in a given case.
For the reasons given above, we hold that the orders of the AO were not erroneous and prejudicial to the interest of the revenue for failure to make enquiry on the applicability of Sec.69C of the Act. We, therefore, quash the orders u/s 263 of the Act and allow the appeals of the assessee.
In the result the appeals are allowed. Order pronounced in the open Court on 13.12.2017.
Sd/- Sd/- [Dr.A.L.Saini] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 13.12.2017. [RG Sr.PS] Copy of the order forwarded to: 1.Om Foregoing & Engineering Private Limited, 28, Strand Road, 2nd Floor Room No.204, Kolkata-700001. 2.Pr.C.I.T-1, Kolkata. 3.. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,
Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12
ITA Nos.509&510/Kol/2017 Om Forging & Engineering (P)LTd. A.Y.2010-11 & 2011-12