M/S. ASIATIC BEARING COMPANY, RAJKOT vs. THE PR. CIT-1, RAJKOT, RAJKOT

This assessee’s appeal for A.Y. 2012-13, arises from order of the PCIT, Rakjot-1 dated 02-02-2022, in proceedings under section 263 of the Income Tax Act, 1961; in short “the Act”.

The assessee has taken the following grounds of appeal:-

The brief facts of the case are that the assessee filed return of income on 07- 09-2012 declaring total income at Rs. 570/- for the year under consideration. From the information available on records and also on inquiry conducted by the Assessing Officer, he noticed that the assessee had entered into financial transaction amounting to Rs. 1,21,81,010/- with National Shroff (Angadia Group), Rajkot. A search operation was conducted at the premises of National Shroff. On the basis of documents found during the course of search, the Assessing Officer noticed that the assessee is one of the beneficiaries and had made transactions with National Shroff. The Assessing Officer issued notice u/s. 133(6) of the Act dated Page No 3 M/s. Asiatic Bearing Company vs. PCIT 09-11-2019 to M/s. National Shroff, in response to which Shri Anirudh J. Solanki, partner of National Shroff visited the office of the Assessing Officer and submitted vouchers in support of the transactions carried out by the assessee with National Shroff. On verification of the copies of the vouchers, the Assessing Officer noticed that amounts in cash on various dates have been received by the assessee through National Shroff during the year. Shri Anirudh J. Solanki, partner of National Shroff stated before the Assessing Officer that the said amount of cash as reflected in the various vouchers on various dates during the impugned assessment year has been received by the assessee against the cash sales carried out by the assessee during the year. Accordingly, the Assessing Officer was of the view that the Department had concrete evidence to the effect that the assessee had carried cash transactions of Rs. 1,21,81,010/- and cash received amounting to Rs. 1,21,81,010/- through M/s National Shroff and which were nothing but sales consideration received in cash on account of out of book sales carried out during the year. Further, the Assessing Officer observed that on verification of the audited accounts of the assessee and from the details furnished by the assessee, it is noticed that the GP rate of assessee’s business was shown at 19.40% during the year. Therefore, by applying the same GP rate of 19.40%, the Assessing Officer made an addition of Rs. 23,63,115/- @ 19.40% on the total out of book sales of Rs. 1,21,81,010/- by treating the same as profit earned during the year on account of out of books cash sales through M/s National Shroff, Rajkot.

Thereafter, the PCIT initiated proceedings u/s. 263 of the Act by observing that the Assessing Officer had made addition of GP rate @ 19.40 of the total financial transactions of Rs. 1,21,81,000/- with M/s National Shroff. The PCIT was of the view that since these transactions have been made with M/s National Shroff, who is an Angadia, therefore, there was no scope to treat the said transaction as trading turnover but the said transactions were liable to be treated as Page No 4 M/s. Asiatic Bearing Company vs. PCIT cash transactions only. Therefore, the PCIT was of the view that the Assessing Officer erred in applying the GP rate of 19.40% on the above financial transaction with M/s. National Shroff. The PCIT was of the view that neither the assessee has proved that those were not the financial transactions but were commodity trade transactions nor the Assessing Officer has examined the nature of transactions and similarly accepted the commodity trade turnover when there was no material on record to make such assumptions. Accordingly, the PCIT was of the view that the Assessing Officer had incorrectly applying the provisions of law while completing the original assessment. In absence of satisfactory explanation, the PCIT held that the Assessing Officer ought to have considered the total amount as unexplained cash transactions and the aforesaid transactions amount should have been taxed u/s. 115BBEE of the Act. Accordingly, the Ld. PCIT set aside the assessment as erroneous and prejudicial to the interest of Revenue.

The assessee in appeal before us against the aforesaid order passed by ld. PCIT setting aside the original assessment order.

Before us, the counsel for the assessee submitted that it is not the case of PCIT that the Assessing Officer had not examined the issue under consideration. It was submitted that the issue of taxability of cash transactions with M/s. National Shroff had been duly examined by the Assessing Officer during the course of assessment proceedings. Further, the Assessing Officer had then applied the GP rate @ 19.40% which was the rate adopted by the assessee with respect to other transactions made during the impugned assessment year. Accordingly, it was submitted that this issue had been examined in detail by the Assessing Officer during the course of assessment proceedings and after giving a thoughtful consideration to the issue in hand the additions had been made by the Assessing Officer during the course of assessment.

In response, the ld. Departmental Representative submitted that the Assessing Officer had not carried out the duty diligently u/s. 142(2) of the Act. The ld. Departmental Representative placed reliance on the case of Rekha Krishnaraj 85 taxman.com 256 (SC) wherein the Supreme Court held that the addition u/s. 68 of the Act could be made even for unexplained credit amount on account of supply of goods and not necessarily for a cash credit.

We have heard rival contentions and perused the material available on record. We observe that the issue under consideration had been examined by the Assessing Officer during the course of original assessment proceedings, wherein notices u/s. 133(6) of the Act was issued to the partner of M/s. National Shroff, Rajkot. On the basis of disclosures made by the partner of National Shroff and the documents analysed by the Assessing Officer, the Assessing Officer was of the view that the aforesaid amount represented unaccounted cash sales of the assessee during the impugned year under consideration. Further, the Assessing Officer observed that the GP rate of assessee’s business was declared @ 19.40% and accordingly, the Assessing Officer applied the aforesaid rate of 19.40% to the unaccounted sales amounting to Rs. 1,12,81,010/- and made addition of Rs. 23,63,115/-. In the 263 proceedings, the PCIT was of the view that the Assessing Officer erred in applying the GP rate of 19.40% to the above transactions, whereas the Assessing Officer should have added the entire amount as taxable income in the hands of the assessee. However, we are unable to agree with the view of the PCIT that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. These are for the following reasons. Firstly, the Assessing Officer had examined this issue in detail during the original assessment proceedings and had made due inquiries and detailed analysis of the material available on record in respect of transactions which was the subject matter of revision in 263 proceedings. Secondly, on the basis of discussion with Page No 6 M/s. Asiatic Bearing Company vs. PCIT partner of National Shroff (Angadia), the Assessing Officer was of the view that the aforesaid amount of Rs. 1,12,81,010/- represented cash sales/out of book sales carried out by the assessee during the year under consideration. Accordingly, the Assessing Officer calculated the GP rate @ 19.40% on the aforesaid cash sales. Accordingly, we are of the considered view that the Assessing Officer had examined the issue in detail during the course of original assessment proceedings and also had taken a view which was a legally plausible view. Looking into the instant facts, we are unable to accept the proposition that the entire explained cash transaction should be brought to tax in the hands of the assessee, since it is a settled principle of law only the real “income” may be subject to tax in the hands of the assessee and nor the entire receipts. Accordingly, the ld. Assessing Officer not erred in applying the GP rate of 19.40% after holding that the aforesaid sum represented unaccounted cash sales of assessee. Therefore, we are of the view that the Assessing Officer took one of plausible/possible view looking into the instant facts of the case and the ld. PCIT cannot take recourse to proceedings u/s. 263 of the Act only with a view to supplant/substitute his own view with that of the Assessing Officer on the ground that alternate view should have been taken by the Assessing Officer. Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC), wherein it was held as under: "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 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 interest of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law."

In the result, the appeal of the assessee is allowed.