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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER PER BENCH:- This is an appeal filed by the assessee for A.Y. 2018-19 against the order of the Principal Commissioner of Income Tax, PCIT, Rajkot-1 dated 03-02-2022, in DIN & Order No. ITBA/REV/F/REV5/2021- 22/1039348803(1), in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The assessee has taken the following grounds of appeal:-
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“1. The learned Principal Commissioner of Income-tax - Rajkot - 1, Rajkot erred in assuming jurisdiction u/s 263 of the Act, particularly in the light of reasons stated by him in the show cause notice and in the order passed u/s 263 of the Act and hence the impugned order is bad in law. 2. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot erred in setting aside the assessment order framed u/s 143(3)of the Act by holding that the assessing officer has not conducted any inquiries/verification in respect of genuineness of the purchases and that there is incorrect application of law by the A.O. 3. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot failed to appreciate that the impugned issue was duly examined by the assessing officer by way of specific inquiry/notice and reply thereto, while finalizing assessment proceedings u/s 143(3) of the Act. 4. The learned Principal Commissioner of Income-tax, Rajkot - 1, Rajkot failed to appreciate that the first appeal of the Appellant against addition made in the assessment order on impugned issue was pending before the Commissioner (Appeals) and therefore the order u/s 143(3) could not be revised u/s 263 of the Act. 5. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.”
The brief facts in relation to the case are that the return of income was filed by the assessee on 07-08-2018 declaring total income of � 66,520/-. The assessment was completed under section 143(3) of the Act determining total income at � 76,86,510/- after making additions of � 76,86,510/- disallowing 30% of the purchases of � 2,53,99,953/- on the ground that no TCS was deducted on purchases. During the course of assessment proceedings, the AO noticed that the assessee had shown purchases of � 11,45,58,400/- out of which TCS was not deducted on the purchase of �
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2,53,99,953/- under section 206C of the Act. The AO disallowed 30% of � 2,53,99,953/- i.e.� 76,86,510/- u/s. 40(a)(ia) of the Act.
Subsequently, Principal CIT initiated 263 proceedings on the ground that in the case of assessee, TCS was to be collected on purchases of � 2,53,99,953/- from the seller who had made sales to the assessee. Hence, the AO treated purchases made by the assessee of � 2,53,99,953/- as bogus purchases and made addition of � 76,86,510/- disallowing 30% of the purchase of � 2,53,99,953/- since no TCS was collected on the same. However, as per the Principal CIT, the entire purchase amounting to � 2,53,99,953/- should have been treated as un-expenditure in the nature of unverifiable purchases and the total amount of � 2,53,99,953/- should have been added to the income of the assessee as unexplained expenditure under section 69C of the Act, instead of 30% of the same i.e. � 76,86,510/- u/s. 40(A)(ia) of the Act. Accordingly, the Principal CIT held that the order passed by the AO is erroneous and prejudicial to the interests of the revenue. While setting aside the order, Principal CIT made the following observations:
“5. I have gone through the records and the submission made by the assessee during the proceedings. The assessee has submitted the detailed reasons under submission. However on going through the ledger accounts of the supply parties that no payment has been debited in their ledger account. Therefore the payment of TCS by the assessee to the supplier is not verifiable at all. Thus there needs further verification of the submission made by the Assessing Officer which remained to be made in the assessment proceedings. 6. The above facts will indicate that AO has not conducted any inquiries/verification in respect of the genuineness of the aforesaid
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purchases shown by the assessee during the course of assessment proceedings. It may be mentioned that two essentials condition for invoking the provisions of section 263 of IT Act are that the order passed by the AO is erroneous and prejudicial to the interest of revenue. 7. The assessee has submitted that as per clause C of explanation 1 to section 263, no revision of the assessment order could be made as the appeal is pending in this case before the CIT(A). In support it has submitted copy of form No. 35 with the date of e-filing as the 14-12- 2019. The assessee has further submitted that the AO has made already addition of Rs. 22,56,640/- being 8% on the total transaction of Rs. 2,82,08,000/-. Since the issue under consideration is under appeal before CIT(A) therefore no revision could be made. In support the assessee relied upon certain decision 7 judgments. The submission of the assessee has been carefully considered and it is noticed that as per the provisions of section 263 explanation-1, clause-C the revision can be made. Since the interpretation of the nature of transaction and the in-application of provisions would be relevant and therefore it cannot be said that the issue was same as decided by the AO. Thus pending appeal against the assessment order would not make any difference in the present revisionary proceedings.”
The assessee is in appeal before us against the aforesaid order passed by Principal CIT u/s 263 of the Act. At the outset, the counsel for the assessee challenged initiation of proceedings under section 263 of the Act on the ground that section 69C does not apply to this case as there is no unexplained source of the purchase expenditure. All the purchases are made through banking channels and hence there is no question of invoking section 69C of the Act in the instant set of facts. All impugned purchases of � 11,45,58, 400/- are duly accounted for and reflected in the audited accounts. In this context he drew attention for page 19 of the paper book. The counsel
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for the assessee further argued that the PCIT erred in coming to the conclusion that AO had not properly verified the issue. The counsel for the assessee drew our attention to notice issued under section 142(1) of the Act (at page 29 of the paper book) and also reply filed by the assessee dated 28- 11-2020 (at pages 33 and 35 of paper book) and reply dated 23-01-2021 (at page 138 of paper book) and submitted that the issue has been duly considered at the time of assessment proceedings by the AO. The counsel for the assessee then drew our attention to the purchase (creditors) ledgers with addresses (at pages 36-134 of paper book) and purchase breakup and details (pages 139-156 of paper book) and submitted that the accounts clearly reflect that purchases were not bogus in the instant set of facts and all facts were put before the AO during the course of assessment proceedings. The counsel for the assessee further argued that even on technical grounds, the instant case cannot be a subject matter of proceedings under section 263 of the Act, for the reason that on the issue of bogus purchases, the matter is pending before Ld. CIT(Appeals), where this issue is under consideration before him. Accordingly, it is settled proposition of law that when a certain issue is the subject matter of appeal before Ld. CIT(Appeals), then the same issue cannot be re-agitated in 263 proceedings by Principal CIT. He placed reliance on the case of CIT v. Vam Resorts and Hotels Private Limited 418 ITR 723 (Allahabad) and on the case of Smt. Renuka Philip v. ITO 409 ITR 567 (Madras) where it is not held that when an appeal is pending before Commissioner (Appeals), exercise of jurisdiction under section 263 by Principal Commissioner would be barred. Without prejudice to the above arguments, counsel for the assessee also submitted that even otherwise the entire purchase amount cannot be added as unexplained expenditure, and
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only the profit element can be subject to tax in the hands of the assessee. In response, DR relied upon the observations made by the Principal Commissioner and the 263 order.
We have heard the rival contentions and perused the material on record. In our considered view, this is not a fit case for initiation of proceedings under 263 of the Act for the following reasons. Firstly, we observe that from the facts before us, simply because TCS has not been collected on certain purchases does not automatically imply that the said purchase is non-genuine/bogus. The counsel for the assessee has brought on record sufficient evidence to prove the genuineness of transactions so conducted with the seller. Secondly, we observe from the memo of appeal before CIT(Appeals) filed by the assessee against the original assessment order that the issue whether the purchase is bogus or not is also the subject matter of appeal before Ld. CIT(Appeals). It is well-settled law that once the proceedings are before Ld. CIT(Appeals) in respect of certain issues, then the same issue again cannot be re-agitated by taking recourse to proceedings under section 263 of the Act as held in the case of CIT v. Vam Resorts and Hotels Private Limited 418 ITR 723 (Allahabad) and in the case of Smt. Renuka Philip v. ITO 409 ITR 567 (Madras) where it is not held that when an appeal is pending before Commissioner (Appeals), exercise of jurisdiction under section 263 by Principal Commissioner would be barred. Thirdly, it is a well-settled law that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to interests of Revenue. In the case of Gokuldas Exports [2012] 20 taxmann.com 491 (Karnataka), the High Court held that if in given
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facts and circumstances of a case, two views are possible and one view has been adopted by Assessing Officer, then that view alone would not be sufficient to exercise powers under section 263 by Commissioner. Therefore, in the instant facts, if the AO after giving due application of mind on the issue before him during the course of assessment proceedings has disallowed 30% of the expenditure by invoking the provisions of 40(a)(ia) of the Act, then the Principal CIT cannot, in our view, resort to proceedings u/s 263 of the Act on the basis that the AO ought to have disallowed the entire expenditure u/s 69C of the Act and erred in invoking 40(a)(ia) of the Act. Therefore, in our considered view in the light of the facts/legal position discussed above, this is not a fit case for invoking the provisions of section 263 of the Act. In the result, appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16-09-2022 Sd/- Sd/- (WASEEM AHMED) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 16/09/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot