2018 (9) TMI 1541 - AT - Income Tax

Revision u/s 263 - assessment involved in this matter is under section 153A - Held that - Section 263 of the Act confers power on the Principal Commissioner of Income Tax to examine an assessment order so as to ascertain whether it is erroneous insofar as prejudicial to the interests of the Revenue but it shall not be construed to have conferred jurisdiction upon him to substitute his opinion for the opinion of the Assessing Officer when the AO being satisfied with the record passes the assessment order and more particularly in the circumstances when it cannot be stated that there is either lack of enquiry or inadequate enquiry. It is pertinent to note that as is held by the Hon ble Apex Court in CIT vs. Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT OF INDIA where two views are possible and one of the possible views have been taken by the Ld. Assessing Officer while passing the assessment order then the provisions of Section 263 of the Act cannot be invoked. In this case the peculiarity is that the sales are accepted creating a situation where if we accept the view taken by the CIT(A) it would show the gross profit of the assessee at 93.73% for the AY 2008-09 which in itself is quite an improbable on its face. So by estimating the gross profit of the assessee at 9% after disallowing the bogus purchasers the Ld. Assessing Officer had taken a pragmatic view which renders the issue not amenable to the Ld. CIT(A) to the jurisdiction u/s 263 of the Act. We are of the considered opinion that the exercise of jurisdiction under section 263 of the Act by the Ld. Principal Commissioner of Income Tax is not warranted that such an order cannot be sustained and is liable to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessment order dated 31/03/2016 was barred by limitation under section 153-B of the Income Tax Act, 1961.
2. Whether the Principal Commissioner of Income Tax (Pr.CIT) had the jurisdiction under section 263 of the Act to revise an assessment order deemed non-est due to being barred by limitation.
3. Whether the dismissal of the Special Leave Petition (SLP) by the Supreme Court could be considered a judgment affecting the assessment order under explanation 2(d) to section 263(1) of the Act.
4. Whether the Pr.CIT was justified in directing the Assessing Officer (AO) to add the entire amount of bogus purchases to the income of the assessee.
5. Whether the AO's decision to restrict the disallowance to a certain percentage of the bogus purchases was a plausible view and thus not subject to revision under section 263 of the Act.

Issue-wise Detailed Analysis:

1. Limitation under Section 153-B:
The Tribunal examined whether the assessment order dated 31/03/2016 was barred by limitation under section 153-B of the Act. The search was conducted on 23/08/2012, and the return of income was filed on 17/11/2014. An application before the Income Tax Settlement Commission was filed on 18/02/2015, and the order under section 245-D (2C) was passed on 09/04/2015. The Tribunal concluded that the limitation period for concluding the assessment expired on 31/03/2015, and even if the 60-day extension was allowed, the order should have been passed by 07/06/2015. Therefore, the assessment order passed on 31/03/2016 was barred by limitation.

2. Jurisdiction under Section 263:
The Tribunal held that since the assessment order was barred by limitation, it was non-est in the eyes of law. Following the principle established in Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117, a decree passed without jurisdiction is a nullity and cannot be revised under section 263 of the Act. The Tribunal cited similar decisions from ITAT Mumbai and Kolkata Benches, reinforcing that a non-est order cannot be revised under section 263.

3. Dismissal of SLP and Explanation 2(d) to Section 263(1):
The Tribunal addressed whether the dismissal of the SLP by the Supreme Court could be considered a judgment affecting the assessment order. Citing Kunhayammed & Ors vs State Of Kerala, [2001] 245 ITR 360, the Tribunal clarified that the dismissal of an SLP does not amount to a judgment by the Supreme Court. Therefore, the Pr.CIT's reliance on the dismissal of the SLP to invoke explanation 2(d) to section 263(1) was incorrect.

4. Addition of Entire Amount of Bogus Purchases:
The Pr.CIT directed the AO to add the entire amount of bogus purchases to the income of the assessee, based on the decision in NK Proteins Ltd Vs. DCIT. The Tribunal, however, found that the AO had conducted a thorough inquiry and reached a conclusion that the material purchased was bogus. The AO had recalculated the gross profit at 9% of the sales turnover, which was a plausible view considering the nature of the assessee's business.

5. Plausibility of AO's Decision:
The Tribunal emphasized that the AO's decision to restrict the disallowance to a certain percentage of the bogus purchases was a plausible view. The AO had considered the nature of the business and the improbability of a 94% profit margin. The Tribunal held that when two views are possible, and the AO has taken one of the possible views, the Pr.CIT cannot substitute his opinion under section 263. The Tribunal cited decisions from the Hon'ble Jurisdictional High Court and the Hon'ble Apex Court, supporting the principle that section 263 cannot be invoked when the AO's view is plausible.

Conclusion:
The Tribunal quashed the order passed by the Pr.CIT under section 263, holding that the assessment order was barred by limitation and that the AO's decision was a plausible view not subject to revision. All three appeals of the assessee were allowed.