2023 (3) TMI 53 - HC - Income Tax

Estimation of income - Bogus purchases - 25% addition upheld by the CIT(A) - HELD THAT - In the present case, as can be seen from the faits narrated hereinabove, the Tribunal had already passed the order before the specified date and, therefore, disputed tax had to be calculated in terms of section 2(1)(j)(B) of the Ait of 2020. Designated authority had only to calculate the disputed tax by giving effect to the orders of the Tribunal. FAQ No.7 would, in our opinion, be applicable if it was a case of remand by an appellate authority to the AO, where a reasonable opportunity of being heard was not given by the Assessing Officer to the assessee or the Appellate Authority wanted the AO to carry out a fresh examination of the issue with a specific direction. In the present case, the order of the Tribunal is certainly not the one where the AO had been directed to carry out a fresh examination on any issue rather the Tribunal had clinched the issue by holding that the addition would only be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. The Tribunal remitted the matter to the file of AO for applying the ratio laid down in the case of Mohommad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT The reason why the Tribunal did not specify the amount based upon the afore-stated principle was that specific details were not readily available from various ARs/DRs for facilitating the calculation of such rates.

Summary

Issues:
1. Reassessment of income based on alleged bogus purchases under section 68 of the Income Tax Act, 1961.
2. Appeal filed before the Commissioner of Income Tax (Appeals) and subsequent appeals before the Income Tax Appellate Tribunal.
3. Application of Vivad Se Vishwas Act, 2020 in dispute resolution.
4. Disputed tax calculation based on original order of Assessing Officer versus order passed by the Tribunal.
5. Application of Circular No.09/2020 issued by the Central Board of Direct Taxes (CBDT) in issuing Form-3 for demand enhancement.

Issue 1: Reassessment of income based on alleged bogus purchases:
The petitioner's income tax return for the assessment year 2011-12 was reassessed at a higher amount due to alleged bogus purchases. The Commissioner of Income Tax (Appeals) restricted the addition to 25% of the alleged bogus purchases, leading to appeals before the Income Tax Appellate Tribunal. The Tribunal partially allowed the petitioner's appeal, remanding the matter to the Assessing Officer based on a judgment regarding adhoc addition for bogus purchases.

Issue 2: Appeals before the Income Tax Appellate Tribunal:
Both the petitioner and the revenue filed appeals before the Income Tax Appellate Tribunal regarding the addition of alleged bogus purchases. The Tribunal partly allowed the petitioner's appeal, emphasizing the need for specific details to calculate gross profit rates of genuine and hawala purchases.

Issue 3: Application of Vivad Se Vishwas Act, 2020:
The petitioner, eligible under the Vivad Se Vishwas Act, 2020, filed a declaration for disputed tax amount based on the order of the CIT(A). However, a discrepancy arose when the demand was enhanced in Form-3 issued by respondent No.4, leading to an application for ratification.

Issue 4: Disputed tax calculation based on original order versus Tribunal's order:
The dispute arose regarding the calculation of the petitioner's liability, with the petitioner arguing that the tax payable should be based on the Tribunal's order, not the original order of the Assessing Officer. The court referred to section 2(1)(j)(B) of the Act of 2020 to determine the disputed tax, emphasizing the need to give effect to the Tribunal's order.

Issue 5: Application of Circular No.09/2020 by CBDT:
The respondent's decision to issue Form-3 based on FAQ No.7 of Circular No.09/2020 issued by the CBDT was challenged. The court held that FAQ No.7 did not apply in this case as the Tribunal had already passed the order before the specified date, directing the disputed tax calculation based on the Tribunal's order, not a remand to the Assessing Officer.

In conclusion, the court set aside the respondent's decision based on FAQ No.7 and directed the proper determination of disputed tax in accordance with the Tribunal's order within a specified timeframe.