2025 (6) TMI 155 - AT - Income Tax

Revision u/s 263 - bogus purchases - assessment order u/s 147 r/w Section 144B was erroneous and prejudicial to the interests of revenue - PCIT has concluded that 25% of the alleged bogus purchases should be brought to tax in the hands of the Assessee and has directed the AO to pass order in conformity - HELD THAT - We note that no further inquiry/verification has been carried out by the Learned PCIT to bring on record any facts. This itself established that the case before is not a case of lack of adequate inquiry. We note that while the Learned PCIT has given general directions to the AO to carry out requisite inquires and frame denovo assessment after granting the Assessee adequate opportunity of being heard the same run contrary to specific direction to bring to tax 25% of the alleged bogus purchases in the hands of the Assessee. PCIT has not invoked the provisions contained in Explanation 2 to Section 263 of the Act. Therefore it cannot even be contended on behalf of the Revenue that the Assessment Order should be deemed to be erroneous in so far as prejudicial to the interest of Revenue on account of lack of proper verification. We hold that the view taken by the Assessing Officer was a plausible view and the same cannot be subjected to revision under Section 263 of the Act merely for the reasons that the Learned PCIT does not agree with the same. Assessee appeal allowed.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal are:

1. Whether the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, revising the assessment order under Section 147 read with Section 144B, was erroneous and prejudicial to the interests of revenue.

2. Whether the PCIT erred in setting aside the assessment order on the basis that the Assessing Officer (AO) relied on a non-binding Gujarat High Court decision without proper verification and without considering binding decisions of the jurisdictional High Court.

3. Whether the addition of 6% on alleged bogus purchases made by the AO was justified or whether the PCIT was correct in directing addition of 25% of the alleged bogus purchases to the total income.

4. Whether the transactions with MM9 International and Witteneia Multitrading Pvt. Ltd. were genuine and supported by sufficient documentary evidence, negating the claim of bogus purchases.

5. Whether the AO's view adopting a 6% addition on alleged bogus purchases was a plausible view and hence not subject to revision under Section 263.

6. Whether the PCIT's revision order was valid despite the subject matter being under appeal before the Commissioner of Income Tax (Appeals) (CIT(A)).

Issue-wise Detailed Analysis

1. Validity of Revision Order under Section 263

Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is found to be erroneous and prejudicial to the interests of the revenue. However, it is well settled that revision under Section 263 cannot be invoked merely because the PCIT disagrees with the AO's view, if the AO's order is a plausible view. The Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax held that where two views are possible, the AO's order cannot be treated as erroneous and prejudicial merely because the PCIT prefers an alternate view.

Court's Interpretation and Reasoning: The Tribunal noted that the AO had conducted adequate inquiries and verification, including seeking detailed documents, invoices, GST returns, bank statements, lorry receipts, and ledger accounts to verify the genuineness of transactions with MM9 and Witteneia. The PCIT did not conduct any further inquiry or verification before passing the revision order. The Tribunal emphasized that the PCIT's order directing addition of 25% of alleged bogus purchases was based on a different judicial decision but without fresh factual verification.

Application of Law to Facts: The Tribunal held that the AO's order was a plausible view based on the available evidence and binding judicial precedent (Gujarat High Court decision allowing 6% addition). The PCIT's revision order was therefore not justified under Section 263 as it was based on a mere change of opinion without new evidence or lack of inquiry.

Conclusion: The revision order under Section 263 was set aside as the AO's order was not erroneous or prejudicial to the revenue.

2. Reliance on Gujarat High Court Decisions and Quantum of Addition

Legal Framework and Precedents: The AO relied on the Gujarat High Court decision in Vrajendra Jagjivandas Thakkar, which held that addition of 6% of the alleged bogus purchases was sufficient to meet revenue leakage, representing the embedded profit element. The PCIT relied on another Gujarat High Court decision upheld by the Supreme Court in N.K. Protein Ltd., which approved addition of 25% of bogus purchases as profit element.

Court's Interpretation and Reasoning: The Tribunal observed that the AO's reliance on the 6% addition was consistent with the profit element approach and was supported by the Gujarat High Court decision. The PCIT's direction to add 25% was based on a different case involving distinct facts but was not supported by any fresh inquiry in the present case. The Tribunal also noted that the Assessee had disclosed a gross profit of 3.02% as per the tax audit report, and the AO's 6% addition was above this figure.

Application of Law to Facts: The Tribunal held that since the AO's view was plausible and supported by binding judicial authority, the PCIT's revision based on a different judicial decision was a mere change of opinion and not sustainable under Section 263.

Conclusion: The Tribunal upheld the AO's addition of 6% and rejected the PCIT's direction for 25% addition.

3. Genuineness of Transactions with MM9 International and Witteneia Multitrading Pvt. Ltd.

Evidence and Findings: The Assessee submitted comprehensive documentary evidence including invoices, GST returns (Form GSTR-2A, GSTR-1, and GSTR-9), purchase and sales ledgers, lorry receipts, and bank statements to establish the genuineness of transactions. The AO acknowledged these documents but still treated the parties as issuing bogus invoices based on information from investigation and GST departments.

Court's Interpretation and Reasoning: The Tribunal recognized the documentary evidence submitted by the Assessee but also noted that the AO had reasons to suspect bogus purchases based on external information. However, the AO's approach of disallowing only 6% of purchases was a balanced approach reflecting the profit element embedded in the transactions rather than disallowing the entire amount.

Application of Law to Facts: The Tribunal found that the AO's partial disallowance was a plausible view reflecting the possibility of bogus purchases while considering the Assessee's evidence.

Conclusion: The genuineness of transactions was not conclusively disproved, and the AO's approach was reasonable.

4. Adequacy of Inquiry and Verification by Assessing Officer

Legal Framework: Revision under Section 263 requires that the original order be erroneous due to lack of adequate inquiry or verification. Explanation 2 to Section 263 provides that if the AO has made an inquiry or verification, the order cannot be considered erroneous on this ground.

Court's Interpretation and Reasoning: The Tribunal noted that the AO had issued notices under Section 142(1), sought detailed information, and considered voluminous documentary evidence before passing the order. The PCIT did not find lack of inquiry but only disagreed with the quantum of addition.

Application of Law to Facts: The Tribunal held that the AO had conducted adequate inquiry and verification, and hence the order could not be considered erroneous on this ground.

Conclusion: The PCIT's finding of lack of inquiry was not supported, and the revision order was unjustified on this basis.

5. Effect of Pending Appeal Before CIT(A) on Revision Proceedings

Legal Framework: Generally, revision under Section 263 can be exercised notwithstanding pendency of appeal before CIT(A), unless specifically barred.

Court's Interpretation and Reasoning: The Tribunal noted that the PCIT initiated revision proceedings while the Assessee's appeal was pending before CIT(A). However, this ground was rendered infructuous as the Tribunal set aside the revision order on substantive grounds.

Conclusion: No separate determination was required on this ground.

Significant Holdings

"Where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer on such issue cannot be treated as erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law."

The Tribunal established the core principle that revision under Section 263 cannot be invoked merely due to disagreement with the AO's view if the AO's order is a plausible and legally sustainable view supported by adequate inquiry and verification.

The Tribunal held that the AO's disallowance of 6% of alleged bogus purchases, based on a binding Gujarat High Court decision, was a plausible view and not erroneous or prejudicial to the revenue.

The PCIT's revision order directing addition of 25% of alleged bogus purchases, based on a different judicial decision without fresh inquiry or verification, was a mere change of opinion and thus unsustainable under Section 263.

Accordingly, the Tribunal set aside the PCIT's revision order dated 12/11/2024 and reinstated the assessment order dated 19/03/2024 passed under Section 147 read with Section 144B of the Act.