TMI Blog2017 (12) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... come or only a portion of the purchases towards inflated cost. CIT has made reference to Explanation-2 to Sec.263 of the Act introduced by the Finance Act, 2015. Explanattion-2 so introduced sets out cases in which order of the AO can be deemed as erroneous. The said explanation does not dispense with compliance or existence of (i) there being no enquiry made by the AO; (ii) the AO’s conclusion being contrary to CBDT Circular or (iii) against decision of Jurisdictional High Court or Supreme Court. In the present case the CIT in the impugned order has not brought facts to show the existence of absence of enquiry especially when the AO has already concluded that the purchases by the assessee from four parties mentioned by the DGIT(Investigation) Mumbai in its report were bogus. Thus the orders of the AO were not erroneous and prejudicial to the interest of the revenue for failure to make enquiry on the applicability of Sec.69C of the Act. We, therefore, quash the orders u/s 263 of the Act and allow the appeals of the assessee. - ITA Nos. 509 & 510/Kol/2017 - - - Dated:- 13-12-2017 - Shri N. V. Vasudevan, JM And Dr. Arjun Lal Saini, AM For the Appellant : Shri A.K.Tibrew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished confirmation from the dealers who were alleged to have issued bogus purchase bills. Their addresses were also furnished. Most importantly, the assessee gave details of the payments made to the parties in A.Y.2010-11 and 2011-12 which are given as Annexure I for A.Y.2010-11 and Annexure-II for A.Y.2011-12. The bank statement evidencing encashment of cheques for purchases were also given to the AO. The AO after taking cognisance of all the details filed came to the conclusion that 3% of the bogus purchases should be treated as income of the assessee for both the assessment years. According to the A O the practice of obtaining false purchase bills is only to inflate the value of purchase. The actual purchase value from the grey market would be much lower than the real market value and bogus purchase bills at higher value are obtained to inflate cost of purchases and reduce profit as per books of Accounts. . The AO was also of the view that from the quantities of stock filed by the assessee, it was clear that the sales were made to the Government and reputed organisations and therefore the sales made by the assessee cannot be disbelieved. In these circumstances, the AO was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perhaps did not get chance to suppress sales. As a result . there was necessity for the assessee co. to introduce purchase bills to manage its profit to a desired and consistent rate .The attempt of the assessee co failed due to detection or the concerned sales tax authority and communication in this regard by office by the DGIT ( Inv) . Mumbai . However. in consequence to the findings of the sales tax department it may easily be inferred that the assessee eo. made purchases at a rate which is much lower than the rate claimed by it of ₹ 12,76,205 + ₹ 20,54,707 totalling to ₹ 33,30,912. As such . it can be inferred that the assessee earned profit at a higher rate than the rate reflected in the audited accounts by selling the goods as above, It is seen from the Audited accounts that the rate of gross profit declared by the assessee from its regular business for the year is 9.48%. The purchase as discussed above would earn gross profit at a higher rate which is estimated at 3% above the rate' declared from regular business Based on the discussion as .above the additional profit earned by the assessee is computed as Rs (33,30.912 X 109.5-/100) X ( 3 / I 00) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT ( Inv) . Mumbai . However. in consequence to the findings of the sales tax department it may easily be inferred that the assessee co. made purchases at a rate which is much lower than the rate claimed by it of ₹ 3,5,172 + ₹ 297710 + ₹ 3267888 + ₹ 3403534 totalling to ₹ 7284304/-. As such . it can be inferred that the assessee earned profit at a higher rate than the rate reflected in the audited accounts by selling the goods as above, It is seen from the Audited accounts that the rate of gross profit declared by the assessee from its regular business for the year is 9.48%. The purchase as discussed above would earn gross profit at a higher rate which is estimated at 3% above the rate' declared from regular business Based on the discussion as .above the additional profit earned by the assessee is computed as Rs (7284304 X 109.2-/100) X ( 3 / I 00) which is ₹ 238633/- which is added to the income of the assesse. 6. The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interest of the revenue in as much as the AO had not examined the addition to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and decisions rendered by judicial forums on similar facts. The assessee drew attention of CIT to the following decisions where, on similar facts, it has been held that the alleged bogus purchases could not be disallowed but addition of certain percentage could, at best, be added . (i) In CIT vs. Smith P. Sheth [2013] 38 taxmann.com 385 (Gujarat) The Hon'ble Gujarat High Court held that where purchases were not bogus but were made from parties other than those mentioned in books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of assessee (ii) In CIT vs. Satyanarayan P. Rathi [2013] 38 taxrnann.com 402 (Guj) - The High Court of Gujarat held that where purchase of raw material was not made from party from whom assessee claimed but such material was purchased from open market incurring cash payment, only profit element of such purchases and not entire purchases was to be added to income of assessee. 10. With regard to the allegation of the CIT in the show cause notice u/s 263 of the Act that the Assessing Officer did not examine the applicability of section 69C of the Act and did not make addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the Assessing Officer was wholly justified in not adding back the entire amount of alleged bogus purchases in as much as the payments were made by account payee cheques from the disclosed bank account and were duly recorded in the regular books of accounts which were produced before the Assessing Officer and he verified the same. The Assessing Officer made other Inquiries also as would be evident from the assessment records and thereupon he came to conclusion that the addition of the entire amount of alleged bogus purchases could not be made under section 69C of the Act and decided to make addition of ₹ 2,38,633 for possible inflation of purchases. 12. The estimated addition was made by him after making inquiry and after considering the entire facts of the case. Thus the Assessing Officer's view was one of the legal view and therefore the assessment order passed by him could not be held to be erroneous. The assessee relied on the observations at Page 88 of the judgment of Hon'ble SC in the case of Malabar Industrial Co. Ltd. (2000) 243 ITR 83 (SC) For example, when an Income-tax Officer adopted one of the courses permissible In law and it has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as it is prejudicial to the interests of the revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 30.03.2015 is liable to set-aside. Therefore, I set aside the said assessment order directing the present A.O. to frame the assessment afresh after considering the aforesaid observations, Hon'ble Supreme Court and Hon'ble High Court decisions and the provisions of Sec.69C of I.TAct. 1961. 13. In the result, the assessment order 147 dated 30.03.2015 for A.Y.2012-13 is set aside to the file of the Assessing Officer with a direction to pass a fresh assessment order after considering the aforesaid observations, as per law and after giving an opportunity of being heard to the assessee. 15. Aggrieved by the aforesaid orders of CIT the assessee has preferred the present appeals before the Tribunal. 16. We have heard the submissions of the ld.counsel for the assessee, who firstly reiterated the submissions as were made in reply to the show cause notice u/s 263 of the Act. The ld. Counsel further submitted that in the impugned order the CIT has relied on the Explanation 2 to section 263 of the Act ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cknowledged in the order of Assessment that during the course of assessment proceedings the assessee filed various submissions ad account statements including copy of bills etc showing purchases from the four parties which according to the information received from DGIT(Mumbai) were bogus. The assessee also filed details of corresponding sales against purchases from the aforesaid four parties. These details are placed at page 46 to 48 and 57-60 of the assessee s paper book for A.Y.2010-11 and 2011-12 respectively. The assessee also filed confirmation from the four parties the purchases from whom it was alleged by the revenue to be bogus. These confirmations are placed at pages 40 to 45 and 41 to 56 of the assesse s paper book for A.Y.2010-11 and 2011-12. The assessee also filed all copies of sales bills of all sales effected by it during the previous year relevant to A.Y.2010-11 and 2011-12. These details are available at page 69-153 and 91-203 of assessee s paper book for A.Y.2010-11 and 2011-12 respectively. The statement showing the source of funds and the mode of payment for the purchases which were claimed by the revenue to be bogus were also furnished. These details are given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, the assessee has shown the expenditure on purchases in the books of accounts and explained the source of payment through banking channels. In such circumstances, there was no basis to say that applicability of the provisions of sec.69C of the Act were not enquired into by the AO while concluding the assessment. The Hon ble Allahabad High Court in the case of Pr. CIT vs Ram Shankar Yadav (supra) held that provisions of Sec.69C of the Act are not mandatory and the AO has discretion to add or not to add unexplained expenditure based on sound judicial principles. 25. In the impugned order, the CIT has observed that the AO ought to have made enquiries from the alleged bogus purchase bill/entry providers and held that purchases were bogus. The AO has already held that the purchases were bogus and the only question before him was as to whether the entire purchases ought to be added as income or only a portion of the purchases towards inflated cost. 26. The CIT has made reference to Explanation-2 to Sec.263 of the Act introduced by the Finance Act, 2015. Explanattion-2 so introduced sets out cases in which order of the AO can be deemed as erroneous. The said explanation does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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