TMI Blog2019 (2) TMI 1623X X X X Extracts X X X X X X X X Extracts X X X X ..... essment farmed by the AO as erroneous and prejudicial to the interest of the Revenue in the event that alleged - HELD THAT:- We also noted that the CIT is of the view that the AO is erroneous and prejudicial to the interest of the revenue on account of the purchases made from these parties are bogus and if he hold such view, before revising the assessment u/s 263, the CIT ought to have made some inquiry of his own and for instance CIT should have issued noticed u/s 133(6) to the concerned parties or CIT should have examine whether the said parties are declared as hawala parties by Sales Tax Authorities. This indicates that the order of CIT revising the assessment is without application of mind. We find that the assessee has submitted/ produced all the documents before the AO during the course of assessment proceedings namely invoices, given details of stocks, payments were made through the banking channels and subsequently the parties were confirmed the said transaction. Even the assessee has shown sales affected from these purchases and stock tally is matching and in such circumstances the parties cannot be held non-genuine. Hon ble Bombay High Court in the case of MOIL Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociates through M/s Aarthi Shah advised not to challenge the revision order rather pursue the matter before the AO. Affidavit of M/s Aarthi Shah partner of M/s Pradeep Kumar singhi and his Associates was also filed by assessee, wherein she stated the above said position and the relevant Para 6 to 8 of the affidavit reads as under: - 6. That our firm generally handles tax matters only upto assessment/ first appellate proceedings and therefore we were not much conversant about the provisions under the Act that the said revision order under section 263 could be appealed before the Tribunal. 7. That I was also under an honest and bonafide belief that the consequential order that would be passed by the AO as per the direction of the PCIT only could be challenged in appeal. 8. That while complying with/drafting reply to the notice under section 142(1) dated 25 October 2018 issued by the AO for giving effect to s. 263 order and received by the assessee on 29 October 2018, the matter was again discussed with other tax experts and it was advised that the appeal can be filed against the said revision order. 3. It was further contended by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d bogus purchase amounting to ₹ 8,22,86,744/- On the facts and in the circumstances of the case and in law, Ld. PCIT erred in setting aside the order of the AO and directing him to examine the purchases to the tune of ₹ 8,22,86,744/- The appellant prays that it be held that the purchases made by the Appellant be held as genuine and no re-examination/ disallowance / adjustment is warranted. 6. Briefly stated facts are that the assessee filed its return of income for the relevant AY 2013-14 on 02.09.2013 and the same was processed under section 143(1) of the Act. Subsequently, assessment was completed under section 143(3) of the Act vide order dated 04.09.2015. The assessee is engaged in the business of manufacturing and trading of loose, cut and polished demands and demands studded jewellery. Subsequently, the PCIT-19 Mumbai issued show cause notice vide show cause No. Pr. CIT-19/Vishal Gems/2016-17 dated 07.06.2016 stating that during the year under consideration assessee had not made any purchase but has taken accommodation entries of bogus purchases from Daksh Diamond Jewel Diamond amounting to ₹ 8,22,86,744/-. According to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heque and all these entries are reflected in the books of account of the assessee. The assessee filed all the evidences before PCIT. Even now, the assessee has filed these details before Tribunal by pages 75 to 100 of assessee s paper book. It was claimed by the assessee before PCIT that all these details were scrutinized during the original assessment proceedings framed by the AO under section 143(3) of the Act i.e. the details filed in response to notice issued under section 143(2) of the Act. But the PCIT without going into the details, the details which is filed before AO in respect of purchase made from Daksh Diamond Jewel Diamond amounting to ₹ 8,22,86,744/- directed the AO to examine the purchases claimed from the above mentioned parties. According to PCIT, non-examination of the claim of purchases of ₹ 8,22,86,744/- from the above two parties makes assessment order erroneous so far as it is prejudicial to the interest of the Revenue. The relevant finding for the same by PCIT reads as under: - 7. I have considered the submissions of the assessee and the record. It is not disputed by the assessee that the two parties from whom purchases of ₹ 8,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of sales and purchase enclosed and relevant reply reads as under: - 3. Part wise details of Sales and Purchases Party wise details of sales and purchase along with quantity is enclosed vide Annexure C 10. Further, the learned Counsel for the assessee drew our attention to P-68 of the assessee s paper book, wherein the details of inventory were provided to the AO vide letter dated 17.08.2015 and the relevant Para 7 of the letter reads as under: - 7. Details of inventory Details of inventory indicating opening stock, purchase, sales and closing stock along with yield percentage along with soft copy is enclosed vide : Annexure G . the assessee firm has drawn yield of 36% from the raw materials. 11. The learned Counsel for the assessee argued that the complete inventory of closing stock and day to day stock was produced before the AO during the original assessment proceedings and nothing was there relating to bogus purchases. The learned Counsel for the assessee stated that the assessee has paid VAT. The learned Counsel for the assessee was confronted that the decision of jurisdictional High court in the case of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the evidences, and has not arrived at any independent satisfaction that the order of the AO is erroneous and he has simply held that the order is erroneous based on the alleged information received from the Investigation. Department This is a clear case of borrowed satisfaction which was not the case before the Hon. Bombay High Court in Shoreline Hotel s case. It may be noted that in the course of proceedings under section 143(3) rws 253, the Assessee has produced affidavits from the said parties that they are independent from the Bhavarlal Jain Group. These affidavits are set out at pages 591 to 594 of Additional Evidence Paper Books filed on January 10,2019 Further, the parties have replied to the notice issued under section 133(6) in course of proceedings under section 143(3) read with section 263. Refer page No. 595 to 600 of Additional Evidence Paper Books filed on January 10, 2019. Erroneous nature of the Assessment In the case before the Bombay High Court, the Assessee could not produce the parties and hence agreed for a GP Addition. Since the Assessee has agreed for GP addition, the AO di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court has dealt with the similar proposition by observing as under:- 12. The re-opening of an Assessment is an exercise of extra-ordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before re-opening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of re-opening Assessment and its reasons which would evidence the linkage/nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v. Lakhmani Merwal Das [1976] 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue . 11. In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the Corporate Social Responsibility were specifically mentioned as health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed note on the expenditure on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed that the appellant - assessee is a Government of India undertaking and the Government has a control over the expenses of the undertaking. It is pertinent to note that during the previous assessment years, similar claims were made by the assessee - Company and the assessment orders allowing the claims have attained finality. We have minutely perused the assessment order. The claims for deductions were made by the assessee at least under 20 heads and queries were made in the notice under Section 142 (1) of the Act to the assessee in respect of nearly all of them. We, however, find from the assessment order that the Assessing Officer has dealt with nearly nine claims of deductions. These claims have been specifically mentioned in the assessment order and they have been discussed therein because the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case, we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In view of the law laid down in the judgments in the case of Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) it would be necessary to hold that in the circumstances of the case, it cannot be said that merely because the Assessing Officer had not specifically mentioned about the claim in respect of the Corporate Social Responsibility, the Assessing Officer had passed the assessment order without making any enquiry in respect of the allowability of the claim of Corporate Social Responsibility. In our view, the provisions of Section 263 of the Act could not have been invoked by the Commissioner of Income Tax in the circumstances of this case. The Tribunal was not justified in holding that the query under Section 142 (1) of the Act was very general in nature and the reply of the assessee was also v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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