Section 263 of the act – Revision – during the reassessment, the A. O considered the issues of bogus purchase and estimating the GP addition @2.28% of the bogus purchase by passing the order u/s 143(3) r.w.s. 147 of the act – The opinion as arrived by the A.O is at a variation of the opinion of the learned Pr. CIT, would not grant the learned Pr. CIT the powers of revision u/s 263 of the Act.

Facts of the case:

The assessee filed its return of income on 20/09/2011 for the AY 2011-12, declaring a total income of Rs. 4,70,270/-. The return was processed u/s 143(3) r.w.s. 147 of the Act on 07/12/2016 determining the total income to the tune of Rs. 8,53,370/-. The case of the assessee was reopened u/s 263 of the Act by virtue of notice dated 05/03/2019 on account of following reasons. 

“The A.O has added back 2.28% of the tote’ bogus purchases i.e.Rs.3,83,102/-for A.Y. 2011-12.  Further by relying upon judgement of the Hon’ble Supreme Court in the case of N. K. Proteins vs. DCIT-2017-T/OL-23SC-IT dated 16.01.2017 wherein it was held that addition on basis of undisclosed income could not be restricted to a certain percentage when the entire transaction was found as bogus. Further, the A.O has also relied upon the judgement of Gujarat High Court in the case on CIT-1 vs Simit P. Sheth wherein the High Court has held the addition @ 12.5% of the bogus transactions.  Thus, on the basis of examination of records it is found that the A.O without making proper inquiry or verification has erroneous/y passed the assessment order after making the addition @ 2.28% instead of 12.5%. The order passed by the AO is thus prejudicial to the interest of revenue.”  

The assessee filed the appeal before ITATA. 

Assessee submitted:

The assessee has challenged the validity of reopening of the assessment of the assesee in view of the provision 263 of the Act. The contention of the assessee is that the AO has already examined the issue and considered the alleged purchases and added back to 2.82% of the total purchases i.e. 3,83,102/- for the AY 2011-12 to the income of the assessee, but the PCIT under order challenged has directed to consider the addition @12.5% of the bogus purchases which is not justifiable in accordance with law, hence the order u/s 263 of the Act is liable to be set aside.

Tribunal held:

The Tribunal held that the assessment order dated 07/12/2016 is on the file which speaks that the issues of bogus purchase has already been considered by the AO and the AO has considered the GP ratio @2.28% upon the total bogus purchase is added to the income of the assessee. Subsequently the order under challenged u/s 263 was passed on 29/03/2019.

The Jurisdictional High Court in the case of CIT vs Nirav Mody 390 ITR 292 (Bom), has held that when a particular view has been taken by the AO, then on the same reasons, the case of the assessee is not required to be reopened in view of the provisions u/s 263 of the Act,  CIT vs Amitabh Bachchan, 384 ITR 200 (SC) has also speaks that where a specific view has been taken by the AO then interference u/s 263 is not permissible. Maharashtra High Court in the case of CIT vs Gabriel India Ltd. 203 ITR 108 (Bom) has also speaks the same thing in same sense. The facts of the case relied by the Ld. DR i.e. Sphinx Precision Ltd. Vs. CIT, Shimla (2007) 11 SOT 498 (Chd) is quiet distinguishable from the facts of the present case being in this case, there was an error in calculation of deduction u/s 80HHC and an error in calculation of income u/s 115JA and the order of the AO was silent on these issues. Taking into account all these facts and circumstances and considering these facts that the issue has not been considered by the AO, while passing order dated 07/12/2016. Therefore, there is no justification invoking the provision u/s 263 of the Act in accordance with law. Therefore, ITAT set aside the order in question and allowed the appeal of the assessee.

Reference order of ITAT Delhi: Amitanil Modi (HUF) v. PCIT-33 [ I.T No. 03/Mum/2020, date of order: 31/05/2021, Mum Tribunal]

Contribution by  Ravindra Pooajary ,Tax Advocate and Managing Partner Santosh Poojari at Bhatia and Poojari Chartered Accountants.

Any query related to income tax and Goods and Service Tax matter you can reach by us. Cell no: 9082286926, 7208302128 and Email: Cabnp@bnpcorporate.com