ORDER
Pranav Trivedi, J.- Heard learned Senior Standing Counsel Mr. Dev Patel appearing for the appellant – Revenue.
2. This Tax Appeal filed under Section 260A of the Income Tax Act, 1961 (for short “the Act”), assails the order dated 14.10.2024 passed by the Income Tax Appellate Tribunal, “A” Bench, Ahmedabad, (for short “the Tribunal”) in Bhagat Marketing (P.) Ltd. v. Pr. CIT [IT Appeal No. 921 (Ahd.) of 2024, dated 14.10.2024] for the Assessment Year 2016-17. The appellant-Revenue has proposed the following substantial questions of law:
” (a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in setting aside the order passed under Section 263 of the Income Tax Act, 1961 despite the Principal Commissioner of Income Tax (PCIT) having clearly pointed out that the assessment order dated 27.03.2022 was erroneous and prejudicial to the interest of the revenue due to failure on part of the Assessing Officer to make the addition of 100% of the bogus purchase u/s. 69C of the Act instead of 12.5% of the bogus purchase under normal provisions, resulting in underassessment of income and short levy of taxes?
(b) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in holding that the view taken by the assessing officer to make addition of 12.5% of the bogus purchases under normal provisions is legally plausible, without considering the fact that once the purchases have been established to be bogus in nature, addition is to be made of the 100% of the bogus purchase u/s. 69C of the Act as per the provisions of section 115BBE of the Income Tax Act, 1961?”
3. The brief facts leading to filing of the present appeal are as under:
3.1 The assessee is a private limited company, inter alia engaged in trading of stainless steel and has filed its Return of Income for the Assessment Year 2016-17 on 11.09.2017 declaring total loss at Rs.(-)10,059/-. An Assessment Order under Section 147 of the Act read with Section 144B of the Act was passed by the Assessing Officer on 27.03.2022 determining the assessed income at Rs.1,13,02,151/-. The addition of Rs.1,13,12,210/- constituted 12.5% of alleged non-genuine purchases amounting to Rs.9,04,97,678/-. During the course of assessment proceedings, the Assessing Officer had observed that there were purchases worth Rs.9,04,97,678/- by the assessee from M/s. Varia Aluminium Pvt. Ltd., which tantamounted to bogus purchases.
3.2 It was the case of the assessee before the Assessing Officer that the alleged bogus purchases were not purchased at all. According to assessee, after inspecting the material, the assessee had found the material to be unsatisfactory and had not accepted the delivery. However, the Assessing Officer had not accepted the arguments canvassed by the assessee and determined the total income at Rs.1,13,02,151/-, which was equivalent to 12.5% of the alleged unverified purchases from M/s. Varia Aluminium Pvt. Ltd.
3.3 The matter was taken under revision by the Principal Commissioner of Income Tax, Ahmedabad-1, by issuing a notice on 16.02.2024 under Section 263 of the Act by observing that the Assessing Officer despite recognizing the dubious nature of the transactions, had added only a fraction of the alleged bogus purchases which resulted into an erroneous and prejudicial order being passed by the Assessing Officer. In view of the same, by way of order dated 19.03.2024, the Principal Commissioner of Income Tax, under Section 263 of the Act revised and set aside the Assessment Order dated 27.03.2022 passed under Section 147 of the Act read with Section 144B of the Act by observing that the Assessing Officer has failed to make addition in accordance with the provisions of the Act. It was further observed by the Principal Commissioner of Income Tax, that the error committed by the Assessing Officer in the Assessment Order has resulted into loss of the the revenue. The Principal Commissioner of Income Tax, therefore, observed as under:
“7.1 In view of the fact of the case and ruling of Hon’ble Supreme court, it is clear that the assessment order is passed by the A.O without making proper examination of the issues mentioned above. The Assessing Officer has failed to make addition in accordance with the provisions of the Act. The error in the assessment order has resulted into loss of revenue. The order passed by the Assessing Officer is, thus, erroneous and prejudicial to the interest of the Revenue. Therefore, provisions of section 263 of the Act are applicable in this case.
8. Hence, in exercise of power conferred in me u/s 263 of the Act, I set aside the assessment order passed u/s.147 r.w.s 144B of the Income tax Act dated 27.03 2022 for the A.Y 2016-17 with the direction to the AO to pass a fresh assessment order in accordance with law and after duly examining the facts of the case to the extent of the issues discussed supra after giving the assessee a reasonable opportunity of being heard.
9. Revised accordingly u/s. 263 of the Act.”
3.4 Being aggrieved by the order passed by the Principal Commissioner of Income Tax, the assessee preferred an appeal before the Tribunal. The Tribunal allowed the appeal preferred by the assessee after observing that the proceedings under Section 263 of the Act cannot be taken as a recourse only for the purpose of substitution of view of the Principal Commissioner of Income Tax with that of the Assessing Officer, if such view by the Assessing Officer is also a legally plausible view, albeit resulting in lower quantum addition in the hands of the assessee. Being aggrieved by the order passed by the Tribunal, the revenue is in appeal under Section 260A of the Act before this Court.
4. Learned Senior Standing Counsel Mr. Dev Patel appearing for the appellant – revenue, submitted that despite the Principal Commissioner of Income Tax having pointed out that the Assessment Order dated 27.03.2022 was erroneous and prejudicial to the interest of the revenue in view of failure on the part of the Assessing Officer to make the addition of 100% of the bogus purchase under Section 69C of the Act instead of 12.5% of the bogus purchase under normal provisions, the Tribunal has erred in passing the order dated 14.10.2024 which set aside the order passed under Section 263 of the Act.
4.1 It was further submitted that the Tribunal has erred in holding that the view taken by the Assessing Officer to make addition of 12.5% of the bogus purchases under normal provisions is legally plausible and is without considering the fact that once the purchases have been established to be bogus in nature, addition is to be made of the 100% of the bogus purchase under Section 69C of the Act as per the provision of Section 115BBE of the Act.
4.2 It was also further submitted that the assessee had failed to prove the genuineness of the purchases which were established by the Assessing Officer in the Assessment Order that the purchases made by the assessee from M/s. Varia Aluminium Pvt. Ltd. were bogus in nature, and therefore, as per the rule, addition in such cases has to be made under Section 69C of the Act of the entire expenditure involved and tax is to be calculated as per the provisions of Section 115BBE of the Act. Therefore, the view taken by the Assessing Officer is not legally plausible as held by the learned Tribunal.
4.3 Learned Senior Standing Counsel Mr. Patel further submitted that failure on the part of the Assessing Officer to assess the income of the assessee correctly has rendered the order erroneous and prejudicial to the interest of the revenue within the meaning of Section 263 of the Act. Referring to section 263 of the Act, learned Senior Standing Counsel Mr. Dev Patel further submitted that since the Assessment Order passed by the Assessing Officer was without proper examination and prejudicial to the interest of the revenue, the Principal Chief Commissioner of Income Tax has rightly exercised his revisional powers under Section 263 of the Act.
4.4 It was further submitted by learned Senior Standing Counsel Mr. Dev Patel that the order under Section 263 of the Act was passed after giving ample opportunities to the assessee and after considering the response filed by the assessee, and therefore, the PCIT-1, was right in setting aside the Assessment Order dated 27.03.2022 passed under Section 147 of the Act read with Section 144B of the Act.
5. Having heard the learned Senior Standing Counsel appearing for the appellant and having perused the material on record, it is not in dispute that the Assessing Officer had taken a plausible view and made an addition of 12.5% considering the purchases by the assessee as bogus purchases. The Principal Commissioner of Income Tax has not attached any illegality to the order of the Assessing Officer but has observed that by not considering the total amount of alleged bogus purchases and not taxing the whole amount, the Assessing Officer has made loss to the revenue. It was further observed by the Principal Commissioner of Income Tax that the Assessing Officer has not considered the settled position of law laid down by the Hon’ble Apex Court in the case of N.K. Industries Ltd. v. Dy. CIT (Gujarat).
5.1 The Tribunal, while setting aside the order of the Principal Commissioner of Income Tax had observed that the assessee had categorically given proof of the fact that the goods which were supplied by M/s. Varia Aluminium Private Limited to the assessee were returned back by the assessee on the ground that the same were defective and not meeting the quality standards. However, without dwelling into that issue, even if the purchases were considered to be bogus as alleged, then also the Assessing Officer had taken a legally plausible view by considering 12.5% of the bogus purchases for addition to the income of the assessee.
5.2 It was categorically observed by the Tribunal that the Principal Commissioner of Income Tax has erred in revising the order by not following the dictum laid by the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT 243 ITR 83 (SC). It was observed by the Tribunal that in Malabar Industrial (supra), the Hon’ble Apex Court has categorically observed that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue unless the view taken by the Income Tax Officer is unsustainable in law.
5.3 In the instant case, there is nothing on record to show that the view taken by the Assessing Officer was unsustainable in law. The Tribunal had categorically observed that the Assessing Officer has taken a legally plausible view, wherein, 12.5% of the bogus purchases were disallowed. Therefore, the observation of Principal Commissioner of Income Tax with regard to the ratio laid down by the Hon’ble Apex Court in the case of N.K. Industries (supra), being not followed by the Assessing Officer would be an incorrect observation. Further, the facts as envisaged in N.K. Industries (supra), will not be applicable to the facts of the present case. The Tribunal while allowing the appeal of the assessee had categorically observed as under:
“6. We have heard the rival contentions and perused the material on fecord Before us, there are two primary contentions of the Counsel for the assessee. Firstly, the counsel for the assessee submitted that he has not made any purchases from M/s. Varia Aluminium Pvt. Ltd. and therefore, there is no question of making any additions so far as bogus purchases are concerned. The second contention of the Counsel for the assessee is that even if the purchases were to be considered as bogus, the assessing officer took a legally plausible view and made a disallowance/addition of 12.5% and added the same to the income of the assessee during the course of assessment proceedings. Thirdly, it was also submitted that the assessing officer had made due enquiries during the course of assessment proceedings and the assessee had also filed reply to the queries made by the assessing officer and hence, evidently in the instant facts there is no lack of enquiry on the part of the assessing officer. Further it was submitted before us that the additions made by the assessing officer are also pending adjudication before Ld. CIT(Appeals) since the assessee has filed appeal against the order passed by the assessing officer. On going to the facts of the instant case, we shall not be commenting specifically on whether the assessee had in fact made purchases in the first instant or not. The issue of whether purchases were made in the first instance by the assessee from M/s. Varia Aluminium Pvt. Ltd. is pending adjudication before Ld. CIT(Appeals). However, we do observe that the assessee has all throughout maintained that no purchases has been made by the assessee from M/s. Varia Aluminium Pvt. Ltd. But at the same time, on going through the contents of the assessment order, it is also observed that no records in the form of any accounting entries etc has been found in either the books of the assessee or in the books of M/s. Varia Aluminium Pvt. Ltd. which confirmed that the goods which were supplied by M/s. Varia Aluminium Pvt. Ltd have been returned back by the assessee on the ground that the same were defective and not meeting the quality standards. However, we are not specifically delving into this issue, but the purchases were considered to be bogus as alleged, then whether the assessing officer took a legally plausible view that only 12 5% of bogus purchases should be added to income of the assessee The PCIT was of the view that the entire bogus purchases should be added to the income of the assessee and not only 12 5% of such bogus purchases, and therefore, the assessment order is erroneous insofar as prejudicial to the interests of the Revenue.
7. The Hon’ble Apex Court in the case of
Malabar Industrial Co. Ltd. v.
CIT (2000) 243 ITR 83 (SC), wherein it was held as under
“When an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law.”
8. The said view has also been held in a judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT v. Indo German Fabs IT Appeal No. 248 of 2012, dated 24-12-2014, in the following words
“Section 263 of the Act confers power to examine an assessment order so as to ascertain whether it is erroneous and prejudicial to the interest of the revenue but does not confer jurisdiction upon the CIT to substitute his opinion for the opinion of the Assessing Officer. The words prejudicial and erroneous have to be read in conjunction and therefore, it is not each and every error in an assessment that invites exercise of powers under Section 263 of the Act, but only orders that are erroneous and prejudicial to the interest of the revenue”
9. In a decision rendered by Delhi High Court in the case of
CIT v.
Sunbeam Auto 332 ITR 167 (Del.), wherein, while considering the distinction between lack of inquiry and inadequate inquiry, the Hon’ble Court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of Inadequate inquiry:
“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue wat that while parsing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record at to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner so pass orders under section 263 of the Act. merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with low makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualized where the Income-tax Officer while making on assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
15. Thus. even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore it cannot be said that it is a case of “lack of inquiry”.
10. Accordingly, looking into the instant facts, we are of the considered view that the Counsel for the assessee has been able to substantiate that this is not a case of “lack of enquiry” on part of the assessing officer and during the course of assessment proceedings, queries were raised by the assessing officer on this issue and the assessee had also replied to the same Further, we observe that the assessing officer had taken a legally plausible view in which 12.5% of the bogus purchases were disallowed/added to the income of the assessee However, PCIT held that the assessment order was that the assessing officer should have added the entire bogus purchases as income of the assessee and failure to do so rendered the assessment order as erroneous/insofar as prejudicial to interest of the Revenue. However, we are Unable to agree with the view taken by the PCIT, since this would amount to substitution of the opinion of the PCIT with the view taken by the assessing officer, which also is a legally plausible view, albeit resulting in lower addition in hands of the assessee. However, as observed by assessee preceding paragraphs as also held by various judicial precedents, proceedings under Section 263 of the Act cannot be taken recourse to only for the purpose of substitution of the view of the PCIT with a view of the assessing officer, if such view by the assessing officer is also a legally plausible view, albeit resulting in lower quantum of addition in the hands of the assessee.”
6. In view of the observations made hereinabove and for the fact that the observations made by the Assessing Officer are legally plausible and not unsustainable in the eyes of law, we do not attach any infirmity with the order passed by the Tribunal. It has been categorically established that instant case does not relate to lack of inquiry, but relates to substitution of the opinion of the PCIT with the view taken by the Assessing Officer. We, therefore, categorically hold that no question of law, much less any substantial question of law arises in the present tax appeal.
7. In view of the same, the tax appeal is accordingly dismissed with no order as to costs.
