M/s Jaydeep Cotton Fibres Pvt. Ltd., RAJKOT-GUJARAT V. The Pr. CIT, Central, Ahemdabad, Ahemdabad

ITA 159/RJT/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9389 (ITAT-RAJKOT)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 03-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Third party statement; Assessment record; TDS; Set aside; Bogus
• Section: 147; 148; 37; 263; 143(3); 20

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER, And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं./ITA No. 159/Rjt/2022 िनधाᭅरण वषᭅ/Asstt. Years: 2015-2016 M/s. Jaydeep Cotton Fibres Pvt. Ltd., C-805 Imperial Heights, 150 Ft. ring Road, Rajkot. PAN: AAACJ5374P Vs. The Principal Commissioner of Income Tax, Central, Ahmedabad. Assessee by : Shri Mehul Ranpura, A.R Revenue by : Shri Aarsi Prasad, CIT. D.R सुनवाई कᳱ तारीख/Date of Hearing : 08/07/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 07/09/2022 आदेश/O R D E R PER BENCH: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax (Central), Ahmedabad, dated 01/02/2022 arising in the matter of assessment order passed under s.263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-16. 2. The only interconnected issue raised by the assessee is that the learned Principal CIT erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue. ITA No. 159/Rjt/2022 A.Y. 2015-16 2 3. The brief facts are that the assessee is a private company and filed return of income for the year under consideration declaring NIL income. The assessment was reopened under section 147 of the Act. The AO in the reassessment proceeding found that that 10% of the URD purchases made by the assessee were not verifiable. Accordingly, the AO assumed that these purchases were made from commission agents. Hence, the AO made addition of commission @ 0.03 % of 10% of URD purchases which comes at Rs. 7,01,493/- and framed the assessment only. 4. The ld. PCIT on examination of the assessment records of the assessee, found that there is no evidence submitted by the assessee or culled out by the AO that the 10% of URD expenses were made from commission agent. The AO merely on the basis of assumption made addition of commission expenses instead of making the addition of entire unverified or non-genuine URD purchases of Rs. 23,38,31,152/- only. Accordingly, the PCIT initiated the proceedings under section 263 of the Act vide show cause notice dated 23 March 2022. 5. The assessee in response to such show cause notice submitted that during the assessment proceeding, the detailed submission with regard to purchases were made. The AO has not doubted the quantitative detail of purchases and sale and stock. It was only doubt of the AO that the parties from whom such purchases were made, the supporting documents such as bills/invoices were not available with regard to 10% of URD purchases. Therefore the AO reached to the conclusion that purchases were made from commission agent and made addition of commission expenses. Thus, the AO after considering the submission and application of mind has taken this view. Therefore, there is no error in the order of the AO in this regard as the AO has taken one of the possible view. 5.1 The assessee also submitted that the reassessment order under section 143(3) read with 147 of the Act has been agitated before the CIT(A). Therefore as ITA No. 159/Rjt/2022 A.Y. 2015-16 3 per the provision of explanation 1(c) to section 263, the notice issued by the ld. PCIT lacks legal jurisdiction and therefore the same needs to be withdrawn. 6. However, the ld. PCIT disagreed with the submission of the assessee and held that the AO has clearly given a finding that 10% of URD purchase were not verifiable. Thus, the genuineness of such purchases were not established. However, the AO in next para assumed that such purchases were made from commission agents without bringing any material suggesting such assumption. Thus, in the absence of materials on record suggesting otherwise, the entire unverified purchases should have been disallowed under section 37 of the Act. Therefore, the order of the AO is erroneous and prejudicial to the interest of Revenue for the reason that the claim of the purchases has been allowed despite the fact that 10% of URD purchases remain unverified. Thus, the learned PCIT exercising the power conferred under section 263 of the Act set aside the order of the AO for fresh assessment. 7. Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us. 8. The learned AR before us filed a paper book running from pages 1 to 95 and contended that the proceedings under section 147 of the Act were initiated on account of URD purchases. As such, the assessee before the investigation wing before taking up the case under scrutiny has demonstrated based on the documentary evidence about the URD purchases. All these details for of available before the AO which would duly considered at the time of assessment which can also be verified from the assessment order framed under section 147 of the Act. Thus, there is no ambiguity to the fact that there was application of mind of the AO in the assessment framed under section 147 of the Act. 8.1 The learned AR also contended that the assessee against the order of the AO has preferred an appeal before the learned CIT-A on account of the addition made by him. Thus, the order of the AO got merged with the order of the learned CIT-A. ITA No. 159/Rjt/2022 A.Y. 2015-16 4 Therefore, the proceedings under section 263 of the Act are invalid on the same issue of URD purchases. 9. On the contrary, the learned DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessment order has been passed by Ld. AO is proper and after due application of correct mind with respect to unverified URD purchases as discussed above and hence the assessment is erroneous insofar prejudicial to the interest of the Revenue and thus requiring revision by Pr. CIT u/s 263 of the Act. 10.1 Admittedly the assessment in the case of the assessee was framed under section 143(3) read with section 147 of the Act. The reassessment proceeding was started based on the extensive survey proceeding carried out in case of the assessee dated 10 th August 2016. In the post survey proceedings, the ADIT Investigation-II Rajkot carried marathon inquiries and verification was carried out with regard to URD purchases which can be seen from the chronology of the event reproduced as under: 15. 15.11.2016 Summons u/s.131(1A) of the Act was issued wherein following details were sought on 21.11.2016. (i) Clarification on alleged stock difference, (ii) Documentary evidences in respect of all the URD cash purchase of raw cotton to prove that same were from cultivators, growers and producers, (iii) ADIT Selected randomly 30 persons and asked to produce then with (a) valid identity proof, (b) PAN with ROI, (c) Form 7/12 & 8A, (d) Contra Confirmation (e) details of area under cultivation, crops produced and yield. 452-454 ITA No. 159/Rjt/2022 A.Y. 2015-16 5 16. 21.11.2016 Reply filed on 21.11.2016 wherein details sought as per summons dated 04.11.16 was submitted. 449-451 17. 21.11.2016 Adjournment filed on 21.11.2016 requesting to gran time of one week to furnish the details called for vide summons dated 15.11.2016 448 18. 02.12.2016 Summons u/s.131(1A) of the Act was issued requesting to submit details (as stated herein below) in respect of URD persons and also directed to produce all the 35 farmers on 09.12.2016 445-447 19. 09.12.2016 Adjournment filed on 09.12.2016 requesting to grant time of a day furnish the details called for vide summons dated 02.12.2016. 444 20. 13.12.2016 Reply filed on 14.12.2016 wherein information containing details of name, identity proof, revenue records majority of the persons out of 35 were submitted as required vide summons dated 02. 12. 2016. 297 - 443 21. 13.12.2016 Summons u/s 131(1A) of the Act was issued requesting to submit details (as stated herein below) in respect of URD cash purchase of raw cotton in respect of selected 20 persons / farmers and also directed to produce all the 20 farmers on 20.12.2016 (a) Valid identity proof, (b) PAN with ROI, (c) Form 7/12 & 8A, (d) Contra Confirmation (e) details of area under cultivation, crops produced and yield. 295 & 296 22. 17.12.2016 Reply filed on 19.12.2016 wherein information containing details of name, identity proof, revenue records majority of :he persons out of 35 were submitted as required vide summons dated 13.12.2016. 204 - 294 23. 28,12.2016 Reply filed on 29.12.2016 wherein information containing details of name, identity proof, revenue records along with copies of revenue records were submitted as required vide summons dated 15.11,2016. 49 - 200 24. 02.02.2017 Statement of Arvindbhai P. Patel, Managing Director was recorded wherein he was shown list of some agriculturist identified by the ADIT randomly and asked him to given clarification on discrepancies found on matching those name with Electoral data and Revenue records. 44-48 ITA No. 159/Rjt/2022 A.Y. 2015-16 6 25. 07.02.2017 ADIT was requested to provide the electoral data and Revenue Records so that reply can be field on so called discrepancies. 43 26. 11.02.2017 Reply filed on 15.02.2017 wherein details sought as per summons dated 15.11.016 was submitted -regarding stock tally. 17-42 27. 15.02.2107 Regarding discrepancies noticed by ADIT on comparison of Electrol data and Revenue records, clarification in details was field and it was explained that 98% data tallies Remaining data could not be tallied due to paucity of time. 7-16 28. 02.04.2107 Further clarification / reply filed on 09.05.2017 in respect to the field inquiries conducted by the department i.e. on Electoral data. 4-6 10.2 The assessee before the investigation wing of the Income Tax Department has also made a detailed reply vide letter dated 15 th February 2017 running from pages 57 to 66 of the paper book. Thereafter, the proceedings were initiated under section 147 of the Act by issuing notice under section 148 of the Act dated 26 th of March 2019. Finally the assessment was framed by the AO under section 147 of the Act after considering all the facts with respect to URD purchases which can be verified from the assessment order available on record. Thus it can be inferred that there was due application of mind of the AO while framing the assessment under section 147 of the Act. Accordingly, we are of the view that the assessment order on hand cannot be held as erroneous insofar prejudicial to the interest of revenue on account of non-verification as alleged by the learned CIT under section 263 of the Act. 10.3 Let us examine the controversy from the different angle whether the purchase shown by the assessee represents the bogus transaction in the absence of supporting documents. First of all, we note that whatever purchases are made by the assessee, become part of stock in trade and subsequently sold to the parties. Thus the impugned amount of purchases were either shown by the assessee in the ITA No. 159/Rjt/2022 A.Y. 2015-16 7 stock in trade in the year under consideration or sales were made against such purchases. The learned CIT has not disturbed either the stock in trade of the purchases. Thus the amount of purchases shown in the debit side of the profit and loss account, the assessee by the same amount has also credited the profit and loss account by way of showing the closing stock/ sales as the case may be which will make the entire transaction as tax neutral. As such, there will not be any impact on the profitability of the assessee by way of such purchases. Thus, the entire exercise becomes tax neutral, in the sense that if the purchases are disbelieved and corresponding closing stock and the sale of the subsequent year should also be disbelieved on the same parameter. As such the revenue cannot take different stand with respect to the common transactions having impact on purchases, closing stock and the sales. All these transactions are interconnected and linked with each other. If any of the transaction is doubted then corresponding transaction should also be carrying same shadow of doubt. In other words, part of the transactions cannot be accepted as genuine and part of the transaction cannot accepted as bogus. Either the entire transaction to held as bogus or should be treated as genuine without making any cherry pick-up. Thus, for this reason as well, the assessment order cannot be held either erroneous or prejudicial to the interest of revenue. 10.4 As regards the contention of the learned AR for the assessee that the order of the AO got merged the order of the learned CIT-A, we are not in agreement with the assessee. It is for the reason that the issue before the learned CIT-A was with respect to the deduction of the TDS. There was no issue with respect to the purchases from the unregistered parties. Thus, the issue raised by the learned PCIT with respect to the addition for the URD purchases wasn’t other before the learned CIT-A. In view of the above and after considering the facts in totality, we hold that the order of the assessment does not suffer from any infirmity on account of non- verification as alleged by the learned CIT under section 263 of the Act. Accordingly ITA No. 159/Rjt/2022 A.Y. 2015-16 8 we quash the order framed under section 263 of the Act. Hence the ground of appeal of the assessee is allowed. 11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 07/09/2022 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 07/09/2022 Manish