Ramchandra Dahyabhai Narrow Fab Pvt.Ltd, Surat V. Pr.CIT-2, Surat

ITA 177/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1158 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-07-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 25-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Revision of order; Principle of natural justice; Period of limitation; Set aside; FORM 26AS
• Section: 263; 143(3); 133(6); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 177/Srt/2019 (Assessment Year: 2014-15) (Physical hearing) Ramchandra Dahyabhai Narrow Fab Pvt. Ltd., 4/2437, Main Road, Salabatpura, Surat-395003. PAN No. AABCR 1256 R Vs. Pr.C.I.T.-2, Surat. Appellant/ assessee Respondent/ revenue Assessee represented by Shri Sapnesh Sheth, CA Department represented by Shri H.P. Meena, CIT-DR Date of hearing 28/07/2022 Date of pronouncement 11/10/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of the learned Principal Commissioner of Income Tax-2, Surat (in short, the ld. Pr.CIT) dated 08/03/2019 passed under Section 263 of the Income Tax Act, 1961 (in short, the Act) for the Assessment year (AY) 2014-15. The assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income Tax has erred in passing revisionary order u/s 263 of the I.T. Act setting aside the order of ld. Assessing Officer passed u/s 143(3) of the Act dated 27/10/2016 for the year under consideration although said order is neither erroneous nor prejudicial to the interest of revenue. 2. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income Tax has erred in observing that order passed by Assessing Officer u/s 143(3) of the Act ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 2 is erroneous on the ground that purchase and commission expenses claimed by assessee is not genuine. 3. It is therefore prayed that order passed by Pr. Commissioner of Income Tax u/s 263 of the I.T. Act setting aside the order of assessing officer and directing assessing officer to make fresh investigations on issue of deduction of purchases and commission expense may please be quashed. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 2. Brief facts of the case are that the assessee is engaged in the business of manufacturing and trading of elastic tapes. The assessee files its return of income for the Assessment Year (AY) 2014-15 on 30/09/2014 declaring income of Rs.68,79,440/-. The case was selected for scrutiny and assessment was completed under Section 143(3) of the Income Tax Act, 1961 (in short, the Act) on 27/10/2016 making certain additions on account of disallowance of EPF contribution and ad hoc disallowance of 20% of expenses of Rs. 3,65,968/-. The assessment order was revised by the ld. Pr.CIT by exercising his jurisdiction under Section 263 of the Act vide order dated 08/03/2019. Before revising the assessment order, the ld. Pr.CIT issued show cause notice to the assessee. In the show cause notice, the ld. Pr.CIT recorded that after going through the assessment and order dated 27/10/2016, he found that the assessment order is erroneous and in so far as prejudicial to the interest of revenue and the assessee was asked to show cause as to why the order under Section 263 be not passed. In the show cause ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 3 notice, the ld Pr CIT identified two issues; i.e. (i) the assessee has shown expenses on purchases form two parties and (ii) commissions payments to two persons. However, the information under section 133(6) i.e confirmation, bank account and return of income were called from such parties were not furnished. Non furnishing such information indicates that payments shown to them were not genuine. 3. The ld. Pr.CIT recorded that the assessee filed its reply dated 10/01/2019. The contents of reply are recorded in para 3 of his order. In the reply, the assessee in sum and substance submitted that the assessment was completed on 27/10/2016. During the assessment, the assessee furnished required details, as required by the Assessing officer. The assessee also furnished the details of purchases and commission expenses. The Assessing Officer also required details of commission expenses, copy of return filed by the parties to whom the commission was paid, with computation of total income, profit and loss account and balance sheet which was furnished vide reply dated 05/10/2016. Copy of reply was also furnished in reference to all four parties from whom purchases and commission paid. With regard to purchase from M/s Indorama Industries Ltd., the assessee submitted that the assessee made purchases of Rs. 16,67,443/- from the said party. Copy of ledger account with invoices, bank statement for the relevant period showing the payment were furnished. It was also ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 4 submitted that the said party is still available on their address. The payments were made through RTGS. For non-compliance of notice under Section 133(6) of the Act, the assessee submitted that assessee has furnished complete records in support of purchases including address and the details available with them. For purchases from M/s Abhisar Buildwell Pvt. Ltd., the assessee contended that the assessee made purchase of Rs. 59,47,294/-. To support the purchases, the assessee filed ledger account, invoices, bank statement, payments were made through account payee cheques. During the course of assessment, the latest available address as per the assessee record, was furnished and as per master data of ministry of corporate affairs and the address of assessee is available. With regard to commission paid to Shri Umesh Balubhai Rana of Rs. 3,01,739/-, the assessee furnished confirmation along with return of income and Form 26AS. For non-filing of reply in response to notice under Section 133(6), the assessee submitted that the assessee has already furnished complete details, commission payments are genuine and paid in the course of business. For the commission paid to Shri S.K. Ojha of Rs. 4,35,402/-, the assessee filed confirmation, statement along with acknowledgement of return, copy of bank statement of party showing details of payment. For non-compliance of notice under Section 133(6), the assessee contended that during the assessment, the Assessing Officer asked for ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 5 confirmation, the assessee furnished complete details to prove the genuineness of commission paid. The commission paid to the parties are genuine and paid in the course of business. The assessee contended that the purchases and commission payments ae genuine and requested to not to make any addition. 4. The reply of assessee was not accepted by the ld. Pr.CIT. The ld. Pr.CIT held that though the assessee furnished some documentary evidence to show that the purchases made and the commission expenses incurred are genuine. The said purchases and commission expenses have not been confirmed by the parties from whom the purchases were made and the commission paid. Till date, all the four parties have not filed any reply or documentary evidence called for to verify the genuineness of purchases and commission expenses. Unless and until, it is confirmed by the parties by the documentary evidence by recording the transaction in their books of account the purchases and commission expenses claimed by assessee, cannot be treated as genuine. The Assessing Officer had passed the assessment order without making proper enquiries or verification which ought to have been made in this case. Accordingly, the assessment order was treated as erroneous and in so far as it is prejudicial to the interests of revenue and the ld. Pr.CIT set aside the assessment order to the Assessing Officer with direction to frame the assessment de novo after giving opportunity to the assessee. ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 6 Aggrieved by the order of ld. Pr.CIT, the assessee has filed the present appeal before this Tribunal. 5. We have heard the submission of the learned Authorised Representative (ld. AR) of the assessee and the learned Commissioner of Income tax- departmental representative (ld. CIT-DR) for the revenue. The ld. AR of the assessee submits that during the assessment, the Assessing Officer made complete enquiry about the commission expenses paid to various parties vide his notice dated 05/10/2016. The assessee in response to show cause notice, filed its reply on 30/08/2016 furnishing complete details of commission paid to both the parties. The Assessing Officer again sought various information vide notice dated 24/6/2016 for seeking details of purchases of more than Rs. 5.00 lacs. The assessee vide his reply dated 08/07/2016 furnished complete details. The Assessing Officer after his complete satisfaction, accepted the contention of assessee. The ld. AR further submits that the assessee furnished tax invoices of M/s Indorama Industries Ltd. having their complete details including PAN and the proof of payment through banking channel. For M/s Abhisar Buildwell Pvt. Ltd., the ld. AR submits that he has furnished the details of tax invoices, ledger account having their complete address, phone number and the payments were made through banking channel. Similarly, for genuineness of commission payment, the ld. AR of assessee submits ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 7 that he has furnished Form 26AS of Shri Umesh Balubhai Rana along with income tax return and computation of income with profit and loss account and the details of commission payment. Similarly, for Shri S.K. Ojha, the assessee furnished copy of income tax return, computation of income, profit and loss account and bank statement. On the basis of aforesaid submission, the ld. AR of the assessee submits that mere the third parties from whom the assessee has made purchases or paid commission has not made compliance, though, the Assessing Officer was examined such issues during assessment, specified the assessment order cannot be treated as erroneous or prejudicial to the interests of revenue. To support his submission, the ld. AR of the assessee has relied upon the following case laws: (i) CIT Vs M.K. Brothers (1987) 30 Taxmann 547 (Guj) (ii) CIT-1 Vs Nangalia Fabrics (P) Ltd. (2013) 40 taxmann.com 206 (Guj) (iii) CIT-1, Mumbai Vs Nikunj Eximp Enterprises (P) Ltd. (2013) 35 taxmann.com 384 (Bom) (iv) CIT Vs Manish Enterprises (2015) 232 Taxman 0115 (Calcutta). 6. On the other hand, the ld. CIT-DR for the revenue has supported the order of ld. Pr. CIT. The ld. CIT-DR submits that the ld. Pr.CIT in para 4 of his finding has clearly held that the assessee has furnished some documentary evidence. However, the parties have not confirmed the transactions to whom commission were paid or from whom purchases ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 8 were shown. The only confirmation of party can strengthen the genuineness of expenses. The ld. CIT-DR submits that in absence of confirmation of parties, the assessment order passed by Assessing Officer is not only erroneous but prejudicial to the interest of revenue. 7. In rejoinder submission, the ld. AR of the assessee submits that all complete details were furnished before the Assessing officer. The ld. AR submits that Indorama Industries Ltd. is based in Himachal Pradesh, M/s Abhisar Buildwell Pvt. Ltd. is based in Agartala and Shri S.K. Ojha is based in Ludhiana. The genuineness of payments of purchases made and commission expenses is not disputed by the ld. Pr. CIT. The ld. AR submits that in all the case laws, which he has relied the Hon’ble Jurisdictional High Court clear held that where purchases were supported by bills and entries were made in books of account, payments were made by cheques, the said purchases cannot be held as bogus purchases. Similarly, the commission were paid through account payee cheques on account of sales commenced by the parties was not bogus payment. 8. We have considered the rival submissions of both the parties and have seen the orders of lower authorities carefully. We find that during the assessment proceedings, the Assessing Officer made investigation about the purchases and commission payment. Though, there is no such reference in the assessment order about such enquiries or ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 9 investigation with regard to purchases or commission expenses. We find that during the assessment, the Assessing Officer vide his specific notice dated 24.06.2016, called the record of purchases as well as commission expenses. The assessee vide its reply dated 08.07.2016, furnished complete details about the purchases as well as commission payment. We find that the reply of assessee in response to show cause notices of purchases and commission payment is duly acknowledged by Assessing Officer. As recorded above, the Assessing Officer has not made any reference about such enquiries or reply received by him on both the issues. 9. As recorded above, the ld. Pr.CIT in his show cause notice under Section 263 of the Act identified two issues by taking view that notice under Section 133(6) was issued for confirmation of the parties and that no confirmation, bank account and income tax return from all parties were furnished. We find that in reply to show cause notice, the assessee filed details reply, inter alia contending therein that the purchases from the parties are genuine. The assessee furnished bank statement, tax invoices and leger account of the parties. Similarly, for the commission expenses, the assessee furnished the details of both the parties. We find that out of four parties, three parties are located at distant places. The ld Pr CIT has not disputed the existence of the parties, nor the payment against the purchases or the commissions paid ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 10 or the evidences filed by the assessee to substantiate the purchases or commissions paid is bogus. 10. The Hon’ble Gujarat High Court in CIT Vs Nikunj Eximp Enperprises (P) Limited (supra) held that merely the supplier had not appeared before assessing officer or Commissioner (Appeals), it could not be concluded that purchases were not made by assessee. In case of CIT Vs M.K. Brothers (supra), the Hon’ble High Court held that Tribunal was justified in deleting the addition to the income of assessee on the ground that there was no evidence to show that the voucher given by those parties to assessee were bogus or that any part of those payment came back to the assessee. In CIT Vs Nangalia Fabrics (P) Ltd (supra), it was held by High Court that where the purchases were supported with bills, entries were made in the books of account and payments were made by way of cheques, the said purchases could not be held as bogus purchases. Further, when commission was paid through account payee cheques on account of sales canvassed by the parties, was not bogus payment. 11. Considering the aforesaid legal view taken by Jurisdictional High court on commission payment and the expenses incurred on purchased and coupled with the facts that the assessing officer during the assessing made sufficient inquires and took a reasonable view on both the issue, ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 11 so view taken/ adopted by the assessing officer cannot be considered as erroneous view. 12. The Supreme Court in celebrated/ leading case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 832 (SC), held that the prerequisite for the exercise of jurisdiction by the Commissioner suo-motu is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) of the Act. It can be exercised only when an order is erroneous, the section 263 will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 12 payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the revenue, for example, 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 interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. (emphasis added by us) 13. he Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., Vs PCIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. In CIT Vs Nirma Chemical Works (P) Ltd (2009) 309 ITR 67), the Hon’ble High Court also held that when assessing officer after making due inquiries had adopted one of the view and granted partial relief, merely because Commissioner took a different view of the matter, it would not be sufficient to permit commissioner to exercise his powers under section ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 13 263. The Hon’ble Court in para 22 of its order on the objection of the revenue that there is no discussion of the issue in the assessment order held that the contention on behalf of the revenue that the assessment order does not reflect any application of mind as to the eligibility or otherwise under section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. 14. Therefore, in view of the above discussions, we are of the view that on the basis of material before the assessing officer, he took reasonable, plausible and legally sustainable view, which cannot be branded as erroneous. There is no doubt that while accepting the claim in the assessment, there may be some loss of revenue, tax can be levied only with the authority of law, and every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the revenue unless the view adopted by assessing officer is ITA No.177/Srt/2019 Ramchandra Dahyabhai Narrow Fab P Ltd. Vs PCIT 14 impermissible in law. Once the assessing officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the assessing officer is unsustainable in law. Hence, the grounds of appeal raised by the assessee are allowed. 15. In the result, this appeal of assessee is allowed. Order pronounced in the open court on 11 th October, 2022 in open court. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 11/10/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By order Sr.Private Secretary, ITAT, Surat