REMY DIAMONDS PRIVATE LIMITED, MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX - 5, MUMBAI

ITA 3900/MUM/2018

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9879 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-09-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 31-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Revision of order; Accommodation entries; TDS; Set aside
• Section: 147; 54; 263; 132; 271(1)(c); 40A(3); 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI S. RIFAUR RAHMAN, AM आयकर अपील सं/ I.T.A. Nos. 3898 to 3900/Mum/2018 (निर्धारण वर्ा / Assessment Year: 2008-09 to 2010-11) Remy Diamonds Pvt. Ltd. GW-1060, G- Block, Bharat Diamond Bourse, Mumbai Kurla Complex, Bandra (E), Mumbai-400051. बिधम/ Vs. The Principal Commissioner of Income Tax-5 Aayakar Bhavan, M. K. Road, Mumbai-400051 आयकर अपील सं/ I.T.A. Nos. 5481 to 5483/Mum/2018 (निर्धारण वर्ा / Assessment Year: 2008-09 to 2010-11) Remy Diamonds Pvt. Ltd. GW-1060, G- Block, Bharat Diamond Bourse, Mumbai Kurla Complex, Bandra (E), Mumbai-400051. बिधम/ Vs. DCIT, Circle-5(3)(1) Room No.573, Aayakar Bhavan, M. K. Road, Mumbai-400020. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AADCR2195R (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) सुनवाई की तारीख / Date of Hearing: 13/09/2022 घोषणा की तारीख /Date of Pronouncement: 21/10/2022 आदेश / O R D E R PER BENCH: ITA. No. 3898, 3899 & 3900/Mum/2018 are appeals preferred by the assessee against the order of the Ld. PCIT-5, Mumbai dated 23.03.2018 for AY. 2008-09 to AY. 2010-11; And ITA. Nos. 5481 to 5483/Mum/2018 are appeals preferred by the assessee against the order of the Ld. CIT(A)-10, Mumbai dated 29.06.2018 for AY. 2008- 09 to AY. 2010-11. Since both the parties agrees that the grounds of Assessee by: Shri Hiren Vepari Revenue by: Smt. Mahita Nair (Sr. AR) ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 2 appeal raised by the assessee are same/identical (except for the sums/amount) therefore, decision in the lead case i.e. ITA. No. 3898/Mum/2018 for AY. 2008-09 will be followed in the other appeals. ITA No. 3898/Mum/2018 has been preferred by the assessee against the invocation of revisional jurisdictional by the Ld. PCIT u/s 263 of the Income Tax Act, 1961 (hereinafter “the Act”). 2. The grounds of appeal raised by the assessee in ITA. No. 3898/Mum/2018 read as under: - “(1) The Principal Commissioner of Income-tax was not justified in assuming jurisdiction u/s.263 without satisfying conditions. (2) The appellant submits that the Principal Commissioner of Income- tax ought not to have invoked provisions of section 263 on the very same point on which the Assessing Officer had made inquiry and taken position. (3) The appellant further submits that the Principal Commissioner of income-tax did not appreciate the settled position of law where proceedings ws.263 do not stand to sustain if Principal Commissioner of Income-tax opts to take different view in the same matter. (4) The Principal Commissioner of Income-tax further erred in assuming jurisdiction particularly in the matter for which 263 proceedings were initiated was pending before the CIT(A) and that on ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 3 the same issue, jurisdiction of the CIT(A) and the Principal Commissioner of Income-tax cannot co-exist. (5) On merits, the appellant submits that the learned Pr. CIT was not justified on the facts to hold that the appellant indulged into bogus purchases and paid cash for the purchases, particularly and demonstrably the appellant could show that it had paid Rs.2,79,33,584 only through account payee cheque. (6) The learned Pr. CIT was driven by extraneous consideration in not dropping the proceedings u/s.263. (7) The appellant craves leave to add, alter or vary any of the grounds of appeal.” 3. The Ld. AR of the assessee has assailed the action of the Ld. PCIT invoking the revisional jurisdiction u/s 263 of the Act against the assessment order passed by the AO u/s 147/143(3) of the Act dated 21.03.2016 by raising the legal issue. By preferring the first four (4) grounds, the assessee has challenged the usurpation of revisional jurisdiction by the Ld. PCIT. Among the four grounds, first of all, we may decide ground no. 4 which is against the action of the Ld. PCIT assuming the jurisdiction u/s 263 of the Act when the subject-matter is pending before the first appellate authority i.e. CIT(A). ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 4 5. Brief facts;- The AO in the assessment order notes that the assessee had filed return of income declaring total income to the tune of Rs.57,97,965/- and that the assessee was engaged in the business of trading in diamonds. Later, the case of the assessee was reopened u/s 147 of the Act on 21.03.2016. The AO further noticed that pursuant to search action u/s 132 of the Act against the Shri Bhanwarlal Jain Group on 03.10.2013, it was discovered that Shri Bhanwarlal Jain Group was engaged in the business of providing accommodation entries by giving bogus bills relating to sale/purchases and bogus loans/advances to beneficiaries in lieu of commission. 6. According to the AO, it was found that seventy (70) benami concerns were managed and controlled by Shri Bhanwarlal Jain Group which were used as conduits for providing accommodation entry of loans and advances and bogus purchases/sales. According to the AO, the assessee had transacted with Shri Bhanwarlal Jain Group controlled two entities (i) M/s. Mohit Enterprises (ii) M/s. Mayur Exports from whom accommodation entries of Rs.9,42,434/- and Rs.59,57,093/- respectively was obtained by the assessee in the previous year relevant assessment year (AY. 2008-09). Therefore, he confronted the assessee with this information and in response, the assessee contended that the purchases made by the assessee from M/s. Mohit Enterprises and M/s. Mayur Exports were genuine purchases ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 5 and submitted the following documents to substantiate that the transaction were genuine: - (i) Ledger copy of M/s. Mohit Enterprises along with purchase bill copy. (ii) Copy of bank statement reflecting payment to M/s. Mohit Enterprises. (iii) Ledger copy of M/s. Mayur Exports along with purchase bill copy. (iv) Copy of bank statement reflecting payment to M/s. Mayur Exports (v) Party wise purchase register for AY. 2008-09. 7. The AO in the assessment order dated 21.03.2016 thereafter noted the modus operandi of the Shri Bhanwarlal Jain (entry operator to beneficiaries like assessee) and made the addition of Rs.16,84,395/- (ie. estimated @ 6.03% of bogus purchase bills totalling Rs.2,79,33,584/- on the basis of profit embedded in such transaction) by observing as under: - “4.2 During the course of search, evidences were found and persons were examined on Oath which established that Bhanwarlal Jain and family have been using 70 benami concerns to going accommodation entries in the nature of bogus purchases and bogus unsecured loans to beneficiaries. Examination on oath of trusted employees of Bhanwarlal Jain and family revealed the complete modus operandi used by Bhanwarlal Jain for giving such accommodation entries bogus Purchases and loans and advances to various beneficiaries. ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 6 4.3 Actual importers of rough diamonds import part of their diamonds through the benan; concems operated by Bhanwarlal Jain and family with a view to suppress their turnover, Profit, and capital requirement. The consignments are sent on credit by the suppliers in the names of the, benami concerns at the instance of the actual importer. On receipt of consignments by they benami concerns, the diamond is handed over to the real importer as soon as the same is clear by the Customs through CHA (Clearing House Agents) thereby creating a bogus stock in the books of the benami concerns. This transaction is not recorded in the regular books of account of either the real importer or the benami concerns. 4.4 Against the bogus stock, bogus sale bills are issued to the processing houses in diamond Which are engaged in cutting and polishing of diamonds / traders who usually buy rough diamonds from undisclosed parties in cash and require purchase bills to balance their account and to circumvent provisions of section 40A(3) of the Income Tax Act, 1961. Bogus bills of purchase of diamonds (rough) are also taken by the diamond processing companies or traders who tend to inflate purchases and to defraud revenue by showing low profit. The processing houses / traders issue cheques to benami concerns against the bogus purchase bill taken. Since there is no genuine transaction of material, hence the amount paid by cheque is required to be received back in cash. At this juncture, persons who want to plough back the undisclosed cash generated from their businesses generally builders / real estate developers etc. approach the benami concerns for issue of cheque (as loan) against cash. These benami concerns is cheques to them from the amounts received by cheque from the processing ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 7 houses / trade = Cash received from the builders / person dealing in real estate is then passed on to the diamonds processors / sides, the settlement of cash takes place through Angadias. 4.5. The last leg of the whole process is the return of loan by the persons who have i accommodation entry of loans and advances, generally builders / real estate developer through banking channel to these benami concerns who consequently make payment to the exporter in Europe who were appearing in the books of the benami concerns as ‘Creditors’. At this stage cash is received by these name lending concerns from the real importer at whose instance rough diamonds were imported in the first place and passed on to the person who had returned / repaid the loan through banking channel. Therefore, at no stage, cash is routed through the accounts of any of these benami concerns and entire cheque / RTGS transactions mentioned above are done through banking channels. 4.6 Generally such benami concerns that make import of diamond on behalf of a real importer and issues accommodation entries for loans and advances and sales have certain characteristic features in their business which is not possible in normal business and the same are enumerated below: a. High Turn Over b. Major portion of assets in the balance sheet comprise of loans & advances, debtors and investments (in shares etc.). These assets almost match the figures of their business creditors. ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 8 c. The advance tax payments or self assessment tax payments are NIL despite their Turn Over running into several crores. d. Almost the entire TDS deducted (by the builder) on the interest payable against their “Loans & Advances” is claimed as refund. 4.7 A perusal of all the 70 benami concerns managed and controlled by Bhanwarlal Jain Group show that all of them have the same features mentioned in the preceding paragraph. This shows that all the 70 concerns are not into any genuine business but are only used as conduits for issuing accommodation entry of loans and advances and bogus purchases. This modus operandi has been admitted by Shri Bhanwarlal Jain in his statement recorded u/s 132(4) on 11.10.2013. 5. Subsequent to the receipt of information from the Investigation Wing on the basis of Which the assessment has been reopened u/s 147, information has again been received from the investigating that the assessee company has taken accommodation entries of purchases during the previous year relevant to the assessment year 2008-2009 from M/s. Sun Raj Export, & M/s. Shri Om Export which are also concerns belonging to & operated by the Bhanwarla) Jain Group in their business of giving accommodation entries, the assessee has made purchase, amounting to Rs. 1,40,24,613/- & Rs. 70,09,444/- from M/s. Sun Raj Exports & Shri Om Expert respectively during the previous year relevant to the assessment year 2008-2009. 5.1 The assessee is the business of trading in diamonds. The assessee has not produced any material to show how and to whom the purchases purported to have been made from M/s. Mohit Enterprises and M/s. Mayur Exports were ultimately sold. The sales invoices ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 9 corresponding to the purchases stated to have been made from M/s Mohit Enterprises & M/s. Mayur Exports has not been produced and the assessee has also not produced the stock register to show the entry in and entry out of the stock purchased from M/s. Mohit Enterprises & M/s. Mayur Exports. The assessee has not conclusively established with documentary evidence that the goods were indeed purchased from M/s. Mohit Enterprises and M/s. Mayur Exports and not from some party in the grey market. The same situation prevails in respect of the purchases purported to have been made from M/s. Sun Raj Exports & Shri Om Export. 5.2 The Hon’ble Gujarat High Court vide its order dated 23.10.2012 im the case of Commissioner of Income-tax v. Bholanath Poly Fab (P.) Ltd (2013) 355 ITR 290 (Gujarat) upheld the findings of the Tribunal that though purchases were made from bogus parties, but purchases themselves were not bogus as entire quantity of stock was sold by the assessee and, hence, only the profit margin embedded in such purchases would be subjected to tax and not entire purchases. The Hon’ble Gujarat High Court has again in the case of Commissioner of Income Tax v. Simit P. Sheth (2013) 356 ITR 451 upheld the order of the Tribunal directing an addition to the extent of 12.50% of the bogus purchases. 5.3. As per schedule ‘C’ to the Tax Audit Report in Form No. 3CD, the assessee has shown gross profit of 8.62% for the previous year relevant to the assessment year 2008-2009. The assessee has taken accommodation entries of purchases from the concerns belonging to the Bhanwarlal Jain group during the previous year relevant to the assessment years 2009-2010 & 2010-2011 also. The gross profit for ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 10 the assessment years 2009-2010 & 2010-2011 is shown at 7.46% & 3.32% respectively. The average of the gross profit for the three consecutive Assessment year 2008-2009, 2009-10 & 2010-11 is 6.47% [(8.62% + 7.46% + 3.32%)/3] Applying the gross profit % of 12.50% the suppression in gross profit by the assessee due to the accommodation entries of purchases taken from the concerns of Bhanwarlal Jain is taken to be 6.03% (12.50% - 6.47%) of the accommodation entries of purchases. 5.4 The profit not disclosed or included by the assessee in its returned income due to the accommodation entries of purchases taken from the concerns belonging to the Bhanwarlal Jain Group by applying the rate of 6.03% is computed as under: - Name of the Party Purchases (In Rs.) Gross Profit Supression at 6.03% of purchases Mohit Enterprises 9,42,434/- 56,829/- Mayur Exports 59,57,093/- 3,59,213/- Sun Raj Exports 1,40,24,613/- 8,45,684/- Shri Om Exports 70,09,44/- 4,22,669/- Total 2,79,33,584/- 16,84,395/- Hence a sum of Rs.16,84,395/- as tabulated above is added to the returned income of the assessee. Penalty proceedings u/s 271(1)(c) are initiated as the assessee has furnished inaccurate particulars of its income. 6. Subject to the discussion in the proceeding paragraphs, the total income of the assessee for the assessment year 2008-09 is computed as under: - Sr. No. Computation of total income Amount (In. Rs.) ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 11 1 Total Income as per return 57,97,965/- 2 Add: Profit not disclosed as discussed in Para 5 to 16,84,395/- 3 Total Income 74,82,360/- 4 Tax at 30% on total income of Rs.74,82,360/- 22,44,708/- Computation of book profit u/s 115JB(2) Book profit as computed by assessee 56,06,932/- 10% of the book profit of Rs.56,06,932/- 5,60,693/- 6.1 As tax on the total income computed as per the provisions of the Income Tax Act, 1961 is more than 10% of the books profit computed u/s 115JB(2), the total income of the assessee for the assessment year 2008-09 is assessed as per the provisions of the Income Tax Act, 1961 at Rs.74,82,360/- 7. Total income assessed u/s 147 at Rs.74,82,360/- credit for prepaid taxes given. Interest u/s 234A, 234B, 234C & 234D levied as per the computation brought out in the Income Tax Computation form which shall be deemed to be a part of this order. Demand Notice and Challan issued accordingly. Show cause notice u/s 274(1) read with section 271(1)(c) issued to the assessee.” 8. Aggrieved, by the aforesaid action of AO u/s 147/143(3) of the Act, the assessee preferred an appeal before the Ld. CIT(A) on 28.04.2016. And while the appeal was pending before the Ld. CIT(A), the Ld. PCIT-5, Mumbai issued show cause notice to the assessee on 01.03.2018 conveying his decision to invoke the revisional jurisdiction u/s 263 of the Act against the action of the AO passing the order us/ 147/143(3) of the Act dated 21.03.2016 wherein the AO has ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 12 assessed the income of the assessee (estimated addition of 12.50% of Rs.2,79,39,584/- i.e. Rs.16,84,395/-). The assessee brought to the notice of the Ld. PCIT that the issue/subject matter which the Ld. PCIT was racking up is pending before the Ld. CIT(A). Therefore, according to the assessee clause (c) of Explanation-1 to Section 263(1) of the Act would bar the jurisdiction of the Ld. PCIT from exercising his proposed revisional jurisdiction u/s 263 of the Act. However, the Ld. PCIT was of the opinion that the AO had faulted by only estimating the profit embedded in the bogus purchases to the tune of Rs.2,79,33,584/- i.e. 6.03% of it at Rs.16,84,395/-, whereas according to him it should have been 100% addition of Rs.2,79,33,684/-. And the other fault according to Ld. PCIT was that AO omitted to apply Section 40A(3) of the Act because the assessee by getting the bogus bills from entry operators must have purchased material from the grey market. So according to the Ld. PCIT, the AO should have simultaneously while estimating the profit embedded in the bogus purchase ought to have examined the applicability of Section 40A(3) of the Act (cash purchase disallowance). Therefore, he set aside the order of the AO dated 21.03.2016 and directed the AO to make de-novo assessment after enquiries. 9. Assailing the action of the Ld. PCIT, the Ld. AR contended that the Ld. PCIT ought not to have invoked the jurisdiction u/s 263 of the Act against the assessment order dated 28.04.2016 because the subject ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 13 matter on which the Ld. PCIT had found fault with i.e. regarding bogus purchases from Shri Banwarlal Jain Group amounting to Rs.2,99,33,584/- was already before the First Appellate Authority viz the Ld. CIT(A) and therefore the bar placed by virtue of clause (c) of Explanation-1 to Section 263(1) of the Act comes in to play and therefore, the Ld. PCIT could not have invoked the revisional jurisdiction. For examining this contention, let us have a look at the relevant provision as under: - “Revision of orders prejudicial to revenue 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 14 Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal 9a[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.” 10. Referring to clause (c), the Ld. AR submitted that as per said provision, the Ld. PCIT does not have jurisdiction to interfere on an issue which is “subject-matter” of any appeal (which is stemming from AO’s assessment order). According to him, the only exception given by clause (c) is that Ld. PCIT has jurisdiction to interfere on ‘such matters’ which is not before the Ld. CIT(A) in appeal. ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 15 According to him, if an issue (arising from assessment order) is pending before the Ld. CIT(A), the Ld. PCIT doesn’t have jurisdiction to interfere with it. According to him, in the present case, the only issue that has been found fault with by Ld. PCIT (regarding the assessment order dated 21.03.2016) is in respect of the bogus purchase of Rs.2,79,33,584/- which was already subject matter before the Ld. CIT(A) (appeal filed by assessee before Ld. CIT(A) on 28.04.2016). Therefore, the Ld. PCIT’s, show-cause notice dated 01.03.2018 proposing revisional jurisdiction of this subject matter was barred by clause (c) of Explanation 1 to Section 263 of the Act. And to buttress this contention, he relied on the decision of this Tribunal in case of M/s. ACC Ltd. (3576/Mum/2019) (Page No.102-115) where in para 16, the Tribunal held as under. In view of the aforesaid facts and legal discussion, we are of the view that once the issue was examined by AO and disallowed while passing the assessment order and the same is subject matter of appeal before the Id. CIT(A), the Id. CIT was not justified in revising the assessment order, therefore, the assessee succeeded on his primary/frst contention. Considering the fact that we have accepted the primary/first contention of Id. AR of the assessee, therefore, discussion on other alternative submission has become academic. We may made it clear that we have examined the validity of order passed under section 263 and not touched the merit of issue/claim disallowed by AO which is subject matter of appeal before the Id. CIT. ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 16 11. The Hon’ble Allahabad High Court in case of M/s. Vam Resorts & Hotels Pvt. Ltd. (418 ITR 723) observations on this issue as under;- When an appeal is pending before Commissioner (Appeals), exercise of jurisdiction under section 263 by Commissioner would be barred. 12. The Hon’ble Madras High Court in case of Smt. Renuka Phillip (101 taxmann.com 119) had observed on this issue as under: - “However, we are not examining the merits of the matter at this juncture since, we are only called upon to answer the Substantial Question of Law with regard to the assumption of jurisdiction of the Commissioner under Section 263 of the Act. The power under Section 263 of the Act is not exercisable under certain http://www.judis.nic.in circumstances. In this regard, we refer to Section 263(1) explanation 1(c), which reads as follows: “Revision of orders prejudicial to revenue 263(1)... (a)... to (b)... (c)Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the Commissioner under this Sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.” ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 17 22. The above explanation makes it clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred. The Commissioner in the order dated 14.03.2012 states that the appeal pertains to the claim made by the assessee under Section 54 of the Act and it has got nothing to do with the order passed by the Assessing Officer under Section 54F of the Act. The said finding rendered by the Commissioner is wholly unsustainable, since the assessee went on appeal against the re- assessment order dated 31.12.2009 stating that his claim for deduction under Section 54 of the Act should be accepted. 23. Therefore, in the process of considering as to what relief the assessee is entitled to, the Assessing Officer held that the assessee is entitled to claim deduction under Section 54F of the Act and assigned certain reasons for that. Therefore, the larger issue was pending before the Commissioner of Appeals, and in such circumstances, the Commissioner could not exercise power under Section 263 of the Act on account of the statutory bar. Therefore, on this ground also, the assumption of jurisdiction under Section 263 of the Act was wholly erroneous. 24. As noticed above, the Assessing Officer while completing the re- assessment proceedings has assigned certain reasons for coming to a conclusion that the assessee is entitled for deduction under Section 54F and not under Section 54 of the Act. This reason assigned by the Assessing Officer has been found by us to show due application of mind. As observed, we cannot expect an Assessing Officer to write a judgment. In such circumstances, the view taken by the Commissioner ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 18 in his order under Section 263 of the Act has to be termed as a change http://www.judis.nic.in of opinion, or in other words, the Assessing Officer adopted one of the two views possible and in such circumstances, it cannot be stated that the order is prejudicial to the interest of the Revenue as well as erroneous. For the purpose of exercise of jurisdiction under Section 263 of the Act, the twin tests are to be satisfied and even assuming, the re- assessment order is to be held as erroneous, it cannot be stated to be prejudicial to the interest of Revenue as every erroneous order cannot be subject matter of Revision under Section 263 of the Act. Further more, if the order passed by the Commissioner under Section 263 of the Act as confirmed by the Tribunal is allowed to stand, then the very purpose of the remand order against the original re-assessment proceedings would become a fait accompli. 25. Thus, for the above reasons we are fully satisfied that the assumption of jurisdiction by the Commissioner under Section 263 of the Act was wholly without jurisdiction as the twin tests have not been satisfied and consequently, the order dated 14.03.2012 as confirmed by the Tribunal by order dated 13.07.2012 calls for interference.” 13. Citing the aforesaid decisions and then other case laws in the paper book, the Ld. AR pleaded that Ld. PCIT didn’t had the power to invoke the revisional jurisdiction on a subject matter which was already before the Ld. CIT(A) and wants us to quash the impugned action of Ld. PCIT. Per contra Ld. CIT-DR vehemently opposed the ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 19 submission of Ld. AR and submitted that the AO failed to add the entire/bogus purchase and also the AO failed to look into the applicability of section 40A(3) of in respect of cash purchase made by the assessee from grey market. These issues since AO didn’t examine or omitted to do, the Ld. PCIT had the jurisdiction to interfere and the bar of clause (c) to Explanation-1 of Section 263 of the Act doesn’t apply to the facts of this case and therefore he doesn’t want us to interfere with the order of Ld. PCIT. 14. We note that as per clause (c) of Explanation -1 to Section 263 of the Act and the judicial precedents cited by the Ld. AR of the assessee (supra) the settled position of law is that if the AO’s order on an issue had become subject matter of an appeal before an authority, then Ld. PCIT does not have revisional jurisdiction to interfere with the said subject matter. It must be borne in mind that as per clause (c) of Explanation-1 to Section 263 of the Act, the Ld. PCIT has jurisdiction to consider only those issues which are not subject matter of the appeal. So we have to examine whether the issue raised by the Ld. PCIT (bogus purchases to the tune of Rs.2,79,33,584) was subject matter of appeal before the Ld. CIT(A). In this regard, we note that assessee had preferred an appeal before the Ld. CIT(A) on 28.04.2016 (against the assessment order dated 21.03.2016 which Ld. PCIT has found fault with on the issue of bogus purchase to the tune of Rs.2,79,33,584/- wherein AO made addition of profit embedded in ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 20 sale of the said purchases @ 6.03% of the Rs.2,79,33,584/- which according to Ld. PCIT ought to be 100% addition instead of 6.03% as done by AO and also the omission of AO to examine the applicability of Section 40A(3) i.e. disallowance of cash purchase). And in this regard, we note that the assessee had raised the following grounds of appeal before the Ld. CIT(A) for AY. 2008-09 which reads as under: - “1. The Ld. AO has erred in treating the amount of purchases made by the appellant of Rs.2,79,33,584/- as bogus purchases and adding 6.03% of the above purchases to the total income of the appellant without appreciating the fact that addition of alleged bogus purchases cannot be made solely on the basis of information received from the Investigation Wing of the department Mumbai without conducting independent inquiry into facts of the statement made by third parties. 2. The Ld. AO has erred in making the ad-hoc additions of Rs.16,84,395/- i.e. 6.03% purchases of Rs.2,79,33,584/- without any basis as to percentage of alleged bogus purchase. 3. The Ld. AO has erred in relying on information received from the Investigation Wings. the department Mumbai relating to statement made by the party Shri. Bhanwarlal, Group and Others for the alleged purchases made by appellant as a bogus purchase and no independent verification conducted by the Ld. AO of the veracity of the statement of the third parties nor giving any opportunity to cross examine the third parties by appellant. Thus the appellant was denied natural justice under the law of not rebut; the third parties statements. ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 21 4. The Ld. AO has erred in making an additions of Rs.12,68,353. i.e. 6.03%t of purchases of Rs.2,10,34,057/- made from the alleged bogus purchase parties namely Sunk exports and Shri Om Export without appreciating the fact that in the reason provided the re-opening of said assessment the Ld. AO has only mentioned the name of the purchase parties namely Mohit Enterprises and Mayur Exports. However in the, Assessment Order the Ld. AO has proceeded with the additions also for the alleged parties namely Sun Raj exports and Shri Om Export without any prior intimation. information to the appellant which is contrary to the principle laid down by the statue. 5. Your appellant craves leave to add, amend, delete, or alter any of the foregoing grout of appeal.” 15. From a perusal of the aforesaid grounds of appeal raised by the assessee before the Ld. CIT(A), it is clear that the assessee is aggrieved by the action of the AO in treating the purchases made by the assessee from M/s. Sun Raj Exports and M/s. Om Exports as bogus purchases and has made an addition of Rs.16,84,395/- (6.03%) of Rs.2,79,33,584/-. So we find that the subject matter of the appeal preferred by the assessee before the Ld. CIT(A) was pertaining to the bogus purchase made by the assessee from two concerns (M/s. Sun Raj Exports and M/s. Om Exports) to the tune of Rs.2,79,33,584/-. At this juncture one has to bear in mind that the Ld. CIT(A) while discharging the duty of First Appellate Authority enjoys co-terminus ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 22 power as that of the AO. And the Ld. CIT(A) while adjudicating on the issue stemming from AO’s action/assessment (source of income) then Ld. CIT(A) has powers to even enhance the addition/disallowances made by the AO. Therefore, when the appeal of the assessee was filed by the assessee (against the AO order dated 21.03.2016) before the Ld. CIT(A) on 28.04.2016 raising the aforesaid grounds of appeal and when the Ld. CIT(A) had the power vested in him to even enhance the addition from 6.3% to 100% as well as discretion to apply Section 40A(3) of the Act (disallowance of cash purchases) which is linked to the same source (bogus purchase), we find force in the submission of Ld. AR that the issue found fault with by Ld. PCIT was subject matter of appeal before the Ld. CIT(A). 11. Keeping the aforesaid aspect in mind, when we look into the impugned order of the Ld. PCIT, we note that he found fault with the AO’s orders by issuing show cause notice u/s 263 of the Act intimating his proposed revisional action u/s 263 of the Act vide notice dated 01.03.2018 wherein he found fault with the action of the AO in restricting the disallowance @ 6.03% of the bogus purchase rather than disallowing the entire bogus purchase of Rs.2,79,33,584/-. And he was also of the opinion that the AO missed out on the applicability of Section 40A(3) of the Act in respect of cash purchases which assessee might have made from the grey market to effect the ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 23 sales. Be that as it may, we note that both the faults are incidental to the subject matter which was in appeal (lis-pendens) before the Ld. CIT(A) from 28.04.2016. And therefore, since the subject matter regarding purchases from the two concerns (M/s. Sun Raj Exports and M/s. Om Exports) are before the Ld. CIT(A); and since the Ld. CIT(A) has co-terminus power and can look into all the aspects as that of an AO regarding the purchases from these to concerns, we are of the considered view that bar placed by the Parliament by way of clause (c) to Explanation-1 of sub-section (1) of Section 263 of the Act comes as a fetter in the way of the Ld. PCIT while he is exercising his revisisonal jurisdiction in respect of same subject matter i.e, purchases made from the two concerns (M/s. Sun Raj Exports and M/s. Om Exports). Therefore, the assessee succeeds on the legal issue raised against jurisdiction of the Ld. PCIT for invoking the jurisdiction u/s 263 of the Act. Therefore, we are inclined to quash the impugned order of the Ld. PCIT passed u/s 263 of the Act dated 23.03.2016 for assessment year AY 2008-09. 12. And since the legal issue is the same except for the sum/amounts, the aforesaid reasoning of ours will mutatis mutandis apply for AY. 2009-10 & 2010-11 (ITA 3899 & 3900). And therefore, the impugned orders of the Ld. PCIT passed u/s 263 of the Act AY. 2009-10 & 2010-11 are also quashed. ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 24 In the result, the appeals of the assessee are allowed. 13. Coming to the appeals ITA. Nos. 5481 to 5483/Mum/2018, these are appeals preferred by the assessee against the order of the Ld. CIT(A)-10 dated 29.06.2018 for AY. 2008-09 to AY. 2010-11. 14. The main grievance of the assessee is against the action of the Ld. CIT(A) dismissing the appeal of the assessee by holding that since the Ld. PCIT-5, Mumbai has set aside the assessment order for AY. 2008-09 to AY 2010-11 by order u/s 263 of the Act dated 23.03.2018, the appeals preferred by assessee before him have become infructuous. And hence he dismissed all the appeals the assessee for AY 2008-09 to AY 2010-11. 15. The aforesaid action of the Ld. CIT(A) cannot be countenanced because we have already quashed the action of the Ld PCIT dated 23.03.2018 passed u/s 263 of the Act. And therefore the foundation on which the Ld. CIT(A) has dismissed the appeals of the assessee has been removed. Therefore, the legal Maxim “Sublato Fundamento credit opus” meaning in case foundation is removed, the super- structure falls is squarely applicable. We note that in the case of Badarinath Vs. Tamilnadu AIR 2000 3243 SC, the Hon’ble Supreme Court has held that once the basis of proceeding is gone, all consequential order and actions would fall on the ground ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 25 automatically which is applicable to judicial and quasi judicial proceedings. Consequently the impugned action of Ld. CIT(A) is set aside and the appeals for AY. 2008-09 to AY. 2010-11 are restored to the file of Ld. CIT(A) to decide the appeals in accordance to law. 16. Consequently, the appeals of the assessee in respect of AY. 2008-09 to AY. 2010-11 are allowed for statistical purpose and the appeals are restored back to the file of the Ld. CIT(A) for fresh adjudication as per law. 17. In the result, the appeals filed by the assessee are allowed for statistical purpose. Order pronounced in the open court on 21/10/2022. Sd/- Sd/- (S. RIFAUR RAHMAN) (ABY T. VARKEY) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 21/10/2022. Vijay Pal Singh/Sr. P.S. ITA No.3898 to 3900/Mum/2018 5481 to 5483/Mum/2018 A.Y. 2008-09 to 2010-11 Remy Diamonds Pvt. Ltd. 26 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai