M/s. Dharati Associates Ashwamegh Project, Sabarkantha V. The Pr. CIT-2, Ahmedabad

ITA 689/AHD/2019

AI Insights

The case involves an appeal by Dharti Associates Ashwamegh Project against the order of the Commissioner of Income Tax (CIT), Ahmedabad, which revised the assessment order for the Assessment Year 2014-15 under section 263 of the Income Tax Act, 1961. The CIT had found that the purchases claimed by the assessee from four parties were bogus, based on investigations in the subsequent Assessment Year 2015-16, where these parties were found to be non-existent or not engaged in any business. The Tribunal examined the adequacy of the inquiries made by the Assessing Officer in the original assessment and upheld the CIT's revision, agreeing that the original assessment was erroneous and prejudicial to the interests of the revenue.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133584 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-12-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 21-04-2019
• Other Referred Cases: Ashish Dham Vs. PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Revision of order; Transfer pricing; Wrong claim; Prejudicial to interest; Set aside
• Section: 263; 143(3); 133(6)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘C’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No.689/Ahd/2019 Assessment Year : 2014-15 Dharti Associates Ashwamegh Project B/h. A-One Society Motipura, Himatnagar PIN : 383 001 (SK) PAN : AAIFD 0921 D Vs. Pr.CIT-2 Ahmedabad. (Applicant) (Responent) Assesseeby : Shri D.K. Parikh, AR Revenue by : Shri A.P. Singh, CIT-DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 1 3 / 1 2 / 2 0 2 2 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 0 3 / 0 3 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Commissioner of Income Tax-1, Ahmedabad [hereinafter referred to as “Ld.CIT”] by exercising revisionary power under section 263 of the Income Tax Act, 1961 ("the Act" for short) dated 8.3.2019 pertaining to the Asst.Year 2014.15. 2. The grounds raised in the appeal are as under: “1. The learned Pr. CIT- 2 Ahmedabad has erred both in law and in fact in passing an order u/s 263 of the Income tax Act, 1961 revising the assessment order passed u/s 143(3) by the AO after application of mind and considering the facts and records of the case. The order being neither erroneous nor prejudicial to the interest of Revenue, the revision order passed by Id Pr CIT is untenable, illegal and invalid. It be so held and the order be set aside. ITA No.689/Ahd/2019 2 2. The Id Pr.CIT further erred in law and on facts in observing that purchases from four parties listed in his order was bogus and that it required further verification hence the assessment order was erroneous. The purchases being duly supported by documentary evidences and goods also duly received there under, the order of AO could not be held to be erroneous and prejudicial to interest of revenue. It be so held now. 3. The Id Pr CIT also erred both in law and on facts in not appreciating that each year being separate and independent and merely based on the basis of a decision in later year which is also further challenged by the appellant, it cannot be held that the said decision would lead to similar erroneous conclusion regarding erroneous nature of order of AO. It be so held now and order passed u/s 263 be cancelled. 4. The order passed by the Id Pr. CIT is illegal, invalid and bad in law as there is no records for the year under consideration based on which revision proceedings u/s 263 could be initiated. The order suffers form the vice of application of mind hence deserves to be quashed. It be quashed now. 5. The conclusion regarding purchases made from four parties mentioned in the order u/s 263 being bogus is wholly erroneous and contrary to facts . It be so held now and order passed by Pr.CIT be set aside. 6. The order under section 263 is against sanction of law and does not decide the issue finally and merely sets aside the assessment order on the basis of view of Pr CIT which does not make the assessment order as erroneous. It be so held now. 7. The appellant craves leave to add, alter, modify or delete any of the grounds at the time of hearing.” 3. At the outset, the ld.counsel for the assessee pointed out that error noted by the ld.CIT in the order of the AO passed in the present case under section 143(3) was to the effect that the purchases made from certain parties by the assessee were not duly inquired into, particularly when the investigation relating to these parties in the case of the assessee in the subsequent year i.e. Asst.Year 2015-16 revealed that the said parties were bogus entities and the purchases made from them were all bogus. The ld.counsel for the assessee drew our attention to para-2 of the ld.CIT’s order bringing out the above facts as under: ITA No.689/Ahd/2019 3 2. It is noticed that the assessee had claimed to have made purchases, inter alia, from the following parties in A.Y. 2014-15; Name of seller Purchases made in FY 20 13- 14 (AY 20 14- 15) M/s, Niharika Tradelink Prop. Shri Shailesh B Rathod TIN- 24070702017 Rs. 25,00,395 R, K. Trading Prop. Shri Ramesh Parmar TIN-24075002688 Rs. 15,00,152 Vishakha Enterprise Porp, Shri Dineshkumar Kashyap TIN- 24070702033 Rs, 30,02,268 M/s, Zenith Sales Corporation 1 Prop. Shri Vimal R Rathod TIN- 24070600063 Rs. 30,01,356 TOTAL Rs 1,00,04,171 It is further seen from records that for A Y 2015-16, the Assessing Officer had conducted certain verifications and found many instances where the parties from whom purchases were claimed to have been made were actually bogus. The above mentioned entities, with whom transactions made pertained to A.Y. 2014-15, were among such bogus parties-cither not in existence or not having any such business. It is seen from the assessment records for A Y 2014-15 that assessment was finalized without disallowing the above claim of purchases though in reality the parties were not in existence as held in the assessment order for A Y 2015-16, Thus the assessment order for A Y 2014-15 dated 02.12.,2016 got passed erroneously and without making suitable inquiries/verifications, making the order prejudicial to the interest of revenue, view of the above , a notice u/s 263 of Act was issued on 21.01.2019, upon the assessee on 23.01.2019 with a view to propose the revision said order for A.Y.2014-15. 4. He contended thereafter that after being confronted with the same, due reply was filed by the assessee. The ld.CIT after considering the same held the assessment order in the present case to be erroneous so as to cause prejudice to the Revenue since the AO had not investigated the bogus claim of purchases pertaining to ITA No.689/Ahd/2019 4 these parties. Our attention was drawn to para 4.1 to 7 of the order as under: “4.1 During the course of assessment proceedings for A.Y.2015-16, the Assessing Officer carried out enquiries regarding purchases made by the assessee from various parties besides making verifications from sales-tax authorities. While carrying out extensive enquiries in this regard, the assessing officer noticed that the assessee had claimed to have made certain purchases from few parties during immediately preceding year (A.Y.2014-15), but these parties were not found existing and were verified not to be having such business activities. This aspect was elaborately discussed by the Assessing Officer in the assessment order for A.Y. 2015- 16 where the Assessing Officer reached a conclusion that the assessee had claimed bogus expenses in its accounts. During the course of assessment proceedings for AY 2015-16, the Assessing Officer had alsoinquired and found that TINs of these parties were cancelled well before making the so- called purchases from the above parties which confirmed the fact of non- genuineness of such transactions. The date of cancellation and transactions affected for these parties are as under:- Name of Party TIN No Date of cancellation Date of Transactions affected from Niharika Tradelink Prop, Shri Shailesh B Bathed 2407070201 7 30/04/2013 02/02/2014 R. K. Trading Prop, Shri Ramesh Parmar 24G750026 88 04/05/2013 04/02/20014 Vishakha Enterprise'" Porp. Prop. Sh. Dineshkumar Kashyap 02/02/2014 M/s. Zenith Sales Corporation Prop. Shri Vimal R Rathod 2407060006 3 01/07/2002 03/02/20014 Accordingly the A.O. ought to have disallowed such bogus purchases in respect of four parties with whom transactions were claimed in the year relevant to A.Y.2014-15. Records reveal that during the assessment proceedings for A Y 2014-15, the Assessing Officer failed to take into consideration the above issues before accepting the claim of above purchases. It is also noticed that the Assessing officer had also issued notices u/s. 133(6) of the Act to various parties and had received replies in identical format from all these four parties which is highly unusual and the same required further verification to prove the veracity and genuineness of transactions contained therein. The Assessing Officer, however, failed to make further verifications due to which such ITA No.689/Ahd/2019 5 bogus claim of purchases got accepted thus making the assessment order erroenoeous and prejudicial tothe Interest of revenue. 6. It is seen that during the instant proceedings also the assessee has nowhereput forth any evidence to prove that all these purchases were genuine. Theonly argument forwarded by the assessee is that based on informationfurnished during the assessment proceedings for A.Y.2014- 15, the AssessingOfficer had duly applied his mind and hence the same issue cannot be asubject matter of revision. This is not correct as the Assessing Officer had failed to conduct necessary enquiries to ascertain the veracity of purchases and accepted whatever was presented by the assessee through the manipulated accounts due to which the disallowance of these purchases remained to be made. Thus, this is a clear case where the assessee concealed the true state of affairs by making bogus claim and the same was not appropriately investigated by the Assessing Officer, The Assessing Officer while finalizing the assessment had failed to take correct view without appreciating the discrepancies on record due to which the assessment order has become erroneous and prejudicial to the interest of revenue. Hence the said order to be revised u/s.253 of the Act. The Assessing Officer is directed to take into consideration all the material available on records for A.Y.2014-15 as well as A.Y.2015-16 and after giving proper opportunity of being heard to the assessee, determine the genuineness of expenses claimed by the assessee in its accounts, including the above instances of bogus purchases and accordingly determine the correct taxable income. Any further enquiry or verification can also be made, if considered necessary by the A.O, A speaking order shall be passed by the Assessing Officer and any concealment of income shall also be appropriately dealt with by the Assessing Officer with due application of mind. 5. The ld.counsel for the assessee contended that his arguments against the impugned order passed under section 263 were three folds, viz – i) That ld.CIT had relied upon the records relating to subsequent year i.e. Asst.Year 2015-16 while the impugned order related to Asst.Year 2014-15 and this did not qualify as “records” which the ld.CIT could have considered for the purpose of considering that the assessment order passed for the impugned year was erroneous so as to cause prejudice to the Revenue, and thus invoking revisionary jurisdiction as per section263 of the Act; ITA No.689/Ahd/2019 6 ii) That during assessment proceedings, the issue had been thoroughly examined and the AO had taken conscious decision making no disallowance of purchase after considering all the evidences filed by the assessee to prove its genuineness; iii) That ld.CIT has restored the issueback to the AO for examination afresh, thus, he hadnot arrived at any final conclusion of the error; that his assumption of jurisdiction under section 263 in such circumstances was flawed. He relied on the decision of the ITAT in the case of Ashish Dham Vs. PCIT, in ITA No.2181/Del/2017 dated 25.10.2021. Copy of the order was placed before us. 6. The ld.DR on the other hand countered all the arguments of the ld.counsel for the assessee stating that – i) “records” as defined u/s 263 itself are not restricted to that of the year under consideration which were there with the AO while framing the assessment order, and in fact expand to all records available with the department relating to the issue; ii) That the argument that the AO had taken conscious decision on the issue of genuineness of purchases after examining the same during the assessment proceedings,was not tenable in view of the fact thatwhile doing so, he had not made further inquiry vis-à-vis the creditors involved which inquiry in subsequent year had revealed that they were all bogus and non-existent. His ITA No.689/Ahd/2019 7 contention was that inquiry conducted by the AO was not proper in the impugned year as rightly held by the ld.CIT. iii) On the contention of the ld.counsel for the assessee that there was no finding of error, he drew our attention to para-6 of the ld.CIT wherein in the absence of any evidence submitted by the assessee to him during the revisionary proceedings, despite being confronted with the information revealed during the assessment proceedings for the Asst.Year 2015-16, the ld.CIT noted that the assessee had nothing more to say than to reiterate what was stated before the AO, and therefore, his finding of the error in the order of the AO in this regard was correct, the ld.DR contended. 7. At this juncture, the ld.counsel for the assessee pointed out that in Asst.Year 2015-16, the addition made on account of bogus purchases had been challenged before the ld.CIT(A) who had restricted the addition to the extent of gross profit involved therein. He contended that the order of the ld.CIT(A) was available with the ld.CIT and the same had merged with order of the AO for the same year. Therefore, the findings of the ld.CIT that the purchases in the impugned year were also bogus entirely were incorrect on facts. 8. To this, the ld.DR countered by stating that the ld.CIT(A) had held the purchases tobe bogus, but had restricted the addition to the extent of gross profit involved therein, and therefore, it did not affect the observation of the ld.CIT that the AO had not conducted proper inquiry vis-à-vis similar purchases made from the same parties in the impugned year also. ITA No.689/Ahd/2019 8 9. The ld.counsel for the assessee further countered by saying that the ld.CIT(A) in his order for Asst.Year 2015-16 had not held the purchases to be bogus, but had merely held that the assessee though could not have purchased from these impugned parties, but it must have made purchases from other parties, and therefore, restricted the addition to the extent of gross profit involved therein only, which benefit the assessee must have availed in the process. 10. Having heard both the parties, we shall now proceed to adjudicate the issue. 11. First the fact relating to the error pointed out by the ld.CIT needs to be elaborated. As is evident from para-2 of the ld.CIT’s order as reproduced above, in the assessment framed for the subsequent Asst.Year 2015-16,the AO had conducted inquiry relating to the purchases made from four parties as noted above in para-2 of the Ld.CIT’s order, which is reproduced above, and had found the parties to be bogus and purchases made from to be also bogus. He noted the fact that these parties had cancelled their TIN’s well before purchases were made by the assessee from them proving that the parties were not genuine. The ld.CIT noted that the assessee had made purchases from these very same parties in the impugned year also, totaling to Rs.1,00,04,171/- and found that the AO’s inquiry during the impugned year had not gone to the extent of revealing this fact. He noted that despite the replies furnished by these parties to the AO during assessment proceedings in response to notice issued u/s 133(6) of the Act, all being in the same format, which should have raised suspicion calling for further inquiry the AO went on to accept these parties as genuine without making any further inquiries. He held that inadequate inquiry conducted bythe ITA No.689/Ahd/2019 9 AO had resulted in these bogus purchases being allowed to the assessee i.e. causing prejudice to the Revenue to the said extent. Therefore, it is with respect to the issue of claim of purported bogus purchases made from the four parties by the assessee during the impugned year totaling in all to Rs.1,00,04,171/- which parties were revealed to be bogus during the assessment proceedings for Asst.Year 2015-16, that the revisionary jurisdiction in the present case was exercised by the ld.CIT. Having stated so, we shall now deal with each contention of the ld.counsel for the assessee. 12. Taking up the first contention that records of subsequent years could not have been considered by the ld.CIT for arriving at a finding that there was an error in the impugned order. We are not inagreement with the same. As rightly pointed out by the Ld.DR the provisions of section 263 itself define “records” as all records available with the Commissioner while examining them. For the sake of convenience, we reproduce section 263(1)of the Act for clarity, as under: 263. (1) The [Principal Chief Commissioner or Chief Commissioner or 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 [or the Transfer Pricing Officer, as the case may be,] 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 ... 13. As is evident, section 263 empowers Commissioners/Pr.Commissioners to call for and examine the records of any proceedings under this Act, and on that basis, if he considers any order passed by the AO as erroneous, he is well within his right to revise the said order assuming jurisdiction under section263 of the Act for the said purpose. Here the term “records” ITA No.689/Ahd/2019 10 has been defined in clause (b) to Explanation 1 to section 263(1) as under: Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a .... ..... ..... (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 [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner; 14. A bare and literal reading of clause (b) reveals that “records” include “all records” relating any proceedings under this Act which is available with the ld.CIT at the time of examination. There is no restriction in the Explanation 1(b) to section 263 ,where the term “records” is specifically defined, restricting “records” in any manner more so to a particular year only. Therefore, applying principle of literal interpretation, we see no reason to restrict the definition of “records” to that relating to the year for which revisionary jurisdiction is exercised, when the definition of the term clearly states that it includes all or any records relating to the assessee available with the ld.CIT at the time he examines it. In view of the same, the contention of the ld.counsel for the assessee that the ld.CIT could not have been referred to the records of the subsequent year i.e. Asst.Year 2015-16 for exercising his revisionary jurisdiction for the impugned year i.e. Asst.Year 2014-15 is rejected. 15. Now taking up next contention of the ld.counsel for the assessee that the issue of purchases from these very same parties was examined during the assessment proceedings, the ld.counsel for the assessee took us through various details of purchases contained ITA No.689/Ahd/2019 11 in the Paper Book filed before us, pointing out that the question was raised during assessment proceedings relating to the very same purchases and due reply was filed by the assessee, and accordingly, the AO had taken conscious view holding the purchases to be genuine. We are not convinced with this contention of the ld.counsel for the assessee also. It is afact on record that insubsequent year i.e. Asst.Year 2015-16 when these very same parties, from whom purchases were made in the impugned year, were examined and inquired into by the AO during assessment proceedings, it revealed that all these parties were bogus and non-existent even in the impugned year. The inquiry revealed that these parties did not have TIN for the impugned year, having surrendered it in earlier year. In the impugned year, the inquiry by the AO was clearly inadequate. The Ld.CIT has pointed out from the records that in response to inquiry conducted u/s 133(6) of the Act, these parties had responded in identical format. This ideally should have raised suspicion and prompted further inquiry. But the AO accepted their responses and treated the parties as genuine. Therefore, the inquiries conducted by the AO being inadequate, and the records of the Asst.Year 2015-16 revealing these parties to be non-existent and bogus, it cannot be said that the AO had taken a plausible view accepting the purchases from these parties as genuine. This plea of the assessee is also, therefore, rejected. 16. The next contention of the ld.counsel for the assessee that theld.CIT without conducting any further inquiry had simply restored the issue to the AO to make further inquiry, we find also is devoid of merits. It is a fact on record that during the revisionary ITA No.689/Ahd/2019 12 proceedings, the ld.CIT had confronted the finding of the AO in the subsequent year of the same parties having been found bogus and non-existent. The ld.CIT has noted that the assessee was given sufficient opportunity during revisionary proceedings to respond to the same and prove genuineness. But despite adverse material available relating to these parties, the assessee simply reiterated contentions which were made before the AO without dislodging the adverse findings for the assessment year 2015-16. Therefore, we find that, it cannot be said that theld.CIT had arrived at his finding of error without conducting any inquiry and without making any further investigation into the issue. The ld.CIT had clear cut information that the creditors relating to these purchases were bogus. He had given sufficient opportunities to the assessee during the revisionary proceedings to counter this fact, but the same was not done by the assessee. Therefore in the absence of any explanation furnished by the assessee to controvert the findings of the Ld.CIT that the purchases were bogus, the ld.CIT, we hold, rightly found the assessment order erroneous causing prejudice to the Revenue in accepting assesses claim to such purchases as being genuine. And in all fairness he has still gone ahead and given an opportunity to the assessee to come up with his case now before the AO in the restored proceedings to the AO. This plea of the ld.counsel for the assessee also is rejected. 17. The case law relied upon by the ld.counsel for the assessee in the case of Ashish Dham(supra) is distinguishable on facts wherein the ITAT noted that the assessment order had been set aside by the Ld.PCIT u/s 263 of the Act to the AO for fresh assessment without the Ld.PCIT having himself done any exercise or inquiry on the error noted by him. In this backdrop of facts it was held that there could ITA No.689/Ahd/2019 13 not be said to be any finding of error by the Ld.PCIT in terms of section 263 of the Act. In the present case, as noted above, the Ld.PCIT did conduct inquiry on the issue of alleged bogus purchases confronting the assessee with all adverse material available with him. But the assessee did not respond on the adverse material. Therefore the facts of the case of Ashsish Dham (supra) being distinguishable the proposition laid down therein will not apply to the present case. 18. Before parting, we are also dealing with last contention of the ld.counsel for the assessee which was, we have noted, suitably countered by the ld.DR during the course of hearing before us. The ld.counsel for the assessee has contended that addition made on account of bogus purchases in Asst.Year 2015-16 which was basis with the ld.CIT(A) for finding error in the order of the AO in the impugned year, had been challenged before the ld.CIT(A) who had restricted the addition to the extent of gross profit element therein only; that therefore, the ld.CIT noting that the purchases in the impugned year were also bogus in entirety was incorrect on facts. The counter of the ld.DR to this argument, we find is apt and appropriate with the fact that the ld.CIT(A) restricted the addition to the GP element therein only in Asst.Year 2015-16 does not take away the fact that the purchases from these parties in any case was found to be bogus, as contended by the ld.counsel for the assessee also. The ld.CIT(A) held that the purchases though not made from these parties must have been made from some other parties, and accordingly restricted the addition to the element of GP embedded therein only, on the premise that the assessee must have gained on this count. Therefore, the fact that these parties were bogus and ITA No.689/Ahd/2019 14 non-existent was not disturbed by the ld.CIT(A) in Asst.Yr. 2015-16. Therefore, this contention of the assessee merits no consideration. In view of the above all contentions of the ld.counsel of the assessee are dismissed. Order of the ld.CIT under section 263 is upheld. 19. In the result, appeal of the assessee is dismissed. Order pronounced in the Court on 3 rd March, 2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 3/03/2023