Case Of N. K. Proteins Ltd v. Dcit Wherein The Hon’ble Apex Courtobserved That Addition On The Basis Of Undisclosed Income Could Not Berestricted To Certain Percentage When The Entire Transa

O–36 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITAT/207/2023IA NO: GA/2/2023PRINCIPAL COMMISSIONER OF INCOME TAX, ASANSOLVS.M/S. BARDHAMAN DHARMARAJ PAPER MILL PVT. LTD. BEFORE : THE HON’BLE THE CHIEF JUSTICE T.S. SIVAGNANAM AndTHE HON’BLE JUSTICE SUPRATIM BHATTACHARYADate : 3[rd] January, 2024 Appearance :Ms. Smita Das De, Adv.…for appellantMr. Subash Agarwal, Adv.…for respondent The Court : This appeal by the revenue filed under Section 260A of theIncome Tax Act, 1961 (the Act) is directed against the order dated 10[th] October,2022 passed by the Income Tax Appellate Tribunal, `A’ Bench, Kolkata in I.T.A.No. 160/Kol/2021 for the assessment year 2014-15. The revenue has raised the following substantial questions of law forconsideration : a)Whether in the facts and the circumstances of the case the Tribunalwas justified in law to quash the order under Section 263 of the saidAct without considering the judgement of the Hon’ble Apex Court in the b) c) case of N. K. Proteins Ltd. vs. DCIT wherein the Hon’ble Apex Courtobserved that addition on the basis of undisclosed income could not berestricted to certain percentage when the entire transaction has beenfound as bogus ? Whether in the facts and the circumstances of the case the Tribunalwas justified in law to affirm the order of the Assessing Officer despitethe fact that the Assessing Officer did not make any enquiry as to thecredibility and the genuineness of the transaction made by the assessee? Whether in the facts and the circumstances of the case the Tribunalwas justified in law to rely upon the decision of the Hon’bleJurisdictional Calcutta High Court in the case of Excel Commodity andDerivative (P) Ltd. which is distinguishable both in fact as well as in lawsince in the said case the duty of the Assessing Officer was discussedfor due verification of any information available or data uploaded beforeinitiation of the reassessment proceedings whereas in the instant casethe order under Section 147 of the said Act had already been passed ? We have heard Ms. Smita Das De, learned standing Counsel appearing forthe appellant/revenue and Mr. Subash Agarwal, learned Counsel for therespondent/assessee. Two issues arise for consideration in this appeal. The substantial questionof law no.(c) as suggested by the revenue pertains to the correctness of the order We have heard Ms. Smita Das De, learned standing Counsel appearing forthe appellant/revenue and Mr. Subash Agarwal, learned Counsel for therespondent/assessee. Two issues arise for consideration in this appeal. The substantial questionof law no.(c) as suggested by the revenue pertains to the correctness of the order passed by the learned Tribunal in placing reliance on the decision of this Courtin the case of Excel Commodity and Derivative (P) Ltd. vs. Union of India & Ors.,APOT 132 of 2022, dated 29[th] August, 2022. The facts of the case which arerequired to be considered are that the Assessing Officer completed thereassessment by order dated 28[th] December, 2018 under Section 143(3) readwith Section 147 of the Act. By the said order the books of accounts of theassessee to the extent of trade in business were rejected and it was held that thepurchases to the tune of Rs.13,36,56,176/- from one M/s. Siddi Enterprise wastreated as bogus. Thereafter the Assessing Officer proceeded to estimate thegross profit and fixed the gross profit at 7.85% of the sale of the trade in goodsand completed the assessment. The Audit wing of the Income Tax departmentissued an audit memo and based on which the Principal Commissioner ofIncome Tax, Asansol (PCIT) issued notice under Section 263 of the Act. One ofthe allegations against the assessee was that in the inside portal writteninformation has been made available and the PCIT opines that the assessee hasmade some kind of bogus purchases from four entities. Thus, the languageadopted by the PCIT will clearly show that there was no definite conclusionarrived at by the PCIT that the assessee has effected bogus purchases. In thisregard the learned Tribunal noted decision of this Court in Excel Commoditywherein Court took into consideration the circular issued by the Central Boardof Direct Taxes, dated 22[nd] August, 2022 giving instruction to the departmentalofficers with regard to uploading of data and on functionality – portal of theIncome Tax department. After noting the said circular, it was held as follows :- “From the above it is clear that it has come to the notice of CBDT thatin several cases information made available/data uploaded by the reportingentries are not fully accurate due to error of human nature, technical natureetc. Therefore, the department was advised to effect due verification andopportunity of being heard given to the tax payers before initiatingproceedings under Section 148/147 of the Act. Thus, in the precedingparagraph we have pointed out the factual position in the case on hand andit appears that proper verification was not done on the information whichwas available with the assessing officer at the time of issuance of noticeunder Section 148A(b) of the Act which has led to an erroneous order dated7[th] April, 2022 being passed.” Mr. Subash Agarwal, learned advocate appearing for therespondent/assessee places reliance on the decision of the High Court ofGuwahati in the case of Bongaigaon Refinery & Petrochemicals Ltd. Vs. Union ofIndia reported at [2006] 287 ITR 120 (GAU.) with regard to under whatcircumstances, the jurisdiction under Section 263 of the Act is exercisable andhad relied upon the following paragraphs of the said decision : “17.Entertainment of a view different from the one adopted by theAssessing Officer, if plausible would not clothe the Commissioner withthe power to interfere therewith under the said provision of the Act.Differently put, an error within the jurisdiction of the Assessing Officeron an evaluation of the materials available would not be exposed tointerference in exercise of suo motu revisional powers under section263 of the Act. The provision though permits the Commissioner toinitate an enquiry as he may deem necessary does not authorise aroving probe into the facts with the disposition to pick out errors tosustain the eventual interference. This assumes great significance in “17.Entertainment of a view different from the one adopted by theAssessing Officer, if plausible would not clothe the Commissioner withthe power to interfere therewith under the said provision of the Act.Differently put, an error within the jurisdiction of the Assessing Officeron an evaluation of the materials available would not be exposed tointerference in exercise of suo motu revisional powers under section263 of the Act. The provision though permits the Commissioner toinitate an enquiry as he may deem necessary does not authorise aroving probe into the facts with the disposition to pick out errors tosustain the eventual interference. This assumes great significance in the context of the statutory framework of the Act outlining thejurisidictional contours of different authorities to adjudicate the issuesas legislatively stipulated. The Commissioner in exercise of hisrevisional powers cannot arrogate to himself a status to surrogate theother authorities and supplant their roles under the Act. TheCommissioner is not a substitute for the other statutorily prescribedfora with codified functions dischargeable in terms of the prescribedprocedure in the situations comprehended thereby. TheCommissioner, therefore has to be rigorously held to the limits of hissuo motu revisional jurisdiction lest any transgression of statutorilyordained prerogatives of other authorities under the Act result from anunbridled exercise of such power. The Act envisages acompartmentalisation in the functioning of the authorities prescribedwho have to dwell within the legally stipulated parameters so muchso that it would be impermissible to overreach the legislativelymandated frontiers. Any other approach would be antithetical to thescheme and alignment of the Act. 18.The jurisdiction exercisable under section 263 of the Act beingsupervisory in nature, permitting suo motu review of any assessmentalready made, the statutorily enjoined sanctions circumscribing thesame have to be rigorously construed. The legislative intendment ofconditioning the plenitude of the power conferred is manifest in thetwo preconditions lodged in the section. To sustain the delicatebalance between this supervisory and other remedial jurisdictions, asdesigned by the lawmakers, a constricted connotation and purport ofthe enabling prerequisites for the exercise of the revisional powers isan imperative necessity.” As pointed out earlier, the PCIT even at the time of issuing show causenotice under Section 263 was not definite as to whether or not the assessee had effected certain bogus purchases but merely referred to the inside portal anddoubted that there may be chances that the assessee has made boguspurchases from four entities. Thus, the learned Tribunal was fully justified ingranting relief to the assessee by referring to the decision in Excel Commodityand Derivative (P) Ltd. Therefore, the substantial question of law no.(c) isanswered against the revenue. As pointed out earlier, the PCIT even at the time of issuing show causenotice under Section 263 was not definite as to whether or not the assessee had effected certain bogus purchases but merely referred to the inside portal anddoubted that there may be chances that the assessee has made boguspurchases from four entities. Thus, the learned Tribunal was fully justified ingranting relief to the assessee by referring to the decision in Excel Commodityand Derivative (P) Ltd. Therefore, the substantial question of law no.(c) isanswered against the revenue. With regard to the substantial questions of law (a) and (b) are concerned,they pertain to bogus purchases effected by the assessee from M/s. SiddiEnterprises. The Assessing Officer did not accept the explanation offered by theassessee wherein the assessee pointed out that they had purchased articles fromthe person registered under the West Bengal Value Added Tax Act, 2003 whichhas raised sale bill to the assessee for all the sales by mentioning its VATnumber and charged Value Added Tax of such purchases. Further, the assesseehad stated that they have also mentioned all such purchases in its VAT returnfor the quarter ended March, 2024 and based on the purchases made from thesaid Enterprise and purchase bill received from it, the assessee has dischargedthe onus cast upon them. Further, the assessee contended that they sold all thewriting papers to NKR Enterprise who are also registered VAT dealer and theassessee has also made such sales notice, VAT return and therefore the assesseecontended that each purchase and sale were genuine and the Assessing Officerdid not comment upon the correctness of this stand taken by the assessee butproceeded to hold against the assessee on the ground that those purchasesmust have been effected from various third parties without bills and an accommodation bill was obtained from Siddi Enterprises. After having come tosuch a conclusion the Assessing Officer proceeded to assess the gross profit. Infact, the assessee for the purpose of bringing the matter to finality had agreed foroffering the increase in trade in gross profit by 1 to 1½%. The Assessing Officerafter considering the entire matter, examining the records estimated the grossprofit at 7.85%. It is the submission of the learned Advocate for therespondent/assessee that this amount was highly inflated. The assessee did notcontest the matter and had accepted the said estimation. The question would beas to whether the manner in which the Assessing Officer completed theassessment could have found fault with by the PCIT by exercising his powerunder Section 263 of the Act. The learned Tribunal while considering the correctness of the order of thePCIT has taken note of the various decisions and held that since the purchaseand sales have been duly granted, the view taken by the assessing officer was ofthe plausible view and the reassessment order cannot be said to be erroneous.The basis on which the power under Section 263 was invoked by the PCIT islargely on two grounds, firstly on the ground that an audit memo was issued bythe audit department and secondly, by placing reliance the reference to thedecision in the case of N.K. Industries Ltd. Vs. DCIT, reported at [2006] 72taxmann.com 289 (Guj.). The said decision could not have been applied withoutreferring to the facts and circumstances of the case. In fact, paragraph 8 of thejudgment would support the case of the respondent/assessee which is quotedhereunder : “8. So far as the question regarding addition of Rs.3,70,78,125/- asgross profit on sales of Rs.37.08 crores made by the Assessing Officerdespite the fact that the said sales had admittedly been recorded inthe regular books during Financial Year 1997-98 is concerned, we areof the view hat the assessee cannot be punished since sale price isaccepted by the revenue. Therefore, even if 6% gross profit is takeninto account, the corresponding cost price is required to be deductedand tax cannot be levied on the same price. We have to reduce theselling price accordingly as a result of which profit comes to 5.66%.Therefore, considering 5.66% of Rs.3,70,78,125/- which comes toRs.20,98,621.88 we think it fit to direct the revenue to addRs.20,98,621.88 as gross profit and make necessary deductionsaccordingly. Accordingly, the said question is answered partially infavour of the assessee and partially in favour of the revenue.” The decision in the case of the Principal Commissioner of Income Tax-17Vs. M/s. Mohammed Haji Adam & Co. in ITA No.1004 of 2016 dated February11, 2019 would also support the case of the assessee and the relevant paragraphof the said decision is quoted hereunder : “8. In the present case, as noted above, the assessee was a trader offabrics. The A.O. found three entities who were indulging in bogus billingactivities. A.O. found that the purchases made by the assessee fromthese entities were bogus. This being a finding of fact, we haveproceeded on such basis. Despite this, the question arises whether theRevenue is correct in contending that the entire purchase amount shouldbe added by way of assessee’s additional income or the assessee iscorrect in contending that logic cannot be applied. The finding of theCIT(A) and the Tribunal would suggest that the department had notdisputed the assessee’s sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That beingthe position, the Tribunal was correct in coming to the conclusion that thepurchases cannot be rejected without disturbing the sales in case of atrader. The Tribunal, therefore, correctly restricted the additions limitedto the extent of bringing the G.P. rate on purchases at the same rate ofother genuine purchases. The decision of the Gujarat High Court in thecase of N.K. Industries Ltd. (supra) cannot be applied withoutreference to the facts. In fact in paragraph 8 of the same judgement theCourt held and observed as under - “So far as the question regarding addition of Rs.3,70,78,125/as gross profit on sales of Rs.37.08 Crores made by theAssessing Officer despite the fact that the said sales hadadmittedly been recorded in the regular books during FinancialYear 1997-98 is concerned, we are of the view that theassessee cannot be punished since sale price is accepted bythe revenue. Therefore, even if 6% gross profit is taken intoaccount, the corresponding cost price is required to be deductedand tax cannot be levied on the same price. We have to reducethe selling price accordingly as a result of which profit comes to5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- whichcomes to Rs.20,98,621.99 we think it fit to direct the revenue toadd Rs.20,98,621.88 as gross profit and make necessarydeductions accordingly. Accordingly, the said question isanswered partially in favour of the assessee and partially infavour of the revenue”. In the light of the law as could be culled out from the aforementioneddecisions, and also the decision of this Court in PCIT Vs. Subarna Rice Mill inITA/196/2015, we find there is no error in the order passed by the learnedTribunal setting aside the order passed by the PCIT under Section 263 of theAct. For the above reasons, the substantial questions of law (a) and (b) are alsoanswered against the appellant/revenue. In the result, the appeal is dismissed and the substantial questions of laware answered against the appellant/revenue. The stay application IA NO: GA/2/2023 also stands dismissed. (T.S. SIVAGNANAM)CHIEF JUSTICE (SUPRATIM BHATTACHARYA, J.) SN/S.DasAR(CR)