Itat/27/2022 Ia No: Ga/2/2022 Principal Commissioner Of Income Tax - 9 Kolkata v. Mrs. Premlata Tekriwal

IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITAT/27/2022IA NO: GA/2/2022PRINCIPAL COMMISSIONER OF INCOME TAX - 9 KOLKATAVS MRS. PREMLATA TEKRIWAL ITAT/32/2022IA NO:GA/2/2022PRINCIPAL COMMISSIONER OF INCOME TAX - 9 KOLKATAVSBINOD KUMAR TEKRIWAL ITAT/33/2022IA NO;GA/2/2022PRINCIPAL COMMISSIONER OF INCOME TAX 9 KOLKATAVSMRS. PREMLATA TEKRIWAL BEFORE : THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE BIVAS PATTANAYAK Date : 15[th ]July, 2022. Appearance :- Mr. Soumen Bhattacharjee, Adv. ….for appellant The Court :- We have heard Mr. Soumen Bhattacharjee, learnedstanding Counsel appearing for the appellant. These appeals filed by the revenue under Section 260A of theIncome Tax Act (the Act for brevity) are directed against a commonorder dated 14[th] January, 2020 passed by the Income Tax AppellateTribunal “B” Bench, Kolkata (Tribunal) in ITA No. 1129, 1132 and1133/Kol/2018 for the assessment years 2009-10, 2010-11 and2011-12 respectively. The revenue has raised the following substantial questions oflaw for consideration :- 1)Whether on the facts and in the circumstances of the case andin law the Learned Income Tax Appellate Tribunal erred inquashing the order passed by the PCIT-10, Kolkata u/s. 263 ofthe Act ? 2)Whether on the facts and in the circumstances of the case andin law the Learned Income Tax Appellate Tribunal is perverse inignoring the fact that as per section 69C of the Act, theAssessing Officer should have to make a disallowance of theentire fictitious purchases made through accommodation billsand there is no scope for partial disallowance under the saidprovision and the Pr. CIT-10 rightly held that there is an errorin the order passed by the Assessing Officer and the same isprejudicial to the interest of the Revenue ? 3)Whether on the facts and in the circumstances of the case andin law the Learned Income Tax Appellate Tribunal erred in overlooking Explanation 2 to Section 263 of the Act inserted byFinance Act, 2015 with effect from 01.06.2015? 4) 4)Whether on the facts and in the circumstances of the case andin law the Learned Income Tax Appellate Tribunal erred inignoring the fact that the Assessing Officer should have madefurther investigation to reach a logical conclusion rather thanmaking a baseless estimation of income, which fundamentallysatisfies the requirement of an order being erroneous in nature?Since the facts are identical, we take up the facts forconsideration in ITAT 27/2022 where the assessee is PremlataTekriwal. The said assessee filed the return and income for theassessment year 2009-10 declaring a total income of Rs.3,85,822/-.The assessment was reopened based on information received from theDirector General of Income Tax (Investigation). The reasons forreopening was based on information received from Maharastra SalesTax Department who carried out various searches on thepersons/entities involved in issuance of fictitious purchases. The dataof the said searches carried out by the Maharastra Sales TaxDepartment were communicated to the Director General of IncomeTax (Investigation) who, in turn, vide letter dated 23[rd] December, 2013communicated the details of the fictitious purchases and the name ofthe assessee was found in the list as a beneficiary of suchaccommodation bills. After following the due procedure and discussing the case with the various representatives of the assessee,the Assessing Officer while completing the assessment by order dated28[th] March, 2016 pointed out that the only inference can be drawn isthat the assessee did not purchase from the parties mentioned in thesaid bill and at the same time the assessee did purchase goods fromsome other suppliers may be without the bill. Therefore, the purchaserate mentioned by the assessee was rejected. With a view to affordopportunity to the assessee to establish genuinity of the purchases,opportunity was given to the assessee. In response to suchopportunity the assessee stated that they are not in a position toproduce the mentioned records and requested to treat 2% of thepurported bogus purchase of Rs.54,13,476/- to be added to the totalincome for the said years. The Assessing Officer rejected suchsubmission. After doing so he had observed that the assessee gotsame benefit of such bogus purchase, there would be no denial of thefact that the assessee’s estimated income will increase to a certainextent. After making such an observation, the Assessing Officerestimates the addition at 3% of the bogus purchase and accordingly asum of Rs.1,62,405/- was added to the total income of the assessee.The Principal Commissioner of Income Tax – 10, Kolkata exercised hispower under Section 263 of the Act. It is seen that the AssessingOfficer himself had submitted before the PCIT that an error hasoccurred in the assessment order. After perusing the entire files as well as the stand taken by the Assessing Officer, the PCIT was of theprima facie opinion that the Assessing Officer failed to take logicalaction on the information available with him and therefore, opinedthat the assessment order is erroneous in so far as it is prejudicial tothe interest of the revenue. Accordingly, the show-cause notice dated30[th] January, 2018 was issued to the assessee under Section 263 ofthe Act. The averments contained in the show-cause notice are asfollows :- “…..On examination of your assessment records for the abovementioned assessment year., it appears prima facie that therewas failure on the part of the A.O. to assess the income correctlyand as such the instant order u/s 143(3)/147 dated 28.03.2016is erroneous in so far as it is prejudicial to the interest of theRevenue within the ambit of sec. 263 of the Income Tax (IT) Act,1961. 3.On examination of your assessment records for the abovementioned assessment year, it is observed that your case wasreopened u/s 147 of the Act, on 30/03/2015 on the basis ofincriminating information received by the AO. In the saidassessment order it was established that expenditure worthRs.54,14,476/-, claimed by you as purchase, was bogus. Whenexpenditure is established as bogus, there is no provision in theact, whereby partial disallowance to the bogus expenditure can be made. However, in your case, the A.O. has disallowed a sumof Rs.1,62,405/-, being 3% of such bogus expenditure/purchaseswhereas the entire amount was required to be disallowed. 4. In view of the above, you are hereby allowed on opportunity ofbeing heard, either personally or through an authorizedrepresentative, in my office at 5[th] floor, Aayakar BhawanDakshin, 2 Gariahat Road South, Kolkata – 700068, on 14.02.2018 at 1.00 P.M., and show cause as to why an orderu/s 263 of the I.T. Act shall not be passed in your case,enhancing/modifying/canceling the assessment the assessmentorder in question or directing a fresh assessment to be made. 5. In the event of failure to comply with the above, it shall bepresumed that your have no objection to the proposed action andthe matter shall be finalised on merits on the basis of material onrecord, without further notice.” Though the show cause notice was served on the assessee noneappeared before the PCIT. Thereafter, with a view to offer furtheropportunity the matter was adjourned twice. However, the assesseefailed to appear. 14.02.2018 at 1.00 P.M., and show cause as to why an orderu/s 263 of the I.T. Act shall not be passed in your case,enhancing/modifying/canceling the assessment the assessmentorder in question or directing a fresh assessment to be made. 5. In the event of failure to comply with the above, it shall bepresumed that your have no objection to the proposed action andthe matter shall be finalised on merits on the basis of material onrecord, without further notice.” Though the show cause notice was served on the assessee noneappeared before the PCIT. Thereafter, with a view to offer furtheropportunity the matter was adjourned twice. However, the assesseefailed to appear. Having left with no option the PCIT proceeded to take forconsidering the matter and passed the order dated 5[th] March, 2018.It was held that from materials available on record it is proved beyonddoubt that the alleged purchase claimed by the assessee against the parties were bogus. The PCIT referred to Section 69C of the Act andpointed out that once it is established that the expenditure isunexplained/bogus, the entire amount of bogus expenditure is to beadded to the total income of the assessee. Reliance was placed on thedecision of the Hon’ble Supreme Court in N.K.Proteins Vs. DCIT [2017]84 taxmann.com 195(SC). Further, the PCIT pointed out that theassessment officer had to examine each and every transaction andfinally assess the correct income of the assessee. However, theassessing officer without arriving at any logical conclusion andwithout conducting any inquiry made a disallowance only to theextent of 3% of the bogus purchase. With regard to the aspect of theassessing officer as to making inquiries, the PCIT referred to thedecision of the Hon’ble Supreme Court reported in Rampyari DeviSaraogi Vs. CIT (1968) 67 ITR 84, Smt. Tara Devi Aggarwal Vs. CIT(1973) 88 ITR 323 (SC) and the decision of the other High Courts.Further, the PCIT took note of the Explanation 2 to Section 263 of theAct inserted by the Finance Act, 2015 with effect from 1.6.2015 andpointed out if an order has been passed by the Assessing Officerwithout making any inquiry or verification then it would be a casewhere the order is deemed to be erroneous in so far as it is prejudicialto the interest of the revenue. Accordingly, the PCIT held that theentire expenses has to be disallowed as being bogus purchases. The Assessing Officer was directed to reassess the income of the assesseefor the relevant assessment years. The assessee carried the matter on appeal to the Tribunal. TheTribunal had allowed the assessee’s appeal by relying upon thedecision of the Coordinate Bench in Om Foregoing & Engineering P.Ltd. Vs. PCIT in ITA Nos. 509& 510/Kol/2017 for the assessmentyeas 2010-2011 and 2011-2012 dated 13.12.2017 and the decision ofthis Court in PCIT Vs. M/s. Subarna Rice Mill, ITAT/196/2015, dated20.06.2018. Firstly, we find that the decision in Om Foregoing &Engineering Pvt. Limited is clearly distinguishable on facts. In the saidcase the assessee had filed records and the copies of the sales billsetc. were filed in the form of a paper book and on facts the Courtfound that inquiry was conducted by the assessing officer and,therefore, the Commissioner was wrong in exercising his power underSection 263 of the Act. The facts as mentioned in the said judgmenthad been quoted by the Tribunal in paragraph 6 of its order. Readingof the said order will clearly show that the said decision could nothave been applied to the assessee’s case. The decision of this Court inthe case of M/s. Subarna Rice Mill (supra) also is distinguishable onfacts as the source from where the purchases were made wasidentified. At this juncture, it would be relevant to note that when theassessing officer gave an opportunity to the assessee to explain thetransaction, the assessee did not produce any document, but stated that 2% of the purported bogus purchase may be added to the totalincome. Thus it would mean that the assessee had accepted theallegations against them and precisely for such reason they offeredthat 2% of the bogus purchase may be added to the total income. Ifsuch was the factual position in the case on hand then it isincumbent upon the Assessing Officer to inquire into the matter andtake the proceedings to the logical end. Having not done so, the PCITwas fully justified in exercising jurisdiction under Section 263 of theAct. Thus, we are of the view that Tribunal erroneously interfered withthe order passed by the PCIT. In the result, the appeals filed by the revenue are allowed and theorder passed by the Tribunal is set aside. Consequently, the order passed by the Principal Commissioner OfIncome Tax – 10, Kolkata dated 5[th] March, 2018 is restored. Accordingly, the substantial questions of law are answered infavour of the revenue. (T.S. SIVAGNANAM, J.) (BIVAS PATTANAYAK, J.)