Tribunal quashes Section 263 orders, rules in favor of assessees on income tax assessment, limits profit element addition

The tribunal allowed the appeals of the assessees, quashing the orders passed under Section 263 by the Principal Commissioner of Income Tax. It held that there was no error prejudicial to the interest of the revenue in the Assessment Orders, emphasizing that the Assessing Officer's view was plausible after examining the documents and records. The tribunal concluded that only the profit element from undisclosed purchases should be added to income, not the entire purchase price, citing relevant case law to support its decision.

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Issues Involved:
1. Condonation of delay in filing appeals.
2. Legitimacy of fictitious purchases and their impact on income assessment.
3. Review and revision of the assessment order by the Principal Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act.
4. Applicability of Section 69C of the Income Tax Act regarding unexplained expenditure.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
In the case of Mrs. Premlata Tekriwal (ITA No.1129/Kol/2018), there was a delay of 10 days, and in ITA Nos.1130, 1131, 1132, and 1133/Kol/2018, there was a delay of 2 days in filing the appeals. The assessees filed condonation petitions, and after reviewing the reasons, the tribunal was convinced that the assessees were prevented by sufficient cause from filing the appeals on time. Consequently, the delays were condoned, and the appeals were admitted.

2. Legitimacy of Fictitious Purchases and Their Impact on Income Assessment:
The assessees derived income from business and filed their returns under Section 139 of the Act. The Assessing Officer (AO) received information from DGIT(Inv.) that the assessees made fictitious purchases. Based on this, assessments were reopened under Section 147 of the Act. The AO issued a show-cause notice indicating that a search by the Maharashtra Sales Tax Department revealed that certain entities issued bogus accommodation bills. The AO concluded that the assessees did not purchase goods from the mentioned parties but from other suppliers without bills. The AO decided that the purchase rate in the bills was not acceptable and estimated an addition of 3% of the bogus purchases to the total income, initiating penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars.

3. Review and Revision of the Assessment Order by the Principal Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act:
The Principal CIT issued a notice under Section 263 of the Act, proposing to revise the assessment order, arguing that the AO should have disallowed the entire fictitious purchases rather than just 3%. The Principal CIT referenced the case of N.K. Proteins vs. DCIT and concluded that the entire amount of Rs. 54,13,476/- claimed as bogus purchases should be disallowed, directing the AO to reassess the income for the relevant assessment year.

4. Applicability of Section 69C of the Income Tax Act Regarding Unexplained Expenditure:
The tribunal referred to the ITAT Kolkata "B" Bench decision in Om Foregoing & Engineering P Ltd. vs. PCIT, where it was held that the AO's conclusion that the purchases were not genuine was based on information from DGIT (Investigation), Mumbai. The AO found that the sales were genuine, and thus, the corresponding purchases could not be denied. The AO adopted a view that the purchases were made from the grey market at a lesser price, and bogus bills were obtained to show higher purchase prices. This was considered a possible view in law.

The tribunal noted that the Principal CIT's opinion that the AO should have invoked Section 69C was not supported by the facts, as the assessee had shown the expenditure on purchases in the books and explained the source of payment through banking channels. The tribunal referenced the Hon'ble Allahabad High Court's decision in Pr. CIT vs. Ram Shankar Yadav, which held that Section 69C is not mandatory and the AO has discretion based on judicial principles.

The tribunal concluded that the AO's view was plausible and supported by the Hon'ble Calcutta High Court's decision in PCIT vs. M/s Subarna Rice Mill, which stated that only the profit element embedded in undisclosed purchases should be added to the income, not the entire purchase price.

Conclusion:
The tribunal held that there was no error prejudicial to the interest of the revenue in the AO's assessment orders. The orders passed under Section 263 by the Principal CIT were quashed, and all the appeals of the assessees were allowed. The tribunal emphasized that the AO's view was a plausible one after considering and examining the documents and records.

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