2022 (7) TMI 1352 - HC - Income Tax

HC upholds section 263 revision, validates AO's 3% addition on bogus purchases under section 69C

PRINCIPAL COMMISSIONER OF INCOME TAX - 9 KOLKATA Versus MRS. PREMLATA TEKRIWAL And PRINCIPAL COMMISSIONER OF INCOME TAX - 9 KOLKATA Versus BINOD KUMAR TEKRIWAL

PRINCIPAL COMMISSIONER OF INCOME TAX - 9 KOLKATA Versus MRS. PREMLATA TEKRIWAL And PRINCIPAL COMMISSIONER OF INCOME TAX - 9 KOLKATA Versus BINOD KUMAR ... Issues:1) Quashing of order under Section 263 of the Income Tax Act2) Scope of disallowance under section 69C of the Act3) Overlooking of Explanation 2 to Section 263 of the Act4) Requirement of further investigation by the Assessing OfficerQuashing of order under Section 263 of the Income Tax Act:The High Court considered the appeals filed by the revenue challenging the order passed by the Income Tax Appellate Tribunal (ITAT) in relation to assessment years 2009-10, 2010-11, and 2011-12. The Principal Commissioner of Income Tax-10, Kolkata exercised power under Section 263 of the Act, stating that the Assessing Officer failed to take logical action on available information, deeming the assessment order as erroneous and prejudicial to revenue. The PCIT issued a show-cause notice to the assessee, who failed to appear, leading to the PCIT's decision to enhance the assessment order. The High Court upheld the PCIT's decision, emphasizing the need for a thorough examination of transactions and the requirement to disallow entire bogus expenditures under Section 69C of the Act.Scope of disallowance under section 69C of the Act:The PCIT highlighted the provisions of Section 69C of the Act, emphasizing that once an expenditure is proven as bogus, the entire amount should be added to the assessee's total income. The PCIT referred to relevant case law, including the decision in N.K.Proteins Vs. DCIT, to support the stance that partial disallowance of bogus expenditures is not permissible under the Act. The High Court concurred with the PCIT's interpretation, stressing the Assessing Officer's duty to conduct a comprehensive inquiry and arrive at a logical conclusion regarding the assessee's income.Overlooking of Explanation 2 to Section 263 of the Act:The PCIT also considered Explanation 2 to Section 263 of the Act inserted by the Finance Act, 2015, which deems an order erroneous if passed without proper inquiry or verification, prejudicial to revenue. By invoking this provision, the PCIT directed the Assessing Officer to reassess the assessee's income for the relevant assessment years, emphasizing the importance of conducting thorough investigations before making estimations or disallowances. The High Court upheld the PCIT's reliance on this explanation, reinforcing the necessity for diligent assessment procedures.Requirement of further investigation by the Assessing Officer:The High Court scrutinized the Tribunal's decision to allow the assessee's appeal, noting that the Assessing Officer had provided an opportunity for the assessee to explain the transactions, which the assessee failed to substantiate with documents. The Tribunal's decision was based on cases where inquiries were conducted and sources of transactions were identified, unlike the present case. The High Court emphasized that the Assessing Officer's failure to pursue a logical end to the investigation justified the PCIT's intervention under Section 263 of the Act. Consequently, the High Court allowed the revenue's appeals, setting aside the Tribunal's order and restoring the PCIT's decision.In conclusion, the High Court's judgment emphasized the importance of thorough investigations, adherence to statutory provisions, and the necessity for Assessing Officers to conduct detailed inquiries before making estimations or disallowances, ultimately upholding the PCIT's decision under Section 263 of the Income Tax Act.