ITAT quashes PCIT revision order under section 263 for bogus purchases, finds AO's 10% addition reasonable

ITAT Mumbai quashed PCIT's revision order u/s 263 regarding bogus purchases estimation. PCIT held AO's assessment erroneous for not considering SC's N.K. Protein decision and inadequate inquiry. ITAT found AO conducted proper inquiry and N.K. Protein decision dated 16.01.2017 was rendered after assessment completion on 02.03.2016, thus no obligation to consider it. Since assessee linked purchases with sales, only profit element warranted addition. AO's 10% addition on bogus purchases was reasonable compared to 100% in N.K. Protein involving search/seizure with incriminating evidence. PCIT's s.263 exercise was invalid. AO's order restored. Decided for assessee.

---

---

Issues:
Challenge to order under section 263 of the Income Tax Act for assessment year 2011-12 based on alleged bogus purchases.

Analysis:
The appeal was filed by the assessee against the order passed by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act. The assessee, a partnership firm engaged in civil contract work, filed its return declaring total income. The assessment was reopened under section 147 based on information regarding alleged bogus purchases. The Assessing Officer called for evidence to prove the genuineness of purchases from a specific party, which the assessee failed to provide. The Assessing Officer, however, noted that purchases and sales were recorded in the books but estimated profit at 10% of the alleged bogus purchases, adding to the income. The Principal Commissioner found the assessment order erroneous for not considering a Supreme Court decision and lack of proper inquiry, setting it aside for fresh assessment.

The Authorized Representative argued that the PCIT's jurisdiction was illegal as the Assessing Officer conducted necessary inquiry before completing the assessment. The AR contended that the Supreme Court decision was not available at the time of assessment, and the addition made by the Assessing Officer was consistent with judicial precedents. The Departmental Representative acknowledged the timing of the Supreme Court decision but supported the PCIT's exercise of power under section 263.

The Tribunal analyzed the case, noting that the Assessing Officer had conducted inquiries into the alleged bogus purchases and made additions based on profit estimation. The Tribunal disagreed with the PCIT's view that there was a lack of proper inquiry and non-consideration of the Supreme Court decision. The Tribunal highlighted that the Supreme Court decision was rendered after the assessment was completed, making it irrelevant for the Assessing Officer's consideration. The Tribunal emphasized that the factual issue of bogus purchases varies case by case and upheld the Assessing Officer's decision to restrict the addition to 10% based on the evidence provided by the assessee. Consequently, the Tribunal quashed the PCIT's order and restored the Assessing Officer's order.

In conclusion, the Tribunal allowed the assessee's appeal, pronouncing the order on 31.10.2018.

---