2022 (5) TMI 351 - AT - Income Tax

Tribunal upholds PCIT's order under Section 263, deems AO's assessment erroneous, directs re-examination

JR Industries, OM Industries, Vikas Oil Product Versus P.C.I. T-1, Jaipur.

The Tribunal upheld the Principal Commissioner of Income Tax's (PCIT) order under Section 263, finding the Assessing Officer's (AO) assessment erroneous ... Revision u/s 263 - Bogus sales - as per CIT A.O. erred in appreciating only 25% of the bogus sales to tax without any basis whereas according to the ld. PCIT, the whole amount of the bogus sales need to be examined considering the nature of the transactions being of accommodation entry taken - HELD THAT:- A.O. is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return. The order passed by the Assessing Officer becomes erroneous when an enquiry has not been made before accepting the genuineness of the claim which resulted in loss of revenue. AO has restricted the assessment only to bogus sale made by assessee to Shri Ram Trading Co. and he has presumed and assumed that bogus sale was only made to that party and not to any other party. In fact, he has not made any enquiries to find out the genuineness of other sales made by the assessee, which he was supposed to make, when the initiation of assessment proceedings itself was on account of bogus business transactions only. Thus, it is case of incorrect assumption of facts without any enquiries or verification As question is not filing the documents by the assessee with the A.O. during the assessment proceedings, however, here the question is with respect to carrying out necessary verifications on the information of the department and that of the documents submitted by the assessee. Unfortunately, we have not been able to lay our hands of any sort of verification carried out by the A.O. In our view, the A.O. has proceeded only on the basis that “modus operandi of providing bogus sales cannot be relied upon in the light of the concrete information available on the record.” Thus, in this way, only on this basis, the A.O. treated the sales as bogus and charged 25% as income derived out in lieu of accommodation entries without any basis, enquiry or verification. Even, throughout the assessment proceedings, there is not even any whisper from the side of the A.O. that he had carried out any sort of investigation or verification or recorded his satisfaction. Thus, we are in consonance with the findings of the ld. PCIT and upheld the order passed by the PCIT wherein he has pointed out the discrepancies in the order of A.O. as A.O. has not considered the investigation done by the department in respect of accommodation entry given by M/s Shri Ram Trading Company to the assessee firm, nor any verification from M/s Shri Ram trading Company has been carried out. The assessee’s contention that sales were actual as is supported by documentary evidence in form of C-form and invoiced etc. was refuted by the AO, stating that the modus operandi of providing bogus sales also involve completing the due process of submitting prescribed form to the Commercial Taxes Department. The AO did not rely upon the evidences submitted before him and treated the sales of Rs. 11,80,000/- as bogus sales. However, the A.O. has not given any justification on record as why only 25% of the bogus sales are brought to tax. A.O. has failed to examine the complete bank statement of the assessee as only partial bank-account statement is available on record which pertained to period 11-06-2010 to 17-06-2010 to support a receipt of Rs. 6,00,000/- on 12/06/2010 and Rs. 5,80,000/- on 17/06/2010. AO has also not carried out any stock verification around the dates of these sales and also of the purchases made around this period. Thus we uphold the order passed by the ld. PCIT u/s 263 - Decided against assessee. Issues Involved:1. Legality of exercising revisionary powers under Section 263 of the Income Tax Act, 1961.2. Determination of whether the order passed under Section 147/143(3) was erroneous and prejudicial to the interest of the revenue.3. Applicability of the Doctrine of Merger in the context of pending appeals before CIT(A).4. Adequacy of the Assessing Officer's (AO) enquiry and verification of bogus sales transactions.Detailed Analysis:1. Legality of Exercising Revisionary Powers Under Section 263:The assessee argued that the Principal Commissioner of Income Tax (PCIT) wrongly exercised revisionary powers under Section 263 of the Income Tax Act, 1961, as the appeal was pending before CIT(A). The Tribunal referred to Explanation 1(c) to Section 263(1), which states that the PCIT's powers extend to matters not considered and decided in the appeal. The Tribunal concluded that the PCIT was within his rights to invoke Section 263, as the pending appeal before CIT(A) did not preclude the PCIT from exercising revisionary jurisdiction.2. Determination of Erroneous and Prejudicial Order:The Tribunal examined whether the order passed under Section 147/143(3) was erroneous and prejudicial to the revenue. The PCIT noted that the AO had only taxed 25% of the bogus sales without any basis, whereas the entire amount of Rs. 11.80 lakhs should have been examined. The Tribunal upheld the PCIT's view that the AO's order was erroneous and prejudicial to the interests of the revenue due to lack of proper verification and enquiry into the bogus sales transactions.3. Applicability of the Doctrine of Merger:The Tribunal discussed the Doctrine of Merger, which implies that an order merges with the appellate order only on the issues considered and decided by the appellate authority. Since the appeal before CIT(A) was pending and the issues in question were not yet considered or decided, the Tribunal held that the Doctrine of Merger did not apply. Therefore, the PCIT retained the jurisdiction to revise the assessment order under Section 263.4. Adequacy of AO's Enquiry and Verification:The Tribunal found that the AO failed to conduct a thorough enquiry into the bogus sales transactions. The AO did not verify the complete bank statements, stock registers, or the nature of transactions with other parties. The Tribunal cited various judicial precedents emphasizing the AO's duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return. The Tribunal agreed with the PCIT that the AO's order was passed without proper verification, making it erroneous and prejudicial to the revenue.Conclusion:The Tribunal upheld the PCIT's order under Section 263, concluding that the AO's assessment was erroneous and prejudicial to the interests of the revenue due to inadequate enquiry and verification. The Tribunal dismissed the appeals filed by the assessee, affirming the PCIT's direction to the AO to re-examine the matter in light of the observations made.