INCOME TAX ACT, 1961

Section 263 Section 69C

Revision under section 263 - Erroneous and prejudicial order - AO without examination of audited accounts taxed only profit element embedded in alleged bogus purchases instead of entire amount -

Assessee was found to have inflated purchase by taking accommodation entry to reduce profit element and in such situation, AO considered the question as to whether entire amount of purchase should be added back to income of assessee, or only the profit element embedded therein. AO concluded that 14% profit embedded in purchase as against 8% offered by assessee, was to be added to income of assessee. Pr.CIT held assessment order as erroneous and prejudicial to the interest of revenue on the ground that AO instead of disallowing entire purchases taxed only 14% profit element. CIT, therefore, set aside assessment order under section 263 and directed AO to pass assessment order de novo by calling relevant details. Held: When AO reached the conclusion that assessee took accommodation entries in respect of purchases, it was incumbent upon AO to refer to audited accounts of assessee and also closing stock register to say that the entire transaction was not a bogus one, but only the bills work purchased from grey market, whereas purchase was a genuine one. It could be only when AO recorded the fact with reference to accounts of assessee that in fact purchases took place corresponding to sales and only bills were the result of obtaining the accommodation entries, it could be said that AO took a plausible view. Assessment order did not show that it was only after examining audited accounts of assessee, that in view of sales recorded in the books, purchases could not be doubted, but in the absence of any proof that goods were purchased from parties from, whom those of claimed to have been purchased, it had to be inferred that have been purchased the goods from grey market, assessee obtained purchase bills by way of accommodation entries so as to inflate the purchase price. Further, Pr. CIT in his order observed that assessee was required to prove that such purchases were actually made from some other source, but assessee failed to discharge such onus and accordingly, Pr.CIT was right in his observation that examination of genuineness of purchases was necessary and, therefore, Pr.CIT rightly assumed jurisdiction under section 263.

Distinguished:CIT v. Bholanath Ply (P) Ltd. (2013) 355 ITR 290 (Guj) : 2013 TaxPub(DT) 1852 (Guj-HC) and CIT v. Simit (P) Sheth. Supported by:N.K. Proteins Ltd. v. DCIT, in Appeal Number 240 of 2003 vide Order, dated 20-6-2016 : 2016 TaxPub(DT) 3862 (Guj-HC).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2010-11

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