Calcutta High Court
Principal Commissioner Of Income Tax vs M/S. Bardhaman Dharmaraj Paper Mill ... on 3 January, 2024
Author: Supratim Bhattacharya
Bench: T.S. Sivagnanam, Supratim Bhattacharya
O-36
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
ITAT/207/2023
IA NO: GA/2/2023
PRINCIPAL COMMISSIONER OF INCOME TAX, ASANSOL
VS.
M/S. BARDHAMAN DHARMARAJ PAPER MILL PVT. LTD.
BEFORE :
THE HON'BLE THE CHIEF JUSTICE T.S. SIVAGNANAM
And
THE HON'BLE JUSTICE SUPRATIM BHATTACHARYA
Date : 3rd January, 2024
Appearance :
Ms. Smita Das De, Adv.
...for appellant
Mr. Subash Agarwal, Adv.
...for respondent
The Court : This appeal by the revenue filed under Section 260A of the
Income Tax Act, 1961 (the Act) is directed against the order dated 10th October,
2022 passed by the Income Tax Appellate Tribunal, `A' Bench, Kolkata in I.T.A.
No. 160/Kol/2021 for the assessment year 2014-15.
The revenue has raised the following substantial questions of law for
consideration :
a) Whether in the facts and the circumstances of the case the Tribunal
was justified in law to quash the order under Section 263 of the said
Act without considering the judgement of the Hon'ble Apex Court in the
case of N. K. Proteins Ltd. vs. DCIT wherein the Hon'ble Apex Court
observed that addition on the basis of undisclosed income could not be
restricted to certain percentage when the entire transaction has been
found as bogus ?
b) Whether in the facts and the circumstances of the case the Tribunal
was justified in law to affirm the order of the Assessing Officer despite
the fact that the Assessing Officer did not make any enquiry as to the
credibility and the genuineness of the transaction made by the assessee
?
c) Whether in the facts and the circumstances of the case the Tribunal
was justified in law to rely upon the decision of the Hon'ble
Jurisdictional Calcutta High Court in the case of Excel Commodity and
Derivative (P) Ltd. which is distinguishable both in fact as well as in law
since in the said case the duty of the Assessing Officer was discussed
for due verification of any information available or data uploaded before
initiation of the reassessment proceedings whereas in the instant case
the order under Section 147 of the said Act had already been passed ?
We have heard Ms. Smita Das De, learned standing Counsel appearing for
the appellant/revenue and Mr. Subash Agarwal, learned Counsel for the
respondent/assessee.
Two issues arise for consideration in this appeal. The substantial question
of law no.(c) as suggested by the revenue pertains to the correctness of the order
passed by the learned Tribunal in placing reliance on the decision of this Court
in the case of Excel Commodity and Derivative (P) Ltd. vs. Union of India & Ors.,
APOT 132 of 2022, dated 29th August, 2022. The facts of the case which are
required to be considered are that the Assessing Officer completed the
reassessment by order dated 28th December, 2018 under Section 143(3) read
with Section 147 of the Act. By the said order the books of accounts of the
assessee to the extent of trade in business were rejected and it was held that the
purchases to the tune of Rs.13,36,56,176/- from one M/s. Siddi Enterprise was
treated as bogus. Thereafter the Assessing Officer proceeded to estimate the
gross profit and fixed the gross profit at 7.85% of the sale of the trade in goods
and completed the assessment. The Audit wing of the Income Tax department
issued an audit memo and based on which the Principal Commissioner of
Income Tax, Asansol (PCIT) issued notice under Section 263 of the Act. One of
the allegations against the assessee was that in the inside portal written
information has been made available and the PCIT opines that the assessee has
made some kind of bogus purchases from four entities. Thus, the language
adopted by the PCIT will clearly show that there was no definite conclusion
arrived at by the PCIT that the assessee has effected bogus purchases. In this
regard the learned Tribunal noted decision of this Court in Excel Commodity
wherein Court took into consideration the circular issued by the Central Board
of Direct Taxes, dated 22nd August, 2022 giving instruction to the departmental
officers with regard to uploading of data and on functionality - portal of the
Income Tax department. After noting the said circular, it was held as follows :-
"From the above it is clear that it has come to the notice of CBDT that
in several cases information made available/data uploaded by the reporting
entries are not fully accurate due to error of human nature, technical nature
etc. Therefore, the department was advised to effect due verification and
opportunity of being heard given to the tax payers before initiating
proceedings under Section 148/147 of the Act. Thus, in the preceding
paragraph we have pointed out the factual position in the case on hand and
it appears that proper verification was not done on the information which
was available with the assessing officer at the time of issuance of notice
under Section 148A(b) of the Act which has led to an erroneous order dated
7th April, 2022 being passed."
Mr. Subash Agarwal, learned advocate appearing for the
respondent/assessee places reliance on the decision of the High Court of
Guwahati in the case of Bongaigaon Refinery & Petrochemicals Ltd. Vs. Union of
India reported at [2006] 287 ITR 120 (GAU.) with regard to under what
circumstances, the jurisdiction under Section 263 of the Act is exercisable and
had relied upon the following paragraphs of the said decision :
"17. Entertainment of a view different from the one adopted by the
Assessing Officer, if plausible would not clothe the Commissioner with
the power to interfere therewith under the said provision of the Act.
Differently put, an error within the jurisdiction of the Assessing Officer
on an evaluation of the materials available would not be exposed to
interference in exercise of suo motu revisional powers under section
263 of the Act. The provision though permits the Commissioner to
initate an enquiry as he may deem necessary does not authorise a
roving probe into the facts with the disposition to pick out errors to
sustain the eventual interference. This assumes great significance in
the context of the statutory framework of the Act outlining the
jurisidictional contours of different authorities to adjudicate the issues
as legislatively stipulated. The Commissioner in exercise of his
revisional powers cannot arrogate to himself a status to surrogate the
other authorities and supplant their roles under the Act. The
Commissioner is not a substitute for the other statutorily prescribed
fora with codified functions dischargeable in terms of the prescribed
procedure in the situations comprehended thereby. The
Commissioner, therefore has to be rigorously held to the limits of his
suo motu revisional jurisdiction lest any transgression of statutorily
ordained prerogatives of other authorities under the Act result from an
unbridled exercise of such power. The Act envisages a
compartmentalisation in the functioning of the authorities prescribed
who have to dwell within the legally stipulated parameters so much
so that it would be impermissible to overreach the legislatively
mandated frontiers. Any other approach would be antithetical to the
scheme and alignment of the Act.
18. The jurisdiction exercisable under section 263 of the Act being
supervisory in nature, permitting suo motu review of any assessment
already made, the statutorily enjoined sanctions circumscribing the
same have to be rigorously construed. The legislative intendment of
conditioning the plenitude of the power conferred is manifest in the
two preconditions lodged in the section. To sustain the delicate
balance between this supervisory and other remedial jurisdictions, as
designed by the lawmakers, a constricted connotation and purport of
the enabling prerequisites for the exercise of the revisional powers is
an imperative necessity."
As pointed out earlier, the PCIT even at the time of issuing show cause
notice under Section 263 was not definite as to whether or not the assessee had
effected certain bogus purchases but merely referred to the inside portal and
doubted that there may be chances that the assessee has made bogus
purchases from four entities. Thus, the learned Tribunal was fully justified in
granting relief to the assessee by referring to the decision in Excel Commodity
and Derivative (P) Ltd. Therefore, the substantial question of law no.(c) is
answered against the revenue.
With regard to the substantial questions of law (a) and (b) are concerned,
they pertain to bogus purchases effected by the assessee from M/s. Siddi
Enterprises. The Assessing Officer did not accept the explanation offered by the
assessee wherein the assessee pointed out that they had purchased articles from
the person registered under the West Bengal Value Added Tax Act, 2003 which
has raised sale bill to the assessee for all the sales by mentioning its VAT
number and charged Value Added Tax of such purchases. Further, the assessee
had stated that they have also mentioned all such purchases in its VAT return
for the quarter ended March, 2024 and based on the purchases made from the
said Enterprise and purchase bill received from it, the assessee has discharged
the onus cast upon them. Further, the assessee contended that they sold all the
writing papers to NKR Enterprise who are also registered VAT dealer and the
assessee has also made such sales notice, VAT return and therefore the assessee
contended that each purchase and sale were genuine and the Assessing Officer
did not comment upon the correctness of this stand taken by the assessee but
proceeded to hold against the assessee on the ground that those purchases
must have been effected from various third parties without bills and an
accommodation bill was obtained from Siddi Enterprises. After having come to
such a conclusion the Assessing Officer proceeded to assess the gross profit. In
fact, the assessee for the purpose of bringing the matter to finality had agreed for
offering the increase in trade in gross profit by 1 to 1½%. The Assessing Officer
after considering the entire matter, examining the records estimated the gross
profit at 7.85%. It is the submission of the learned Advocate for the
respondent/assessee that this amount was highly inflated. The assessee did not
contest the matter and had accepted the said estimation. The question would be
as to whether the manner in which the Assessing Officer completed the
assessment could have found fault with by the PCIT by exercising his power
under Section 263 of the Act.
The learned Tribunal while considering the correctness of the order of the
PCIT has taken note of the various decisions and held that since the purchase
and sales have been duly granted, the view taken by the assessing officer was of
the plausible view and the reassessment order cannot be said to be erroneous.
The basis on which the power under Section 263 was invoked by the PCIT is
largely on two grounds, firstly on the ground that an audit memo was issued by
the audit department and secondly, by placing reliance the reference to the
decision in the case of N.K. Industries Ltd. Vs. DCIT, reported at [2006] 72
taxmann.com 289 (Guj.). The said decision could not have been applied without
referring to the facts and circumstances of the case. In fact, paragraph 8 of the
judgment would support the case of the respondent/assessee which is quoted
hereunder :
"8. So far as the question regarding addition of Rs.3,70,78,125/- as
gross profit on sales of Rs.37.08 crores made by the Assessing Officer
despite the fact that the said sales had admittedly been recorded in
the regular books during Financial Year 1997-98 is concerned, we are
of the view hat the assessee cannot be punished since sale price is
accepted by the revenue. Therefore, even if 6% gross profit is taken
into account, the corresponding cost price is required to be deducted
and tax cannot be levied on the same price. We have to reduce the
selling price accordingly as a result of which profit comes to 5.66%.
Therefore, considering 5.66% of Rs.3,70,78,125/- which comes to
Rs.20,98,621.88 we think it fit to direct the revenue to add
Rs.20,98,621.88 as gross profit and make necessary deductions
accordingly. Accordingly, the said question is answered partially in
favour of the assessee and partially in favour of the revenue."
The decision in the case of the Principal Commissioner of Income Tax-17
Vs. M/s. Mohammed Haji Adam & Co. in ITA No.1004 of 2016 dated February
11, 2019 would also support the case of the assessee and the relevant paragraph
of the said decision is quoted hereunder :
"8. In the present case, as noted above, the assessee was a trader of
fabrics. The A.O. found three entities who were indulging in bogus billing
activities. A.O. found that the purchases made by the assessee from
these entities were bogus. This being a finding of fact, we have
proceeded on such basis. Despite this, the question arises whether the
Revenue is correct in contending that the entire purchase amount should
be added by way of assessee's additional income or the assessee is
correct in contending that logic cannot be applied. The finding of the
CIT(A) and the Tribunal would suggest that the department had not
disputed the assessee's sales. There was no discrepancy between the
purchases shown by the assessee and the sales declared. That being
the position, the Tribunal was correct in coming to the conclusion that the
purchases cannot be rejected without disturbing the sales in case of a
trader. The Tribunal, therefore, correctly restricted the additions limited
to the extent of bringing the G.P. rate on purchases at the same rate of
other genuine purchases. The decision of the Gujarat High Court in the
case of N.K. Industries Ltd. (supra) cannot be applied without
reference to the facts. In fact in paragraph 8 of the same judgement the
Court held and observed as under -
"So far as the question regarding addition of Rs.3,70,78,125/
as gross profit on sales of Rs.37.08 Crores made by the
Assessing Officer despite the fact that the said sales had
admittedly been recorded in the regular books during Financial
Year 1997-98 is concerned, we are of the view that the
assessee cannot be punished since sale price is accepted by
the revenue. Therefore, even if 6% gross profit is taken into
account, the corresponding cost price is required to be deducted
and tax cannot be levied on the same price. We have to reduce
the selling price accordingly as a result of which profit comes to
5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- which
comes to Rs.20,98,621.99 we think it fit to direct the revenue to
add Rs.20,98,621.88 as gross profit and make necessary
deductions accordingly. Accordingly, the said question is
answered partially in favour of the assessee and partially in
favour of the revenue".
In the light of the law as could be culled out from the aforementioned
decisions, and also the decision of this Court in PCIT Vs. Subarna Rice Mill in
ITA/196/2015, we find there is no error in the order passed by the learned
Tribunal setting aside the order passed by the PCIT under Section 263 of the
Act.
For the above reasons, the substantial questions of law (a) and (b) are also
answered against the appellant/revenue.
In the result, the appeal is dismissed and the substantial questions of law
are answered against the appellant/revenue.
The stay application IA NO: GA/2/2023 also stands dismissed.
(T.S. SIVAGNANAM)
CHIEF JUSTICE
(SUPRATIM BHATTACHARYA, J.)
SN/S.Das
AR(CR)
