The present appeal before the Income Tax Appellate Tribunal, Delhi Bench “B”, arose from a revisionary order passed by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961, for Assessment Year 2021-22.

During assessment proceedings, the Assessing Officer examined certain purchases amounting to ₹1,49,86,000 made by the assessee from M/s Diwakar Enterprises. Upon conducting inquiries, the AO concluded that the purchases were non-genuine. While the assessee offered to surrender 12.5% of the disputed purchases, the AO, after due application of mind and reliance on judicial precedents, rejected the offer and disallowed 25% of such purchases under Section 69C of the Act.

Subsequently, the Principal Commissioner initiated revision proceedings under Section 263 on the premise that once purchases are held to be bogus, the entire amount ought to be disallowed. Reliance was placed on judicial decisions including N.K. Proteins and Kanak Impex, where 100% disallowance of bogus purchases was upheld. On this basis, the PCIT held that the assessment order was erroneous and prejudicial to the interests of the Revenue.

The Tribunal observed that the Assessing Officer had conducted proper inquiries and consciously adopted a view supported by judicial authorities while determining the extent of disallowance. The core issue before the Tribunal was not the correctness of the quantum of addition, but whether the PCIT could invoke Section 263 merely because an alternative view on the same issue was possible.

The Tribunal reiterated the settled legal principle laid down by the Supreme Court in Malabar Industrial Co. Ltd. v. CIT, holding that where two views are possible and the Assessing Officer adopts one such permissible view, the assessment order cannot be treated as erroneous merely because the Commissioner prefers a different view. The Tribunal further noted that the issue of percentage-based disallowance of bogus purchases remains a debatable matter, as reflected by divergent judicial precedents including La Medica, DLF Limited, and Ansal Housing Construction Ltd.

In light of the above, the Tribunal held that the revisionary action under Section 263 was unsustainable, as the assessment order neither suffered from lack of inquiry nor could it be characterized as erroneous in law. Accordingly, the revision order was quashed and the assessee’s appeal was allowed.

SOURCE LINK: https://itat.gov.in/public/files/upload/1767610658-wfmjmt-1-TO.pdf

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