Relief for Jaguar Services: ITAT Sets Aside S.263 Revision, Upholds AO’s 6% Disallowance on Alleged Bogus Purchases [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal(ITAT)  granted relief to Jaguar Services Private Limited by setting aside the Section 263 revision under the Income Tax Act, 1961,for lack of fresh inquiry and upholding the Assessing Officer(AO)’s 6% disallowance on alleged bogus purchases for Assessment Year 2018–19.

Jaguar Services Private Limited,appellant-assessee, was engaged in advertising and trading of PVC and its derivatives. For Assessment Year 2018–19, it filed its return on 30/10/2018, declaring a business loss of INR 55,83,331. The return was not selected for scrutiny under Section 143(3).

Later, reassessment proceedings under Section 147 were initiated based on information from the Investigation Wing and GST department, indicating that the appellant had received accommodation entries through M/s. Mahalaxmi Enterprise and its group entities, MM9 International and Witteneia Multitrading Private Limited.

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During the reassessment, the AO issued notices seeking details of transactions with these parties. The assessee submitted the required information along with supporting documents on 11/03/2023 and 26/07/2023. A show cause notice dated 20/02/2024 was then issued, proposing disallowance of purchases from MM9 and Witteneia.

In response, the assessee filed a detailed reply on 09/03/2024 with supporting evidence to prove the genuineness of the transactions. However, the AO passed the reassessment order on 19/03/2024 under Section 147 read with Section 144B, disallowing 6% of the total transaction value. The decision was based on the Gujarat High Court ruling in PCIT v. Vrajendra Jagjivandas Thakkar [2023] 295 Taxman 713.

The assessee filed an appeal before the Commissioner of Income Tax(Appeals)[CIT(A)] on 17/04/2024 against the reassessment order. While the appeal was pending, the PCIT issued a notice under Section 263 of the Act. The notice stated that the AO had wrongly relied on the Gujarat High Court’s judgment in Vrajendra Jagjivandas Thakkar v. ITO without proper fact verification and without considering other relevant High Court rulings. It was held that the order was erroneous and prejudicial to the department’s interest.

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The assessee then filed the present appeal before the Tribunal.

The two member bench comprising Rahul Chaudhary (Judicial Member) and Om Prakash Kant (Accountant Member) noted that the AO had examined the alleged bogus purchases during reassessment. The taxpayer had submitted invoices, GST returns, ledgers, lorry receipts, and bank statements to support the transactions. Based on this, the AO disallowed 6% of the purchases, following a Gujarat High Court ruling that allowed taxing only the profit element in such cases.

Later, the PCIT revised the order under Section 263, stating that the AO had not followed the jurisdictional High Court’s view and had relied on a Gujarat High Court decision without proper verification. The PCIT directed a fresh assessment, applying 25% disallowance based on the N.K. Protein Ltd. case.

The appellate tribunal found that the AO had taken a reasonable view based on available facts and legal precedents. It held that a difference of opinion alone did not justify revision. Since no new inquiry was made by the PCIT, the ITAT set aside the revision order and restored the original assessment.

In short,the appeal filed by the assessee was allowed.

To Read the full text of the Order CLICK HERE

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