2006 (7) TMI 350 - AT - Income Tax

Revision u/s 263 - Of orders prejudicial to interests of revenue - Whether CIT was justified in setting aside the assessment order made after making proper enquiries and to hold that the order of Assessing Officer is erroneous insofar as it is prejudicial to the interest of revenue? - HELD THAT - As per the letter of assessee, it is clear that the vouchers in regard to the purchases and expenses were produced and verified. The Assessing Officer after verification of such details, was satisfied and hence, no addition/disallowances have been made. Though such verification is not reflected in the assessment order, the record and even the order of CIT leads to the conclusion that the details were filed and the same were examined. Thus, it is not a case that the Assessing Officer has failed to make the enquiries which are called for in the circumstances. CIT has not pointed out any error much less an error prejudicial to the interest of revenue. The entire assessment has been set aside with a direction to make fresh assessment in accordance with law. However, the CIT has not found that the assessment made is not in accordance with law. It is settled law that an assessment has to attain a finality and unless the same falls within the power either u/s 147 or 263, the assessment as made by the Assessing Officer is to be treated as final. The power u/s 263 can be invoked only when either an error in factual appreciation or an error of law has been demonstrated. We find that the Assessing Officer has made reasonable, detailed enquiries and after processing the material utilized the same for completion of the assessment. Thus, the observation of CIT that the assessment order is passed without proper consideration of facts and without making proper, requisite and desired enquiries is untenable so as to conclude that the order of Assessing Officer was erroneous. We accordingly find that the order of Assessing Officer is not erroneous insofar as it is prejudicial to the interest of revenue. The order of CIT is accordingly set aside. In the result, the appeal is allowed.

Issues Involved:
1. Job work expenses verification.
2. Excessive salary paid to partners.
3. Examination of credits in partners' accounts.
4. Verification of loans received from friends and relatives.
5. Verification of recoverable sales-tax.
6. Valuation of closing stock.
7. Justification of partner withdrawals.
8. Enquiry into commission payments.
9. Disallowance of depreciation on car.
10. Examination of loan genuineness.
11. Verification of aluminium purchases.

Issue-wise Detailed Analysis:

1. Job Work Expenses Verification:
The CIT found that the Assessing Officer (AO) failed to make proper enquiries regarding job work expenses amounting to Rs. 18,16,836. The AO did not verify the addresses or genuineness of the payments made to the job workers, nor did he obtain confirmation letters or details of services rendered. This failure rendered the AO's order erroneous and prejudicial to the revenue's interest.

2. Excessive Salary Paid to Partners:
The CIT noted that the AO did not examine the salary paid to partners, which was found to be excessive. However, this specific issue was not elaborated upon further in the judgment.

3. Examination of Credits in Partners' Accounts:
The CIT found that the AO did not properly examine the credits in the partners' accounts. This was one of the points selected for scrutiny but was not adequately addressed in the assessment order.

4. Verification of Loans Received from Friends and Relatives:
The CIT held that the AO did not verify the genuineness of loans received from several individuals, including Smt. Sapna Khurana, Smt. Meenakshi Jain, Smt. Kailash Kumari, and Shri Manoj Kumar. The AO failed to enquire into the source of deposits and the creditworthiness of these creditors, making the assessment order erroneous and prejudicial to the revenue.

5. Verification of Recoverable Sales-Tax:
The CIT pointed out that the AO did not verify the sales-tax of Rs. 2,59,522 shown as recoverable under the head 'loans and advances'. This issue was included in the scrutiny but was not adequately addressed.

6. Valuation of Closing Stock:
The CIT found that the AO did not check the valuation of closing stock in accordance with the provisions of section 145A. This failure contributed to the assessment order being erroneous and prejudicial to the revenue.

7. Justification of Partner Withdrawals:
The CIT noted that the AO did not examine the justification for withdrawals by the partners. This issue was part of the scrutiny but was not adequately addressed in the assessment order.

8. Enquiry into Commission Payments:
The CIT found that the AO did not properly enquire into the commission payment of Rs. 2,68,800 to Sanjay Shah HUF. The AO failed to investigate the specific services rendered and the basis of the payment, making the assessment order erroneous and prejudicial to the revenue.

9. Disallowance of Depreciation on Car:
The CIT observed that while one-fifth of the car expenses was disallowed, depreciation on the car was not disallowed in terms of section 38 of the Act. This oversight made the assessment order erroneous and prejudicial to the revenue.

10. Examination of Loan Genuineness:
The CIT held that the AO did not examine the genuineness of loans received from certain individuals. Despite the assessee providing confirmation letters, permanent account numbers, and other documentation, the AO did not enquire into the source of the deposits, making the assessment order erroneous and prejudicial to the revenue.

11. Verification of Aluminium Purchases:
The CIT found that the AO did not fully examine the purchase of aluminium amounting to Rs. 1,26,97,603. The AO only obtained copies of accounts for purchases worth Rs. 90,32,833 and failed to verify the remaining amount, making the assessment order erroneous and prejudicial to the revenue.

Conclusion:
The Tribunal concluded that the AO had made reasonable and detailed enquiries and utilized the material for completing the assessment. The CIT's observation that the assessment order was passed without proper consideration of facts and without making proper, requisite, and desired enquiries was found to be untenable. The Tribunal held that the assessment order was not erroneous insofar as it was not prejudicial to the interest of the revenue. Consequently, the order of the CIT was set aside, and the appeal was allowed.

← Previous Next →