2013 (5) TMI 853 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order u/s 263.
2. Addition of prior period expenses Rs. 2,83,277/-.
3. Addition of unexplained cash credit Rs. 1,70,00,000/- (Introduction of capital by partners).
4. Addition of repairs of demo vehicles Rs. 50,579/-.
5. Addition of unexplained cash credits Rs. 1,09,00,000/-.

Summary:

1. Validity of the order u/s 263:
The Commissioner of Income Tax (CIT) exercised power u/s 263 of the Income Tax Act, 1961, considering the assessment order dated 03.05.2011 as erroneous and prejudicial to the interests of the Revenue. The CIT issued a show cause notice on ten issues, eventually dropping six and retaining four for further examination. The ITAT examined the scope of section 263 and concluded that the CIT's invocation of this section was unjustified as the Assessing Officer (AO) had already scrutinized the relevant facts and evidence during the original assessment.

2. Addition of prior period expenses Rs. 2,83,277/-:
The CIT considered the debiting of Rs. 2,83,277/- as prior period expenses erroneous. However, the ITAT found that the assessee followed the matching concept of accounting, which is an accepted accounting principle. The expenses were related to the repair of old cars meant for sale and were accounted for in the year of sale. The ITAT concluded that the CIT failed to appreciate this method and deleted the addition.

3. Addition of unexplained cash credit Rs. 1,70,00,000/- (Introduction of capital by partners):
The CIT added Rs. 1,70,00,000/- as unexplained cash credit u/s 68, questioning the introduction of capital by the partners. The ITAT referred to the judgments of the Supreme Court and other High Courts, noting that the assessee had satisfactorily explained the transactions with supporting documents, including bank reconciliation statements and capital accounts. The ITAT found the CIT's addition unjustified and deleted it.

4. Addition of repairs of demo vehicles Rs. 50,579/-:
The CIT added Rs. 50,579/- for repairs of demo vehicles, doubting the accounting treatment. The ITAT found that the assessee had correctly debited the expenses and credited the corresponding income from the workshop. The ITAT concluded there was no error in the accounting method and deleted the addition.

5. Addition of unexplained cash credits Rs. 1,09,00,000/-:
The CIT added Rs. 1,09,00,000/- as unexplained cash credits, questioning the loans from Smt. Benu Khetrapal and Smt. Shabnam Khetrapal. The ITAT noted that the assessee had provided detailed explanations, including bank reconciliation statements and confirmation letters. The ITAT found that the AO had already examined these details during the original assessment and that the CIT's addition was unwarranted. The ITAT deleted the addition.

Conclusion:
The ITAT set aside the order u/s 263, quashed the additions made by the CIT, and restored the original assessment order passed by the AO. The appeal of the assessee was allowed.