2014 (4) TMI 1108 - AT - Income Tax

Revision u/s 263 - undisclosed total turnover/receipts - Held that - AO passed the assessment order on 19.12.2007 u/s. 143(3) of the Act. He has gone through the survey report which was conducted at business premises of the assessee on 27.3.2006 and the basis for issuing notice u/s. 143(2) is the survey operation in the case of the assessee u/s. 133A of the Act. The AO categorically mentioned in para 4 of his order that during the course of survey Sri T. Srinivasa Rao, Managing Partner of the assessee stated that the total turnover/receipts for FYs 2004-05 and 2005-06 will be around ₹ 70 lakhs and also stated that for FY 2004-05 relevant to A.Y. 2005-06, the turnover/receipts are ₹ 20 lakhs and for FY 2005-06 relevant to A.Y. 2006-07, the turnover/receipts are ₹ 50 lakhs. It means that the AO had gone through the survey report and after that only he had completed the assessment. The AO being quasi-judicial authority, exercised the powers vested in him according to the law and arrived at a conclusion that the assessee has properly disclosed the receipts in its books of account and concluded that no addition is warranted towards undisclosed receipts and he made the addition of ₹ 1,08,091 towards the discrepancies in bills and vouchers produced by the assessee. The CIT u/s. 263 proceedings not satisfied with the addition made by the AO and he was of the opinion that the income offered by the assessee is to be brought to tax. In our considered opinion, the first requirement viz., that the assessment order passed by the AO is erroneous is absent in this case. In coming to the conclusion of the CIT u/s. 263 proceedings that ₹ 50 lakhs offered by the assessee has to brought to tax is not supported by any positive material and there is retraction by the assessee. Being so, in our opinion, the AO s order is to be upheld. The reason given by the CIT was that the retraction made by the assessee was delayed inordinately. In our opinion, though there is a delay in retraction by the assessee for going back from the offer made by the assessee, there is no material whatsoever to bring the additional income to tax. Thus we are inclined to annul the order passed by the CIT u/s. 263 of the Act. - Decided in favour of assessee

Issues Involved:
1. Validity of the order under section 263 of the Income-tax Act, 1961.
2. Reliability of the statement recorded during the survey under section 133A.
3. Genuineness and evidentiary value of the impounded material.
4. Application of mind by the Assessing Officer (AO) during the assessment proceedings.
5. Delay in filing the appeal and its condonation.

Detailed Analysis:

1. Validity of the Order under Section 263:
The assessee contested the order passed by the Commissioner of Income Tax (CIT) under section 263, claiming it was erroneous both on facts and in law. The CIT had set aside the assessment order, directing the AO to redo the assessment, arguing that the AO had not applied his mind to the substantial variation between the income disclosed during the survey and the income shown in the return. The Tribunal found that the AO had indeed applied his mind, as evidenced by the detailed examination and correspondence with the assessee, and thus the CIT's order was not justified. The Tribunal relied on precedents like CIT vs. Gabrial India Ltd. and Malabar Industrial Co. Ltd. vs. CIT to conclude that merely because the CIT had a different opinion did not render the AO's order erroneous or prejudicial to the interests of the revenue.

2. Reliability of the Statement Recorded During the Survey:
The CIT questioned the reliability of the statement given by the Managing Partner during the survey, which admitted additional income. The assessee argued that the statement was given under duress and was later retracted. The Tribunal noted that the statement was given voluntarily, as indicated by the Managing Partner's acknowledgment at the end of the statement. The Tribunal also observed that the delay in retraction (more than one-and-a-half years) undermined the credibility of the retraction, referencing the ITAT Kolkata Bench's decision in the case of Sri Tilakraj Shroff.

3. Genuineness and Evidentiary Value of the Impounded Material:
The CIT doubted the authenticity of the two short note books (A/EC/1 and A/EC/2) produced by the assessee, which were supposed to have been impounded during the survey. The Tribunal found that the books did not have any contemporary identification marks or signatures from the survey officials, and pages were missing from one of the books. Despite these discrepancies, the Tribunal concluded that the AO had considered all relevant materials and explanations during the assessment proceedings, and thus the CIT's doubts did not justify setting aside the assessment.

4. Application of Mind by the AO:
The Tribunal emphasized that the AO had thoroughly examined the records, issued multiple letters seeking clarification from the assessee, and considered the assessee's explanations before completing the assessment. The AO had made an addition of Rs. 1,08,091 towards discrepancies in the bills and vouchers but did not find sufficient grounds to add the Rs. 50 lakhs offered during the survey as additional income. The Tribunal held that the AO's order was a result of a conscious decision based on the available facts and materials, and the CIT's intervention was unwarranted.

5. Delay in Filing the Appeal and Its Condonation:
The assessee filed the appeal with a delay of 296 days, explaining that they misunderstood the CIT's order and believed they could appeal after the AO's reassessment. The Tribunal found the reasons for the delay to be bona fide and reasonable, citing similar cases where delays were condoned due to misunderstandings of legal procedures. Consequently, the Tribunal condoned the delay and admitted the appeal for adjudication.

Conclusion:
The Tribunal annulled the CIT's order under section 263, allowing the appeal in ITA No. 274/Hyd/2011, and dismissed the consequential appeal in ITA No. 184/Hyd/2012 as infructuous. The Tribunal's decision was based on the findings that the AO had applied his mind during the assessment, the statement recorded during the survey was reliable, the impounded materials were considered, and the delay in filing the appeal was justified.

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