2012 (9) TMI 999 - AT - Income Tax

Revision u/s 263 - Held that - There is no material on record to suggest that this issue of inflated expenditure in the final accounts in comparison to the accounts found in the floppy was either considered, verified, examined or adjudicated by the Assessing Officer. In view of the above facts, we do not find any reason to take a divergent view from the view taken by the coordinate bench in the case of Shri Akhtar Hussain Khan 2011 (7) TMI 1204 - ITAT MUMBAI is the author of the said decision. Hence, following the earlier order of this tribunal, we decide the issue of validity of revision order passed under Section 263 against the assessee and in favour of the revenue.

Issues Involved:
1. Validity of the revision order under Section 263.
2. Examination and verification of alleged inflated expenses.
3. Adherence to principles of natural justice.
4. Justification of reopening the case by the Commissioner of Income Tax (CIT).

Issue-wise Detailed Analysis:

1. Validity of the Revision Order under Section 263:
The assessees challenged the CIT's revision order under Section 263, arguing that the CIT erred in canceling the assessment made under Section 153A r.w.s. 143(3) based on incomplete data compared to audited accounts without any material evidence of discrepancies. The CIT proposed to revise the assessment, citing that the seized floppies revealed a second set of balance sheets and profit and loss accounts indicating inflated expenses. The Tribunal noted that in a similar case (Shri Akhtar Hussain Khan Vs. CIT), it was held that when the Assessing Officer (AO) passed an order without application of mind, the CIT's exercise of jurisdiction under Section 263 was justified. The Tribunal found that the AO had not examined or verified the details in the seized computer backup, thus supporting the CIT's revision order.

2. Examination and Verification of Alleged Inflated Expenses:
The assessees contended that the AO had already examined the details of the incomplete data with the audited accounts, and the CIT's action was based on suspicion without any material evidence. The Tribunal observed that the Mazharnama only indicated that the computer backup was sealed and unsealed in the presence of witnesses, but did not show that the AO examined the data. The Tribunal emphasized that the AO's assessment order did not discuss the issue of inflated expenses, and there was no evidence of any enquiry or verification by the AO. Therefore, the Tribunal upheld the CIT's revision order, noting that the AO's failure to address the issue rendered the assessment order erroneous and prejudicial to the interest of revenue.

3. Adherence to Principles of Natural Justice:
The assessees argued that the CIT violated the principles of natural justice by not allowing a proper opportunity to present their case and explain the alleged differences. The Tribunal found that the CIT had considered the reply and explanation of the assessee as well as the seized material before concluding that the assessment was erroneous. The Tribunal noted that the AO had not made any enquiry or verification regarding the inflated expenses, and the CIT's revision order was based on objective material. Therefore, the Tribunal did not find any violation of natural justice.

4. Justification of Reopening the Case by the CIT:
The assessees claimed that the CIT reopened the case merely on suspicion without any material evidence to suggest that income had escaped assessment. The Tribunal referred to the earlier case of Shri Akhtar Hussain Khan, where it was held that the AO's failure to apply his mind rendered the assessment order erroneous, justifying the CIT's revision under Section 263. The Tribunal found that the AO had not addressed the issue of inflated expenses, and there was no material on record to suggest that the AO had considered or verified the accounts found in the floppy. Therefore, the Tribunal upheld the CIT's decision to reopen the case.

Separate Judgment on Consequential Order:
In the appeal against the consequential order passed by the AO pursuant to the revision order under Section 263, the Tribunal noted that the AO had made additions based on the difference between the accounts found in the floppy and the audited accounts without proper examination. The Tribunal found that the AO had not verified the records or given a finding that the expenses were not genuine. The Tribunal set aside the matter to the AO to redo the assessment after considering the relevant material and the assessees' contentions, ensuring an opportunity for the assessees to be heard.

Conclusion:
The Tribunal dismissed the appeals against the revision orders under Section 263, upholding the CIT's decision. However, the appeal against the consequential order was allowed for statistical purposes, directing the AO to reassess the matter after proper examination and verification.

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