2011 (7) TMI 1204 - AT - Income Tax

Summary

Issues involved: Whether the CIT was justified in invoking the provisions of sec. 263 and setting aside the assessment with a direction to the AO to make fresh assessment in respect of inflation of expenditure.

Issue 1: Search & Seizure Action u/s.132 of the I.T. Act

The search & seizure action u/s.132 of the I.T. Act on 15-10-2003 led to the discovery of a floppy drive containing the accounts of the assessee. The assessment framed u/s.153A read with sec.143(3) on 27-03-2006 determined the total income of the assessee at 33,55,326/-. The CIT proposed to revise the assessment primarily due to the inflation of expenses of &8377; 54,40,261 found in the second set of balance-sheet & profit & loss account for the financial year 2002-03. The CIT issued a show cause notice u/s. 263, contending that the assessment was erroneous and prejudicial to the interests of Revenue due to the inflation of expenses.

Issue 2: Assessee's Contention and CIT's Decision

The assessee argued that the data in the floppy drive was incomplete and could not be compared with the audited accounts. The assessee maintained that all details were furnished before the AO during assessment proceedings, and the AO verified the expenses and other details. However, the CIT held that the assessment was erroneous and prejudicial to the interests of Revenue due to the inflation of expenses. The CIT set aside the assessment and directed the AO to conduct a fresh assessment.

Issue 3: Arguments of the Assessee and Department

The assessee reiterated that the AO had duly examined the claim and expenses, and the CIT should not have invoked jurisdiction u/s.263. The department argued that the AO did not address the issue of inflated expenditure in the assessment order. The seized material was considered by the CIT as positive evidence supporting the revision order.

Issue 4: Tribunal's Analysis and Decision

The Tribunal observed that the AO did not discuss or examine the issue of inflated expenditure in the assessment order. The records and details filed by the assessee did not address this issue either. The CIT found that the assessee inflated expenses in the final books of account compared to the seized documents. As the AO did not apply his mind to the issue, the CIT's exercise of jurisdiction u/s.263 was deemed proper and justified. The appeal of the assessee was dismissed as it lacked merit.

Separate Judgement: No separate judgment was delivered by the judges.