2012 (9) TMI 187 - AT - Income Tax

Justification in invoking CIT s powers u/s 263 - setting aside the assessment order passed under section 143(3) - excess amount debited to the profit and loss account on account of purchases - Held that - It is manifest from the assessment order that the AO has not at all examined the issue of the genuineness of purchases and excess claimed on account of purchases as pointed out by the CIT(A). When the AO has not discussed anything in respect of the claim of expenditure towards the purchases, then, it is a clear case where the AO has not applied his mind on this issue. There is nothing in the assessment order to indicate that the AO has applied his mind and has taken any view on the issue. When nothing has been recorded in the assessment order for addressing the issue in question on which the CIT has invoked the provisions of section 263, then, it cannot be said that the AO has taken any view on this issue. CIT has not finally decided the genuineness of purchases against the assessee because it requires a proper enquiry and verification of facts and record, therefore, the Commissioner is justified in setting aside the assessment order and directing the AO to re-do the same after conducting a proper enquiry - against assessee.

Summary

Issues:
1. Whether the Commissioner of Income Tax was justified in invoking the powers under section 263 to set aside the assessment order passed under section 143(3) of the Income-tax Act.

Analysis:
The judgment involves the appeal by the revenue against a revision order passed under section 263 of the Income-tax Act by the Commissioner of Income Tax-IV, Hyderabad. The primary issue for consideration was whether the Commissioner was justified in setting aside the assessment order due to an alleged error in the assessment related to excess amount debited to the profit and loss account on account of purchases. The Commissioner observed that the assessment order was erroneous and prejudicial to the revenue's interests as the assessing officer had not conducted any inquiry on the issue of excess amount debited towards purchases. The Commissioner proposed to disallow the excess debit towards purchases and bring it to tax based on VAT returns. The assessee explained the discrepancy, stating that the excess amount was related to CST purchases not shown under VAT returns. Consequently, the Commissioner directed the assessing officer to enquire into the genuineness of purchases before re-doing the assessment order.

In the appeal, the assessee contended that the Commissioner's action was not sustainable as payments were made through account payee cheques, questioning the need for doubting the genuineness of purchases. The assessee argued that since the assessing officer had conducted a scrutiny assessment under section 143(3), the Commissioner could not set aside the order. The revenue, on the other hand, argued that the assessing officer had not applied his mind to the issue, indicating a clear case of non-application of mind, justifying the Commissioner's intervention. The Tribunal noted that the assessing officer had not addressed the issue of excess claimed on purchases, indicating a lack of application of mind. The Tribunal emphasized that the issue was factual, requiring verification of the genuineness of purchases, and not a matter of legal interpretation where two views were possible. Citing precedent, the Tribunal held that when an assessing officer passes an order without applying his mind, it is considered erroneous and prejudicial to revenue, justifying the Commissioner's intervention under section 263.

The Tribunal further emphasized that the assessment order should reflect the assessing officer's thought process to demonstrate the application of mind. Since the assessing officer had not shown any indication of applying his mind to the issue, the Commissioner's decision to set aside the order was deemed justified. The Tribunal concluded that the lack of enquiry on the issue rendered the assessing officer's order erroneous and prejudicial to revenue. Additionally, the Tribunal noted that the Commissioner's directive to re-do the assessment after proper enquiry was reasonable, as the genuineness of purchases required further investigation. Consequently, the Tribunal dismissed the appeal of the assessee, upholding the Commissioner's decision to set aside the assessment order.

In summary, the judgment addressed the issue of the Commissioner's powers under section 263 to set aside an assessment order due to errors and lack of application of mind by the assessing officer. The Tribunal emphasized the necessity for the assessing officer to demonstrate a thought process in the assessment order and upheld the Commissioner's decision based on the lack of enquiry and non-application of mind on the issue of excess claimed on purchases.