2013 (1) TMI 428 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - AO did not examine about the change made in the method of valuation of rejected castings during the year under consideration - Held that - As decided in Malabar Industrial Co. Ltd. v. CIT 2000 (2) TMI 10 - SUPREME COURT the provision of Sec 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted . As in the present case assessee has changed the method of valuation of rejected castings stock and the same has resulted in reduction of profit. The assessee s argument that such kind of changes is permissible may also be right. However, the scope of tribunal while dealing appeals filed against revision orders passed u/s 263 is limited. It was not shown as the AO did make enquiry on this issue and has taken a plausible view by duly applying his mind. Also no discussion was find on the impugned issue in the assessment order. It was also not shown that the view entertained by the CIT is not sustainable in law. In fact, the CIT has only pointed out that the AO has not made proper verification of the impugned issue and the administrative Commissioner has not expressed any opinion or given any direction about specific treatment of the impugned issue. He has only directed the AO to examine the impugned issue. It is settled proposition of law that the lack of enquiry would render the assessment order an erroneous one no infirmity in the order passed by CIT u/s 263 - against assessee.

Summary

Issues Involved:
Challenge to the validity of revision order u/s 263 of the Act for assessment year 2006-07 regarding the change in the method of valuation of "rejected castings."

Analysis:

Issue 1: Validity of Revision Order
The appeal challenged the revision order passed by the Ld CIT under section 263 of the Act for the assessment year 2006-07. The Ld CIT initiated revision proceedings as the AO did not examine the change made in the method of valuation of "rejected castings" during the year under consideration, resulting in a reduction of profit. The Ld CIT held that the assessment order was erroneous and prejudicial to the interests of the revenue due to the lack of proper enquiries by the AO, as per various case laws cited. The Ld CIT set aside the assessment order, directing the AO to redo the assessment after considering the issue and granting the assessee a hearing opportunity.

Issue 2: Accounting Policy Change
The assessee contended that changing the accounting policy, as done in this case regarding the valuation of "rejected castings," is legally permissible and should only impact profitability in the year of change. The assessee argued that the change was disclosed as required by Accounting Standard I under section 145(2) of the Act. The Ld A.R cited relevant case laws supporting the assessee's position and emphasized that the changes made in accounting policies were appropriately disclosed in the financial statements, thus not rendering the assessment order erroneous.

Issue 3: Legal Position on Revision Proceedings
The tribunal discussed the legal position regarding revision proceedings under section 263 of the Act, citing the scope and requirements for invoking such provisions. Referring to case laws, it was highlighted that the revision could only be valid if the order was erroneous and prejudicial to the interests of the revenue. The tribunal emphasized that lack of enquiry by the AO on crucial issues could render the assessment order erroneous. The tribunal also noted that if the view entertained by the Ld CIT is not sustainable in law, the revision proceeding would not be valid.

Conclusion:
The tribunal found no infirmity in the order passed by the Ld CIT under section 263 of the Act, dismissing the appeal filed by the assessee. The decision was based on the lack of proper verification by the AO on the issue of changing the method of valuation of "rejected castings," leading to the assessment order being deemed erroneous. The tribunal upheld the revision order, emphasizing the necessity for the AO to conduct thorough enquiries on critical issues impacting the total income to avoid erroneous assessments.