2013 (8) TMI 437 - AT - Income Tax

Revision u/s 263 - Adjustment made u/s 145A to the closing stock on account of excise duty - Held that - In respect of the first objection of the Commissioner of Income-tax visa-vis the provisions of section 145A of the Act, the assessee had furnished audit report under which it has been certified that after the so-called adjustment made under section 145A of the Act, there was nil effect under the modvat account - Assessing Officer had not raised any query in respect of the provisions of section 145A of the Act. After the amendment to the said section 145A of the Act certain adjustments on account of excise duty to opening stock, purchases, sales and closing stock have to be made - The powers under section 263 of the Act are to be invoked on satisfaction of twin conditions of the order being both erroneous or prejudicial to the interests of the Revenue. Where the tax effect because of an order passed by the Assessing Officer is nil, such order even if erroneous being not prejudicial to the interests of the Revenue, is not open to revision under section 263 of the Act - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of notice and order under section 263 of the Income-tax Act, 1961.
2. Assessment framed under section 143(3) being erroneous and prejudicial to the interests of the Revenue.
3. Lack of enquiry and verification regarding compliance with excise duty provisions and supporting bills for machinery additions.
4. Consideration of submissions and documents by the Commissioner of Income-tax.
5. Setting aside the issue to the Assessing Officer and principles laid down by the Punjab and Haryana High Court.

Issue-wise Detailed Analysis:

1. Validity of Notice and Order under Section 263:
The assessee contended that the Commissioner of Income-tax-III, Ludhiana erred in issuing notice and passing the order under section 263 of the Income-tax Act, 1961. The Tribunal examined whether the Commissioner had the jurisdiction to invoke section 263 and found that the Commissioner had issued a show-cause notice dated March 15, 2011, and the assessee had responded to it. The Tribunal needed to determine if the Commissioner's invocation of section 263 was justified based on the facts of the case.

2. Assessment Framed under Section 143(3) Being Erroneous and Prejudicial to the Interests of the Revenue:
The Commissioner of Income-tax observed that the assessment order passed by the Assessing Officer under section 143(3) was erroneous and prejudicial to the interests of the Revenue. The specific points of contention were the non-inclusion of excise duty in the value of opening and closing stock and the non-furnishing of supporting bills for additions to fixed assets. The Tribunal reviewed whether the assessment order was erroneous and prejudicial to the Revenue's interests.

3. Lack of Enquiry and Verification Regarding Compliance with Excise Duty Provisions and Supporting Bills for Machinery Additions:
The Commissioner noted a lack of enquiry and verification by the Assessing Officer regarding compliance with excise duty provisions and supporting bills for machinery additions. The assessee argued that these points were already discussed during the assessment, and documents were provided. The Tribunal examined the records and found that the Assessing Officer had not specifically raised queries related to section 145A adjustments during the assessment proceedings. However, the assessee had furnished Annexure-2 to the audit report, which showed that the adjustments under section 145A had a nil effect on the profit.

4. Consideration of Submissions and Documents by the Commissioner of Income-tax:
The assessee contended that the Commissioner failed to consider the detailed submissions and documents provided, including the excise duty details, value-added tax, gross and net purchase and sales, and bills for machinery purchases. The Tribunal noted that the assessee had provided detailed replies and documents during the assessment proceedings and before the Commissioner. The Tribunal found that the Assessing Officer had not raised any specific queries regarding section 145A adjustments, and the assessee had provided the necessary details.

5. Setting Aside the Issue to the Assessing Officer and Principles Laid Down by the Punjab and Haryana High Court:
The Commissioner set aside the issue to the Assessing Officer for re-examination, which the assessee argued was against the principles laid down by the Punjab and Haryana High Court in CIT v. Kanda Rice Mills. The Tribunal reviewed the facts and found that the Assessing Officer had allowed the claim of depreciation on assets after verifying the details provided by the assessee. The Tribunal held that the order of the Assessing Officer could not be considered erroneous and prejudicial to the Revenue's interests.

Conclusion:
The Tribunal concluded that the exercise of power under section 263 by the Commissioner of Income-tax was not warranted in this case. The order passed by the Commissioner under section 263 was cancelled, and the appeal filed by the assessee was allowed. The Tribunal found that the Assessing Officer had verified the necessary details, and the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The grounds of appeal raised by the assessee were thus allowed.