2014 (11) TMI 19 - HC - Income Tax

Revision u/s 263 Inquiry conducted or not - Whether or not the AO before passing the order u/s 143(3) of the Act had conducted enquiries which were necessitated and required considering the substantial increase in the capital account of the partners as well as investments made by the assessee firm in the form of capital assets Held that - The finding recorded by the Tribunal on the basis of documents and papers filed before them, was that the enquiry was duly made - The Tribunal has accepted that the assessee had filed letter dated 26.05.2010 and had also filed copies of income tax returns, computation of income, copy of statement of respective bank accounts of the partners to show that the said additions to the capital account were genuine - Similarly bills etc. for purchase of assets and relevant details were filed during the course of the assessment proceedings - no attempt was made by the CIT to ascertain from the then AO, who had passed original assessment order u/s 143(3) of the Act to assure the correct factual position - nothing prevented or obstructed the Commissioner from ascertaining the truth and verifying the correctness of the contents of the documents absence or failure to properly maintain records cannot per se and by itself, would be a ground to invoke Section 263 of the Act i.e. the assessment order was erroneous and prejudicial to the interest of the revenue revenue was not able to ensure the trustworthiness of their records and has, therefore, proceeded on the basis that no enquiry or investigation was conducted by the AO The Tribunal has accepted the stand of the assessee that confirmation, documents, details were filed and ascertained by the AO thus, the order of the Tribunal is upheld Decided against revenue.

Issues Involved:
1. Validity of the assessment order under Section 143(3) of the Income Tax Act, 1961.
2. Invocation of Section 263 of the Income Tax Act by the Commissioner of Income Tax.
3. Examination and verification of additions to fixed assets and partner's capital accounts.
4. Adequacy and completeness of the assessment record and documents.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3):
The respondent assessee was subjected to scrutiny assessment for the assessment year 2008-09, and the assessment order dated 20.08.2010 under Section 143(3) of the Income Tax Act, 1961 was passed, accepting the income tax return declaring nil income. The order mentioned that the assessee was engaged in manufacturing rubber hose pipes and other products. Upon examination of the documents and details, the income of the assessee firm was accepted. The assessment included details of profit, depreciation, and bonus, with a disallowance under Section 40(a)(ia) of Rs. 5,45,691/-.

2. Invocation of Section 263 by the Commissioner of Income Tax:
Subsequently, the Commissioner of Income Tax issued a notice under Section 263, indicating that the assessment made under Section 143(3) was erroneous and prejudicial to the interest of the revenue. The Commissioner highlighted that the Assessing Officer neglected glaring and prima facie issues without making due inquiries. The Commissioner pointed out that the Assessing Officer did not verify the additions to fixed assets and the capital accounts of the partners. The respondent assessee contended that these details were verified during the original assessment proceedings, and relevant documents were submitted.

3. Examination and Verification of Additions to Fixed Assets and Partner's Capital Accounts:
The Commissioner noted that the Assessing Officer did not verify the additions to fixed assets amounting to Rs. 5,36,73,181/- and Rs. 69,31,924/- in different halves of the financial year, nor did he examine the genuineness of the depreciation claim of Rs. 1,05,85,432/-. Additionally, the nature and source of capital introduced by the partners, amounting to Rs. 53,36,482/- and Rs. 59,92,955/-, remained unverified. The respondent assessee argued that these details were indeed provided and verified during the original assessment.

4. Adequacy and Completeness of the Assessment Record and Documents:
The Tribunal found that the necessary inquiries were made by the Assessing Officer, and relevant documents were submitted, including letters, income tax returns, bank statements, and bills for fixed assets. The Tribunal accepted that the assessee had filed these documents during the assessment proceedings. The High Court observed that the Commissioner did not ascertain the correct factual position from the original Assessing Officer and relied on incomplete records. It was noted that the assessment record was incomplete, with missing papers and documents, which the Commissioner failed to verify properly.

Conclusion:
The High Court concluded that the invocation of Section 263 by the Commissioner was not justified as the necessary inquiries were made by the Assessing Officer, and relevant documents were submitted by the assessee. The High Court emphasized the responsibility of revenue authorities to maintain the integrity of records and ascertain facts before invoking Section 263. The appeal by the Revenue was dismissed, upholding the Tribunal's order that struck down the invocation of Section 263.

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