2014 (11) TMI 522 - AT - Income Tax

Revision of an order u/s 263 - Erroneous and prejudicial to the interest of revenue or not - Held that - The assessee was contractor and executed contract with M/s. Era Infrastructure India Pvt. Ltd. at Meerut - the AO has considered the development expenses and found excessive and accordingly, disallowed ₹ 1,20,000/- out of this AO recorded that the books of accounts were produced which have been examined - the assessee attended the proceedings from time to time and furnished the replies to the various queries raised by him - This fact shows that AO has applied his mind and gone through the books of accounts, considered the replies of the assessee and also taken cognizance of the development expenses and found them excessive and after applying his own mind, he disallowed ₹ 1,20,000/- treating the same as excessive - Thus, it is very clear that the AO has applied his mind, made investigations and reached at a conclusion - on this issue, the action of the CIT for invoking the provisions of section 263 is completely unjustified. Relying upon CIT vs. Ram Narain Goel 1996 (11) TMI 59 - PUNJAB AND HARYANA High Court the observation of the CIT that the AO during the course of assessment proceedings failed to inquire into the correctness of gross receipts, claim of expenses, the total contract work to be executed as per the work orders and the discrepancies therein, total receipts of the assessee as per Form 26AS vis- -vis the receipts returned in the Profit & Loss account and did not raise a finger on the unverifiable nature of accounts maintained by the assessee was unjustified - this observation is factually incorrect - The assessee filed detailed chart giving details of work contracts, TDS amount, work contract tax amount, bill number with dates etc. - the total work contracts were three in the current year and one in previous year - The copy of contracts was enclosed - The assessee has also enclosed copy of bills and payment schedule of the company - These facts clearly show that observation of the CIT in this regard was completely against the factual position and, therefore, these observations were factually incorrect the order of the CIT is set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the Commissioner of Income-tax (CIT) invoking Section 263 of the Income-tax Act, 1961.
2. Adequacy of the Assessing Officer's (AO) enquiry and the basis for disallowing Rs. 1,20,000 from development expenses.
3. The validity of CIT's observations regarding non-deduction of TDS on development expenses.
4. CIT's allegation of the AO's failure to verify sundry debtors and agricultural income.
5. CIT's claim of improper clubbing of work contracts and hypothetical profit figures.
6. The application of relevant case laws by CIT and the assessee.

Detailed Analysis:

1. Legitimacy of CIT Invoking Section 263:
The CIT, Meerut, invoked Section 263 of the Income-tax Act, 1961, asserting that the AO's assessment was erroneous and prejudicial to the interests of the revenue due to inadequate enquiry. The CIT referenced various case laws, including Malabar Industries Co. Ltd. vs. CIT and others, to support the claim that an incorrect assumption of facts or law justifies such action. However, the assessee contended that the AO had conducted a thorough enquiry, and the CIT's invocation was based on suspicion and presumption, not on substantial grounds.

2. Adequacy of AO's Enquiry and Disallowance Basis:
The AO had completed the assessment after scrutinizing the development expenses of Rs. 7,16,62,142 and disallowed Rs. 1,20,000, deeming it excessive. The AO's assessment was based on the examination of books of accounts and responses to queries from the assessee. The CIT's claim that the AO did not conduct a proper enquiry was countered by evidence of detailed submissions and documents provided by the assessee during the assessment process. The Tribunal found that the AO had applied his mind and made a reasoned decision, thus the CIT's action under Section 263 was unjustified.

3. Validity of CIT's Observations on Non-Deduction of TDS:
The CIT alleged that the AO failed to examine whether TDS was deducted on development expenses as required under Section 40(a)(ia). However, the assessee provided evidence that the AO had inquired about TDS and received satisfactory responses. The Tribunal supported the assessee's position, noting that the AO had indeed considered the TDS issue during the assessment.

4. Verification of Sundry Debtors and Agricultural Income:
The CIT criticized the AO for not verifying sundry debtors amounting to Rs. 3,69,88,112 and agricultural income. The assessee demonstrated that detailed information about sundry debtors and agricultural income was submitted and considered by the AO. The Tribunal found the CIT's observations to be factually incorrect, as the AO had made necessary verifications and enquiries.

5. Clubbing of Work Contracts and Hypothetical Profit Figures:
The CIT's order mentioned improper clubbing of work contracts and use of hypothetical figures to inflate profits. The assessee clarified that the contracts were appropriately accounted for, and the AO had examined the relevant documents. The Tribunal concluded that the AO had adequately addressed these issues, and the CIT's claims were unfounded.

6. Application of Relevant Case Laws:
The assessee cited multiple case laws, including Hari Iron Trading Co. vs. CIT and CIT vs. Gabriel India Ltd., to argue that an order cannot be revised under Section 263 merely because the CIT holds a different opinion. The Tribunal agreed, emphasizing that the AO's order was based on a permissible view supported by evidence. The CIT's reliance on case laws was deemed irrelevant to the specific facts of the assessee's case.

Conclusion:
The Tribunal set aside the CIT's order, concluding that the AO had conducted a proper enquiry and made a reasoned assessment. The CIT's invocation of Section 263 was based on incorrect assumptions and was not justified. The appeal of the assessee was allowed, and the AO's original assessment was upheld.