2014 (12) TMI 186 - HC - Income Tax

Assessment order passed u/s 263 quashed by Tribunal Commissioner proceeded on wrong facts and presumptions - Assessee submitted copies of accounts duly confirmed by all trade creditors and debtors, whose balances were in excess of ₹ 1 lac Held that - The Tribunal has rightly accepted the assessee s contention that they had furnished confirmations of all the creditors and debtors having a balance of ₹ 1 lac and above - the CIT could not have exercised power u/s 263 - of the Act. Thus the order of the Tribunal is that the Commissioner of Income Tax had proceeded on wrong facts and assumptions CIT u/s 263 also does not give names and details of any creditor or debtor who had not furnished or given confirmation. The AO waited till the end and took up the assessment proceedings only three months before the end of the limitation period - a detailed questionnaire was only issued in October, 2009 and the first effective hearing was fixed on 26th October, 2009 - even the order sheets between 26th October, 2009 till 23rd November, 2009 are not on record and have not been shown - a reading of the questionnaire would indicate that enormous and magnitudes of details/information were asked for - This would have required time for compilation, affirmation and clarification - The queries were answered by several letters on record - For confirmations, the assessee had to write letters to the creditors and debtors all over the India and wait for their response - The Tribunal has noted that the assessee had submitted bill, invoices, vouchers etc. to the Assessing Officer. Scrutiny assessment order u/s 143(3) of the Act should be presumed and hypothesised as made after due verification and ascertainment of facts - Principle of finality has sound and salutatory basis, but can be disturbed as per the statute and within confines of the provision applicable - the assessee had furnished confirmations from all debtors and creditors, with balances in excess of ₹ 1 lac being a finding of fact that, there is no reason to disturb, the present appeal Decided against reveue.

Summary

Issues:
Appeal against findings by Income Tax Appellate Tribunal (ITAT) under Section 260A for assessment year 2008-09; Search and seizure proceedings under Section 132; Assessment proceedings under Section 142(1); Allegations of non-submission of confirmed copies of accounts; Commissioner's order under Section 263; Assessment order; Addition made on account of discrepancies; Tribunal's findings on confirmations from trade creditors and debtors; Justification of Commissioner's actions under Section 263; Verification of confirmations; Timeliness of assessment proceedings; Principle of finality in scrutiny assessments.

Analysis:

1. The appeal before the High Court pertains to the Revenue challenging the findings of the ITAT for the assessment year 2008-09 under Section 260A of the Income Tax Act. The ITAT had set aside the order under Section 263 passed by the Commissioner of Income Tax, primarily based on factual findings related to the submission of confirmed copies of accounts by the assessee.

2. The respondent-assessee, a partnership firm in the readymade garments business, underwent search and seizure proceedings under Section 132 in 2007. Subsequently, assessment proceedings were initiated under Section 142(1), with the assessee filing returns declaring the same income as in the original return.

3. The assessment records revealed delays in proceedings, with a detailed questionnaire issued in October 2009, requesting confirmations from trade debtors and creditors with balances exceeding Rs. 1 lakh. The assessee provided voluminous data and confirmations, with hearings held until December 2009.

4. The assessment order passed in December 2009 made additions on account of discrepancies, leading to the Revenue claiming that the assessee had not submitted all required confirmed copies of accounts.

5. The Commissioner of Income Tax invoked Section 263, alleging errors in the assessment order due to incomplete responses to the questionnaire. The Commissioner set aside the assessment for fresh assessment after due inquiries.

6. The Tribunal, after examining the assessment records, accepted the assessee's contention of submitting confirmations from all relevant creditors and debtors. The Tribunal held that the Commissioner's actions under Section 263 were based on incorrect assumptions.

7. The High Court noted that no specific creditor or debtor with a balance over Rs. 1 lakh, for whom confirmation was not furnished, was identified. The Court found the Tribunal's findings reasonable, given the absence of specific details in the Commissioner's order.

8. The Court rejected the Revenue's argument that confirmations were filed late, emphasizing that no discrepancies were found upon verification. The Court highlighted that the Commissioner's order did not mention failure in verification as the basis for invoking Section 263.

9. Critically, the Court emphasized the importance of timely assessment proceedings, noting the extensive details requested and the need for administrative efficiency while respecting the limitation period and the assessee's response time.

10. Ultimately, based on the Tribunal's findings that all necessary confirmations were provided by the assessee, the High Court dismissed the Revenue's appeal, emphasizing the principle of finality in scrutiny assessments.

This detailed analysis of the legal judgment covers the issues involved comprehensively, preserving the legal terminology and key points from the original text.