2015 (1) TMI 1011 - AT - Income Tax

Revision order - change of heart - whether a revision proceedings, which started with a show cause notice condemning the action of the Assessing Officer on merits, can lawfully culminate in the direction that the subject matter of revision proceedings be decided afresh in accordance with law and after making proper inquiries? - Held that - In the impugned revision proceedings, learned Commissioner started by pointing out, what he saw as, glaring illegalities in the assessment order, which was subjected to revision proceedings, but what he concluded was that the said assessment order was passed without making proper requisite and desired inquires . What the assessee was required to demonstrate the incorrectness of the learned Commissioner s stand to the effect that, because of the five additions/ disallowances, as set out in paragraph 3, not having been made, the order is erroneous and prejudicial to the interest of the assessee. Learned Commissioner proceeded to observe that Had the said additions/ disallowances been made, there would have been substantial tax effect and thus the cause of revenue has suffered. Further, the order of the AO is in clear violation of the legal provisions as enumerated in the Income Tax Act, 1961. Thus, the very sanctity of the Act has been eroded and may serve as a very bad precedent . Yet, finally he revised the order for want of proper requisite and desired inquires and thus shifted the goalpost. That s not permissible under the scheme of the law, as a revision order can only be passed on the ground on which the assessee has been given reasonable opportunity of being heard, and as it is not open to Commissioner to set out one reason for revising the order but actually revise the order on some other ground. In our humble understanding, lack of proper inquiries, which an Assessing Officer ought to have conducted on the facts of the said case, is altogether a different reason from inadmissibility of a claim of deduction or an income which ought to have been brought to tax. In view of the above discussions, as also bearing in mind entirety of the case, we are of the considered view that the impugned revision order is contrary to the scheme of law, and should be quashed for this reason alone. - Decided in favour of assessee.

Issues Involved:
1. Jurisdictional validity of the Commissioner of Income Tax's (CIT) order under section 263 of the Income Tax Act, 1961.
2. Discrepancies in work in progress.
3. Depreciation claimed on a car not owned by the firm.
4. Non-deduction of tax at source on certain expenses.
5. Verification of FDR and securities receivable.
6. Verification of unsecured loan from Shri N K Singhal.

Issue-wise Detailed Analysis:

1. Jurisdictional Validity of the CIT's Order:
The assessee challenged the CIT's order dated 18th March 2011, which was passed under section 263 r.w.s. 143(3) of the Income Tax Act, 1961. The fundamental question was whether the CIT could lawfully change the basis of revision proceedings from specific disallowances to a general lack of proper inquiries by the Assessing Officer (AO). The Tribunal held that a revision order must be based on the grounds specified in the show cause notice, and the CIT cannot shift the basis of revision from specific issues to a general lack of inquiry. This shift is not permissible under the scheme of law, as it deprives the assessee of a reasonable opportunity to address the specific grounds.

2. Discrepancies in Work in Progress:
The CIT identified a discrepancy between the work in progress shown in the balance sheet (Rs. 12,48,500) and the profit and loss account (Rs. 8,85,000). The CIT found that the AO did not add back the difference of Rs. 3,63,000. The assessee's explanation was rejected by the CIT due to a lack of corroborative evidence.

3. Depreciation Claimed on a Car Not Owned by the Firm:
The CIT noted that one of the partners purchased a car in his name, but the firm claimed depreciation of Rs. 99,000 on it. The CIT initially pointed out this as an issue but later dropped the proceedings on this point.

4. Non-deduction of Tax at Source on Certain Expenses:
The CIT observed that the assessee incurred expenses liable for tax deduction at source (TDS), including hire charges (Rs. 15,78,500), professional charges (Rs. 36,000), legal fees (Rs. 36,850), and loading of material (Rs. 62,82,650), totaling Rs. 79,37,250. The CIT held that these expenses were not verifiable, and in the absence of complete details, the assessee was liable to deduct tax at source but failed to do so. Therefore, these expenses were disallowable under section 40(a)(ia).

5. Verification of FDR and Securities Receivable:
The CIT noted that the assessee's balance sheet showed FDR and securities receivable worth Rs. 32,65,650 under 'Current Assets'. The CIT held that the AO failed to verify the bifurcation of interest on FDR and the security amount. The CIT also noted that an amount of Rs. 2,60,150 deducted by railway authorities was a penal payment and not an admissible expenditure.

6. Verification of Unsecured Loan from Shri N K Singhal:
The CIT pointed out that the assessee recorded an unsecured loan of Rs. 2,65,650 from Shri N K Singhal in the balance sheet. The CIT held that the AO did not verify the identity, creditworthiness, and genuineness of the transaction, making the assessment order erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Tribunal concluded that the CIT's order was contrary to the scheme of law as it shifted the basis of revision from specific disallowances to a general lack of proper inquiries. The Tribunal quashed the CIT's order on this technical ground, emphasizing that a revision order must be based on the grounds specified in the show cause notice, and the assessee must be given a reasonable opportunity to address those specific grounds. The appeal was allowed, and the impugned revision order was quashed.

← Previous Next →