2015 (7) TMI 938 - AT - Income Tax

Revision u/s 263 by CIT(A) - regarding service tax issue - Held that - This is by now settled position of law that if there is lack of enquiry by the Assessing Officer or if there is lack of application of mind by the Assessing Officer, the assessment order is erroneous and prejudicial to the interest of Revenue and in those situations, the learned CIT can exercise his powers u/s 263 of the Act. A very general query was raised by the Assessing Officer in his questionnaire dated 16/12/2010 and the assessee was asked to file copy of service tax account and copy of challans in order to enable the Assessing Officer to verify as to whether the payment was made or not but there is no query as to whether the service tax payment is allowable expenditure or not because the receipt were accounted for by the assessee after reducing service tax there from as has been stated by learned CIT in his notice and Learned A.R. of the assessee could not point out any defect in the reply available on pages 28 to 31 of the paper book also. There is no reply regarding service tax aspect and therefore, in our considered opinion, there is complete lack of enquiry on service tax aspect by the Assessing Officer. Commission payment aspect - Held that - Assessing Officer has very much raised a query regarding services rendered by commission agents with documentary evidence. But in the reply of the assessee, he has furnished copy of agreement and copy of commission bills along with the details of provisions of commission on handling charges, TDS, date of payment of TDS etc. but there is no evidence furnished by the assessee before the Assessing Officer regarding services rendered by the commission agents. Hence, in our considered opinion, there is lack of application of mind by the Assessing Officer even after making query and therefore, in the facts of the present case, the exercise of the revisionary power by learned CIT u/s 263 appears to be proper. - Decided against assessee.

Issues Involved:
1. Whether the assessment order dated 30.12.2010 was erroneous and prejudicial to the interest of revenue under Section 263 of the Income Tax Act.
2. Whether the CIT's order dated 28.03.2013 was beyond the grounds of the show cause notice issued under Section 263(1).
3. Validity of the assessment order dated 30.12.2010 and its susceptibility to revision under Section 263.
4. Enforceability of the direction for fresh assessment given the alleged non-existence of the earlier assessment order.
5. Deductibility of Rs. 1,73,30,720/- claimed by the appellant concerning service tax.
6. Validity of payments made to M/s Muren Impex (P) Ltd. and M/s E-commodities.
7. Admissibility of payments made under enforceable agreements and the rendering of valuable services.
8. Disputability of payments based on CIT's doubts.
9. Impact of services rendered in excess of the terms of the agreement on the admissibility of payments.
10. Substitution of the Assessing Officer's view by the CIT's view concerning the admissibility of payments.
11. Justification of the payment of Rs. 75,00,000/- to M/s K.J. Associates.
12. Overall sustainability of the CIT's order dated 28.03.2013.

Detailed Analysis:

1. Erroneous and Prejudicial Nature of the Assessment Order:
The Tribunal upheld the CIT's decision that the assessment order dated 30.12.2010 was erroneous and prejudicial to the interest of revenue. The CIT's objection regarding the debiting of Rs. 1,73,20,720/- in the profit & loss account for service tax paid was valid as the service tax was excluded from the handling charges received. The Tribunal found a complete lack of enquiry on this aspect by the Assessing Officer.

2. Grounds Beyond Show Cause Notice:
The appellant argued that the CIT's order dated 28.03.2013 was beyond the grounds of the show cause notice issued under Section 263(1). However, the Tribunal did not find merit in this argument, indicating that the CIT's order was within the scope of the notice and relevant to the issues raised.

3. Validity of the Assessment Order:
The appellant contended that the assessment order dated 30.12.2010 was "no order" in the eyes of law and could not be subjected to revision under Section 263. The Tribunal, however, found that the assessment order was valid and susceptible to revision due to the lack of proper enquiry and application of mind by the Assessing Officer.

4. Enforceability of Direction for Fresh Assessment:
The Tribunal held that the direction for fresh assessment was enforceable, dismissing the appellant's argument that the earlier assessment order was "non-existent."

5. Deductibility of Rs. 1,73,30,720/- for Service Tax:
The CIT found that the deduction of Rs. 1,73,30,720/- for service tax was prejudicial to the interest of revenue. The Tribunal agreed, noting that the Assessing Officer did not question the allowability of the service tax payment despite the receipts being accounted for after excluding the service tax.

6. Payments to M/s Muren Impex (P) Ltd. and M/s E-commodities:
The CIT held that the payments to M/s Muren Impex (P) Ltd. and M/s E-commodities were clouded with doubts as no business requirement for such payments was established. The Tribunal supported this view, noting the lack of documentary evidence for services rendered by these parties.

7. Enforceable Agreements and Rendering of Services:
The appellant argued that payments were covered by enforceable agreements and valuable services were rendered. The Tribunal found that the Assessing Officer failed to verify the actual rendering of services despite the agreements, indicating a lack of application of mind.

8. Disputability Based on CIT's Doubts:
The Tribunal dismissed the appellant's argument that the CIT's doubts alone could not dispute the admissibility of payments. The lack of evidence for services rendered justified the CIT's doubts.

9. Services Rendered in Excess of Agreement Terms:
The appellant contended that services rendered in excess of agreement terms should not affect the admissibility of payments. The Tribunal found this argument irrelevant as the primary issue was the lack of evidence for any services rendered.

10. Substitution of Assessing Officer's View:
The Tribunal held that the CIT was justified in substituting the Assessing Officer's view, given the lack of enquiry and application of mind by the Assessing Officer.

11. Payment to M/s K.J. Associates:
The Tribunal found that the CIT was justified in questioning the payment of Rs. 75,00,000/- to M/s K.J. Associates, as the Assessing Officer's view was not based on proper verification.

12. Overall Sustainability of CIT's Order:
The Tribunal concluded that the CIT's order dated 28.03.2013 was based on valid grounds and considerations, making it sustainable both on facts and in law.

Conclusion:
The appeal of the assessee was dismissed, affirming the CIT's order under Section 263 of the Income Tax Act.

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