2015 (11) TMI 272 - AT - Income Tax

Revision u/s 263 - addition on account of unsecured loans and sundry creditors - Held that - We had called for the assessment records and the Ld.DR confirms that all the details in respect of the loans along with confirmations necessary for the purposes of verification, details regarding the sundry creditors etc., were available before the Ld.AO at the time of assessment. From the questionnaire raised by the ld.AO it further appears that specific queries have been raised by the Ld.AO in respect of loan liability, unsecured loans and sundry creditors and the assessee has filed all the details as sought for by the ld.AO. The ld.AO has verified the same at the time of assessment. It is evident from the order of the Assessing Officer that he has considered all detailed particulars filed before him. The same is verifiable from the questionnaire issued by the ld. AO at the time of assessment. The Ld.AO has dealt with and verified all the details in respect of the issues raised in the notice issued by the ld.CIT u/s.263 of the Act. We therefore reject the submission of the Revenue that the order of the Ld.AO is erroneous or prejudicial to the interest of the Revenue or have been passed without application of mind only because in the assessment order the ld.AO has not made elaborate discussion in that regard. It is evident that the ld.CIT has set aside the order of the ld.AO only on the ground that the view taken by the ld.AO was not agreeable to him. In our considered opinion, it cannot be said that the ld.AO has not applied his mind at the time of assessment. The view taken by the ld.AO was a possible view and that the condition precedent for invoking jurisdiction under section 263 by the Commissioner of Income-tax did not exist in the facts of the present case. See Commissioner Of Income-Tax Versus Gabriel India Limited 1993 (4) TMI 55 - BOMBAY High Court - Decided in favour of assessee.

Issues Involved:
1. Legality of the order passed by the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, 1961.
2. Whether the assessment order dated 10.12.2010 passed by the Assessing Officer (AO) under section 143(3) was erroneous and prejudicial to the interest of the revenue.
3. Adequacy of opportunity provided to the assessee to represent the case.
4. Validity of additions made by the CIT under section 68 for unsecured loans and sundry creditors.
5. Rejection of books of accounts under section 145(3) without proper notice.

Detailed Analysis:

1. Legality of the Order Passed by CIT under Section 263:
The appeal challenges the CIT's order dated 25.03.2013 under section 263 of the Income Tax Act, 1961. The assessee contends that the assessment order dated 10.12.2010 was neither erroneous nor prejudicial to the interest of the revenue. The CIT's order was argued to be procedurally flawed as it did not provide the assessee with a reasonable opportunity to represent the case.

2. Erroneous and Prejudicial to the Interest of Revenue:
The CIT initiated proceedings under section 263, claiming that the AO did not conduct a proper inquiry into several aspects, including the introduction of new capital, non-maintenance of stock register, low net profit, and failure to prove sundry creditors and unsecured loans. The CIT concluded that the assessment order was erroneous and prejudicial to the interest of the revenue. However, the tribunal found that the AO had examined the books of accounts, vouchers, and confirmation of sundry creditors and unsecured loans during the assessment proceedings. The tribunal noted that the AO had raised specific queries and verified the necessary documents, thus fulfilling the requirements of a proper inquiry.

3. Adequacy of Opportunity Provided to the Assessee:
The assessee argued that the CIT did not provide a reasonable opportunity to explain the position regarding sundry creditors and unsecured loans. The tribunal observed that the CIT had traveled beyond the show cause notice by making additions that were not specified in the notice. This lack of proper notice and opportunity to the assessee was deemed a violation of the principles of natural justice.

4. Validity of Additions under Section 68:
The CIT made additions under section 68 for unsecured loans and sundry creditors, including opening balances from earlier years. The assessee had provided confirmation certificates, Income Tax Returns (ITR), and bank account details to substantiate the loans. The tribunal found that the CIT's additions were unjustified and illegal as the AO had already verified these details during the assessment proceedings. The tribunal emphasized that the CIT could not disregard the AO's findings without conducting a proper inquiry or providing the assessee an opportunity to present their case.

5. Rejection of Books of Accounts under Section 145(3):
The CIT rejected the books of accounts under section 145(3), citing non-maintenance of a stock register and low net profit. However, the tribunal noted that the CIT did not issue a show cause notice regarding the rejection of books of accounts. The tribunal held that the CIT's action was unjustified and violated the principles of natural justice, as the assessee was not given an opportunity to explain their position.

Conclusion:
The tribunal quashed and set aside the CIT's order under section 263, deeming it invalid and unsustainable. The tribunal concluded that the AO's assessment order was not erroneous or prejudicial to the interest of the revenue, as the AO had conducted a proper inquiry and verified the necessary details. The tribunal allowed the appeal filed by the assessee, emphasizing that the CIT's order violated the principles of natural justice and the procedural requirements of the Income Tax Act.

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