2015 (11) TMI 533 - AT - Income Tax

Revision u/s 263 - Held that - The A.O. examined the issues on which the CIT assumed jurisdiction. The CIT assumes jurisdiction and revised the assessment order u/s 263 of the Act without pointing out any mistakes in the A.O s order with a different opinion which itself is not a ground for assuming jurisdiction u/s 263 of the Act. Therefore we quash the CIT s order u/s 263 and restore the assessment order passed by the assessing officer. - Decided in favour of assessee.

Issues Involved:
1. Proper enquiry by the Assessing Officer (A.O.) regarding the allowability of expenditures under wages and centering charges.
2. Examination of the source of additions to the partners' capital accounts.
3. Verification of the correctness of profit declared by the assessee.
4. Verification of deduction towards partners' remuneration vis-a-vis the services rendered by them.
5. Incorrect allowance of TDS claims standing in the name of the partners to the Firm.

Detailed Analysis:

1. Proper Enquiry by the Assessing Officer:
The CIT issued a show-cause notice under section 263 of the Income-Tax Act, 1961, proposing to revise the assessment order due to the A.O.'s failure to conduct a proper enquiry regarding the allowability of expenditures under wages and centering charges. These expenditures were supported by self-made vouchers, which the CIT deemed insufficiently scrutinized. The CIT considered the round sum disallowance of Rs. 1,00,000/- as a clear case of lack of enquiry and non-application of mind. However, the assessee's representative argued that the A.O. had verified the books of accounts and vouchers, and the disallowance was a considered decision.

2. Examination of the Source of Additions to the Partners' Capital Accounts:
The CIT noted that the A.O. did not examine the source of income for additions to the partners' capital accounts. The assessee's representative countered that confirmation letters for all credits were filed and examined by the A.O., who taxed a difference of Rs. 66,825/- as excess of assets over liabilities. The CIT's assumption of jurisdiction to revise this issue was contested as the A.O. had already verified and considered it.

3. Verification of the Correctness of Profit Declared:
The CIT observed that the A.O. did not verify the correctness of the profit declared by the assessee, given the differences in the partners' capital accounts and unsupported expenditures. The CIT suggested that the A.O. should have rejected the books of accounts and estimated the net profit. The assessee's representative argued that the declared profit margin of 6.42% was reasonable for the nature of the business and that the A.O. had the discretion to either reject the books or assess based on them.

4. Verification of Deduction Towards Partners' Remuneration:
The CIT claimed that the A.O. allowed remuneration to partners without considering the services rendered by them. The assessee's representative stated that the partnership deed provided for such remuneration and that the A.O. had verified the partnership deed and allowed the deduction accordingly.

5. Incorrect Allowance of TDS Claims:
The CIT found that the A.O. incorrectly allowed TDS claims standing in the name of the partners to the Firm. The assessee's representative argued that the entire contract receipts were offered in the hands of the firm, and the A.O. had verified and allowed the TDS credit accordingly.

Conclusion:
The Tribunal held that the A.O. conducted sufficient enquiry and exercised proper judgment in the assessment. The CIT's assumption of jurisdiction under section 263 was deemed inappropriate as the A.O.'s order was not erroneous or prejudicial to the interest of the revenue. The Tribunal quashed the CIT's order and restored the original assessment order, emphasizing that mere differences in opinion or inadequate enquiry do not justify revision under section 263. The appeal by the assessee was allowed.

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