2015 (11) TMI 859 - AT - Income Tax

Revision u/s 263(1) - Held that - In the instant case the Revenue has accepted the return filed by the assessee as perfectly valid and, therefore, there is no occasion to held that the return was in derogation to sub section (4) of section 184 of the Act. Thus we find that order of the CIT on this issue is not tenable and accordingly we hold that the assessment order cannot be held erroneous in as much as prejudicial to the interest of Revenue on this issue. We set aside the order of the CIT in toto and hold that the assessment order dated 28.01.2013 passed u/s 143(3) of the Act cannot be held erroneous in as such as prejudicial to the interest of the Revenue. Commissioner has directed the Assessing officer to make the addition on account of understatement of closing stock, disallow interest u/s / 36(1)(iii) in respect of mixing plant and depreciation in respect of mixing pant and disallow of deduction on account of interest, salary etc. paid to the partners. In our considered view, remanding the matter to the Assessing officer is of no consequence, particularly when the CIT himself has reframed the assessment. In the facts and circumstances of the present case the CIT has not left any scope for the Assessing officer to redo the assessment or pass a fresh assessment order. It is also observed that Ld. CIT has directed the Assessing officer to give an opportunity of being heard to the assessee before passing the fresh assessment order. In our view, giving opportunity of being heard to the assessee by the Assessing officer is also meaningless, particularly when the Ld. CIT himself has reframed the assessment order. The directions given by the Ld. CIT in para 7 of the impugned order are also contrary to the settled position of law. When the Ld. CIT directs the Assessing officer to pass a fresh assessment order, the only proper course for the Commissioner was not to express any final opinion as regards to the controversial points. - Decided in favour of assessee.

Issues Involved:
1. Validity of the order passed under section 263(1) by the CIT Patiala.
2. Addition on account of understatement of closing stock.
3. Disallowance of interest under section 36(1)(iii) in respect of investment in land and mixing plant.
4. Disallowance of depreciation in respect of the mixing plant.
5. Disallowance of deduction on account of interest and salary paid to the partners.

Detailed Analysis:

1. Validity of the Order Passed Under Section 263(1) by the CIT Patiala:
The assessee contested the CIT's order under section 263(1), arguing that the assessment order dated 28.1.2013 was neither erroneous nor prejudicial to the interest of Revenue. The CIT had issued a notice listing eight issues, which the assessee claimed were thoroughly examined by the Assessing Officer (AO) during the original assessment proceedings. The assessee relied on precedents from the Hon'ble Jurisdictional High Court and ITAT Kolkata Bench, asserting that a cryptic order does not necessarily imply it is erroneous and prejudicial to the Revenue. The Tribunal found that the AO had indeed made proper inquiries and was satisfied with the explanations provided by the assessee, thus the order under section 263 was not justified.

2. Addition on Account of Understatement of Closing Stock:
The CIT directed the AO to add Rs. 5,95,970/- due to an alleged understatement of closing stock. The CIT believed the AO failed to verify the closing stock value against the purchases made at the end of the year. The assessee argued that the goods were supplied over a period, not just on the last day, and provided supporting bills. The Tribunal noted that the AO had raised queries and received satisfactory responses during the assessment. Thus, the AO's order was not erroneous or prejudicial to the Revenue.

3. Disallowance of Interest Under Section 36(1)(iii) in Respect of Investment in Land and Mixing Plant:
The CIT observed that the assessee purchased land and machinery but did not show their business use, warranting disallowance of interest expenditure. The assessee explained that the land was used for storing construction materials and the mixing plant was purchased F.o.R at the work site, negating the need for transportation charges. The Tribunal found that the AO had adequately inquired into these purchases and was satisfied with the explanations, making the CIT's direction for disallowance unjustified.

4. Disallowance of Depreciation in Respect of the Mixing Plant:
The CIT directed the AO to disallow depreciation on the mixing plant, questioning its business use. The assessee contended that the plant was necessary for its construction business and provided evidence of diesel expenses for its operation. The Tribunal concluded that the AO had made the necessary inquiries and was satisfied with the business use of the mixing plant, thus the CIT's direction was unwarranted.

5. Disallowance of Deduction on Account of Interest and Salary Paid to the Partners:
The CIT noted a change in the partnership deed and claimed the assessee failed to comply with section 184(2) by not submitting a certified copy of the deed. The assessee argued that the deed was shown to the AO, who was satisfied with its authenticity. The Tribunal referred to the Hon'ble Calcutta High Court's decision, which held that non-filing of the partnership deed is a procedural defect and does not invalidate the return. Therefore, the CIT's direction to disallow interest and salary paid to partners was not tenable.

Conclusion:
The Tribunal set aside the CIT's order in its entirety, holding that the assessment order dated 28.01.2013 was neither erroneous nor prejudicial to the interest of Revenue. The CIT had overstepped by virtually reassessing the case instead of remanding it to the AO for fresh assessment without expressing final opinions on the controversial points. The Tribunal emphasized that the CIT's directions were contrary to the settled position of law and thus quashed the impugned order. The appeal was allowed, and the original assessment order was upheld.

← Previous Next →