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2017 (11) TMI 1755 - HC - Income TaxRevision u/s 263 - AO erred in determining the income of the assessee at 10% on estimate basis in respect of godown receipts and hence, directed the AO to redo the assessment by assessing the godown receipts separately in addition to the income from contract receipts - Held that - Hon Supreme Court in Malabar Industrial Co. Ltd. v. CIT (2000 (2) TMI 10 - SUPREME COURT) had held that the AO, on appraisal of the facts and particularly, taking into consideration the undisputed fact that the books were not maintained by the assessee, had adopted the method of estimation of the income and in the process, after taking into consideration the overall material before it, had estimated the income at 7.5% of the gross receipts. The view taken by the AO being a plausible one and even assuming there was another view possible, the CIT(Appeal) could not have invoked the revisional power under Section 263 of the Act, as it is well-settled that such ground is not available for revising the orders. In coming to this conclusion, the Tribunal had examined the material on record and did not accept the argument of the Revenue that the rentals from the godowns are required to be assessed at a higher rate of 12.5%. AO had opined that renting of the godowns is integral in the business of the assessee and as the decision arrived at by the Tribunal being on appreciation of facts and the reason for invocation of Section 263 being that there is a possibility for estimating the income at a higher rate, without there being a finding of error in the Assessment Order, a resort to Section 263 of the Act cannot be made. Decided in favour of the assessee and against the Revenue.
Issues:
1. Challenge to order of Income Tax Appellate Tribunal under Section 260-A of the Income Tax Act, 1961. 2. Interpretation of provisions of Section 263 of the Income Tax Act. 3. Validity of estimating income at a certain percentage of gross receipts. 4. Application of judgment of Bombay High Court in a different context. Analysis: Issue 1: Challenge to Tribunal's Order The Revenue challenged the order of the Income Tax Appellate Tribunal for the Assessment Years 2007-08 and 2006-07, questioning the correctness of setting aside the CIT's order under Section 263 of the IT Act. The Tribunal had estimated the income at 7.5% of gross receipts, considering the integral nature of godown rentals in the business. The Tribunal found the AO's method of estimation reasonable, and hence, the invocation of Section 263 was deemed unwarranted. Issue 2: Interpretation of Section 263 The Commissioner of Income Tax invoked Section 263 to revise the AO's order, arguing that income from godown rent should be determined separately from contract receipts. However, the Tribunal held that the AO's method of estimation, considering the lack of maintained books, was acceptable. The Tribunal's decision was based on the principle that unless there is a clear error in the assessment order, Section 263 cannot be invoked. Issue 3: Validity of Income Estimation The AO estimated the income at 10% of gross receipts, which was later reduced to 7.5% by the Tribunal. The Tribunal's decision was supported by the judgment of the Bombay High Court, emphasizing the importance of considering all relevant facts before estimating income. The Tribunal's approach was deemed reasonable, and the AO's method was considered acceptable in the absence of any error in the assessment order. Issue 4: Application of Precedent The Tribunal relied on the judgments of the Supreme Court and the Bombay High Court to support its decision. The Tribunal found that the method of estimation followed by the AO was justifiable, and there was no need for invoking Section 263. The judgments cited by the Tribunal were considered applicable to the facts of the case, leading to the dismissal of the Appeals. In conclusion, the High Court ruled in favor of the assessee, dismissing the Appeals as the Tribunal's decision was found to be based on a reasonable interpretation of the facts and the applicable legal principles. The Court emphasized the importance of considering all relevant factors before estimating income and upheld the Tribunal's decision as valid and in accordance with the law.
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