2019 (9) TMI 1291 - AT - Income Tax

Revision u/s 263 - case of the assessee was selected under CASS for scrutiny with a reason of Low net profit or loss shown from large gross receipt - HELD THAT - Mandate given to the ld AO was to examine the low net profit. The ld CIT holds that order is erroneous for the reason that AO has not examined the loan received by the assessee from one Mr. Jagjit Singh and the difference between the purchase and sales shown in the profit and loss account with the purchase and sales shown in party wise details. On the issue of unsecured loan the assessee has discharged its initial onus by furnishing income tax return confirmation source of funds available with the lender etc. Therefore it is correct that the assessee has discharged its onus cast upon him. Thereafter if material gives any indication than the ld AO should have made further enquiry. No such material has been shown by the ld CIT from the assessment records. Thus on this issue it cannot be said that AO should have been made any further enquiry. Thus n the issue of verification of unsecured loan we do not find that there is lack of due inquiry. Purchase and sales - assessee has explained before the ld CIT that tax component which is debited or credited to the parties account along with net sales value and only net sales is shown in the profit and loss account. The difference as pointed out by the CIT in show cause notice cannot be said to be difference but the correct accounting method. Naturally at the time of sale the assessee credits net off tax in profit and loss account and debit the whole amount including tax in the account of the debtors. Similarly purchases are made by debiting the trading account by net off purchase and crediting whole amount including taxes to the account of the creditors. These details were already enquired by the ld AO. - order passed by Pr. CIT we do not have such categorical finding of lack of inquiry on both these issues. It was also not the mandate given to the AO to enquire on this aspects as the case was selected for limited verification of low profit. The order passed by the ld Pr CIT u/s 263 is sustainable. - Decided in favour of assessee.

Summary

Issues:
- Revisionary powers u/s 263 of the Income Tax Act invoked by the Pr. Commissioner of Income Tax without proper investigation.
- Acceptance of return of income without relevant investigation/enquiry with respect to unsecured loans received by the assessee.
- Allegation of erroneous and prejudicial assessment order by the ld AO.
- Discrepancy in party-wise sales and purchase details compared to profit and loss account.
- Verification of unsecured loans and sales/purchase details by the ld AO.
- Compliance with the provisions of section 263 of the Act.

Analysis:
1. The appeal was filed against the order of the ld Pr. CIT invoking revisionary powers u/s 263 of the Income Tax Act for the Assessment Year 2014-15. The assessee contended that the revision was ordered without any error or prejudice, solely based on the absence of necessary investigations. The initial assessment by the ld AO was accepted without proper scrutiny of unsecured loans received by the assessee, leading to the initiation of the revision process.

2. The ld Pr. CIT found discrepancies in the assessment order, particularly related to unsecured loans and sales/purchase details. The notice issued highlighted the lack of verification regarding unsecured loans and the mismatch between party-wise sales/purchase figures and the profit and loss account. The ld CIT held that the assessment order was erroneous and prejudicial to the revenue's interest, citing the explanation 2 to section 263 of the Act.

3. During the proceedings, the ld AR argued that the ld AO had conducted a thorough investigation into the unsecured loan from Mr. Jagjit Singh, providing relevant documents to support the claim. The assessee had also submitted detailed sales and purchase information as requested by the ld AO. The ld AR contended that the necessary inquiries were made by the ld AO, and the order was not erroneous as alleged by the ld Pr. CIT.

4. The Tribunal carefully examined the contentions of both parties and reviewed the orders of the ld AO and Pr. CIT. It was noted that the ld CIT had failed to specify the errors in the ld AO's order, as required under section 263. The Tribunal found that the ld AO had appropriately examined the unsecured loan and sales/purchase details, and the discrepancies highlighted were part of the standard accounting method followed by the assessee. In the absence of concrete evidence indicating further necessary inquiries, the Tribunal concluded that the order passed by the ld Pr. CIT under section 263 was unsustainable.

5. Ultimately, the Tribunal quashed the order passed by the ld Pr. CIT and allowed the appeal of the assessee, emphasizing the importance of proper investigation and specific findings when invoking revisionary powers under section 263 of the Income Tax Act.

This detailed analysis of the judgment highlights the key issues raised, the arguments presented by both parties, and the Tribunal's decision based on the provisions of the Income Tax Act and relevant legal principles.