2015 (8) TMI 1497 - AT - Income Tax

Revision u/s 263 - understatement in the value of closing stock because the appellant has not debited the value of excise duty to Profit Loss Account at the time of accounting purchases - assessment order being erroneous and prejudicial to the interest of the Revenue or not? - HELD THAT - The assessee has stated before the ld.Pr.CIT which is not rebutted by the Revenue that there is no understatement in the value of closing stock because the appellant has not debited the value of excise duty to Profit Loss Account at the time of accounting purchases and the excise duty component has been accounted and recognized separately in the financial statements as current assets for the year under consideration. There is another aspect of the matter also, the contention of the assessee is that MODVAT Scheme provides for instant credit of the input only on the raw-material consumed. The credit has a direct linkage with the consumption of the raw-material. It is obtained on the date when the raw material is purchased. Hence, it is clear that whether one applies the net method or the gross method the gross profit remains the same. Assessment order is not erroneous. Moreover, it is undisputed fact that the Assessing Officer raised a specific query and reached to a conclusion that method adopted by the assessee has not caused any prejudicial to the Revenue since there is no understatement of closing stock. This conclusion of AO is not absurd or erroneous. Therefore, the exercise of Jurisdiction u/s.263 of the Act by ld.Pr.CIT fails. In the case of Malabar Industrial Co.Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT has held that the CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to s.263(1). It is not pointed out by the ld.Pr.CIT as to what prejudice has caused to the Revenue. In the absence of specific finding by the ld.Pr.CIT, we cannot confirm his order revising the assessment order. Therefore, in our considered view twin conditions as laid down in Section 263 of the Act, i.e. order being erroneous so far it is prejudicial to the interest of Revenue are not satisfied - unable to sustain the findings of ld.Pr.CIT, same are hereby quashed. Therefore, the impugned order is set aside and quashed. Thus, grounds raised in the appeal are allowed.

Summary

Issues:
Appeal against order of Ld.Pr.Commissioner of Income Tax-1, Ahmedabad under section 263 for AY 2009-10.

Analysis:

Issue 1: Assessment Order under Section 263
The appeal challenges the order of Ld.Pr.Commissioner of Income Tax-1, Ahmedabad under section 263 for AY 2009-10. The Assessee contends that the order is bad in law as it directed the Deputy Commissioner to enhance assessed business income by treating unutilized Modvat Credit as taxable income under section 145A of the Income Tax Act, 1961. The Assessee argues that this treatment is contrary to law and not prejudicial to revenue, citing compliance with tax audit details and accounting practices.

Issue 2: Compliance with Section 145A
The contention revolves around the application of section 145A of the Act. The Assessee asserts that the AO had considered compliance with section 145A during assessment proceedings, as evidenced by specific queries and replies. The Assessee argues that the AO's conclusion, not causing prejudice to revenue, was reasonable. The Assessee challenges the Ld.Pr.Commissioner's view that the exclusive method of accounting for CENVAT was erroneous, emphasizing the absence of understatement in closing stock value.

Issue 3: Jurisdiction under Section 263
The debate focuses on the jurisdiction of the Ld.Pr.Commissioner under section 263. The Assessee argues that the order was not erroneous or prejudicial to revenue, citing judicial precedents and the absence of demonstrated prejudice. The Assessee highlights the requirement for twin conditions to be satisfied for invoking section 263, emphasizing the lack of identified prejudice to revenue in the present case.

Conclusion:
The Tribunal considered the arguments and judicial precedents presented by both parties. It concluded that the Ld.Pr.Commissioner's order under section 263 was not justified as the twin conditions of error and prejudice to revenue were not met. The Tribunal quashed the Ld.Pr.Commissioner's order, ruling in favor of the Assessee. The appeal against the order was allowed, setting aside the impugned decision.