2017 (9) TMI 1941 - AT - Income Tax

Revision u/s 263 - rejection of books of accounts - profit estimated on undisclosed sales in the bank accounts - HELD THAT - As during the course of assessment proceedings, the AO had made enquiries, raised questions for which notices u/s 142(1) of the Act were issued on different dates and after considering the reply of assessee on various aspects, the said view was taken by the AO. Once the AO has taken a view on the basis of assessee having not correctly disclosed its turnover from the business, then the same cannot be substituted by the Commissioner on the surmise that the view of AO is not a reasonable view, where the said view was adopted by the AO after going through the factual and legal aspects of the issue before him. In any case, the Commissioner has not found any fault with the rejection of books of account but has exercised jurisdiction on the profit estimated on undisclosed sales in the bank accounts being not justified in the absence of any cogent evidence - even if there is some loss of revenue but the Commissioner is not empowered to exercise his jurisdiction u/s 263 of the Act for substituting the view adopted by the Assessing Officer by a view of the Commissioner which is at variance. While setting aside the issue, the Commissioner has not come to a finding but has asked the AO to do a fresh examination and hence, the matter was set aside to the file of AO with direction to re-examine the issue. We find no merit in such setting aside of the issue. He has directed the AO to re-assess the case and examine the evidence in perspective of the provisions of the Act, whereas which amounts further enquiries and substitution of the view adopted by the AO and the same is not merited. Accordingly, we find no merit in the directions of Commissioner and hold that exercise of jurisdiction u/s 263 of the Act is unwarranted and the same is held to be invalid in law. Accordingly, the same is cancelled. Appeals of assessee are allowed.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Validity of the exercise of power by the Commissioner under section 263 of the Income-tax Act, 1961.
3. Assessment of undisclosed income and expenses.
4. Rejection of books of account under section 145(3) of the Act.
5. Estimation of net profit on disclosed and undisclosed sales.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The appeals were filed by the assessee after a delay of 83 days. The assessee explained the delay was due to confusion regarding the course of action taken by the Authorized Representative. The Tribunal found merit in the explanation provided by the assessee and condoned the delay, allowing the appeals to proceed.

2. Validity of the Exercise of Power by the Commissioner under Section 263:
The primary issue raised was whether the Commissioner was justified in invoking section 263 of the Act. The Commissioner believed the assessment order was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer (AO) had not properly assessed the undisclosed bank accounts and related expenses. However, the Tribunal noted that the AO had indeed made inquiries, issued notices, and considered the assessee's responses before estimating the net profit. The Tribunal emphasized that the Commissioner cannot substitute their judgment for that of the AO if the AO's view is a possible one, even if it results in a loss of revenue. Therefore, the Tribunal held that the exercise of jurisdiction under section 263 by the Commissioner was unwarranted and invalid in law.

3. Assessment of Undisclosed Income and Expenses:
The assessee had undisclosed bank accounts with Kotak Mahindra Bank Ltd., which were revealed during a survey. The AO reopened the assessment and estimated the net profit on the undisclosed sales after rejecting the books of account. The Commissioner argued that the AO should have allowed only those expenses substantiated with proper evidence. However, the Tribunal found that the AO had considered the details provided by the assessee and had applied a reasonable estimation method.

4. Rejection of Books of Account under Section 145(3) of the Act:
The AO rejected the books of account under section 145(3) due to the non-disclosure of certain bank accounts and related sales. The Tribunal upheld this rejection, noting that the AO had followed due process by issuing notices and considering the assessee's replies before making the decision.

5. Estimation of Net Profit on Disclosed and Undisclosed Sales:
The AO estimated the net profit at 15% on both disclosed and undisclosed sales, considering the gross profit rates declared by the assessee in various years. The Commissioner challenged this estimation, but the Tribunal found that the AO's approach was reasonable and based on the facts and circumstances of the case. The Tribunal held that the AO's estimation method was a possible view and should not be interfered with by the Commissioner.

Conclusion:
The Tribunal concluded that the Commissioner was not justified in invoking section 263 of the Act. The AO had made proper inquiries and adopted a reasonable estimation method. The Tribunal canceled the orders passed by the Commissioner under section 263 for all the assessment years involved. The appeals filed by the assessee were allowed.

Order Pronounced:
The order was pronounced on the 29th day of September, 2017.