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2016 (2) TMI 1317 - AT - Income TaxRevision u/s 263 - CIT has objected that the increase in consumption by 5.41% this year as compared to the last year was not examined by the AO - HELD THAT - As the issue of consumption of colour and chemicals has been examined by the survey team and based on that, the assessee has surrendered certain amount and reported in his return of income which has been accepted by the AO - AO has carried out the examination of assessee s books of accounts which includes the manufacturing and trading account and based on better GP results which includes the consumption of colour and chemicals shown by the assessee, the same have been accepted - AO in his order has stated clearly that he has examined the manufacturing and trading account and felt satisfied. Accordingly, on this account, it cannot be said that AO has not the examined the matter or there is no application of mind which warrant an intervention by ld CIT under section 263 of the Act. Addition or invoking section 41(1) - As submitted that these are the same creditors from whom the purchases of color and chemicals have been made and therefore, both the allegation are part of the one single issue and cannot be seen separately. CIT also therefore rightly did not alleged making any separate addition or invoking section 41(1) - We agree with the contention of the ld AR that where the balances of sundry creditors having been examined during the course of assessment proceedings, the fact that these creditors relates to consumption of colour and chemicals and CIT not invoking section 41(1) the issue has to be seen in the context of consumption of colour and chemicals which we have already discussed above. Accordingly, on this account, it cannot be said that AO s order under section 143(3) call for intervention of ld CIT under section 263. Excess stock of gray cloth - AO has not examined the value taken for the purposes of valuation of gray cloth in the stock inventory as on 31st March 2011 and selling price of gray cloth processed which has been sold - From the perusal of the computation of income (PB 143), it is noted that in addition to profit as per profit and loss account, the assessee has offered an amount which is the amount surrendered during the course of survey. The said amount includes an amount towards stock of gray cloth. Given this undisputed facts where the assessee has offered the whole of the purchase stock to tax and which has been accepted by the AO, we are unable to understand the prejudice which has been caused to the Revenue in this regard. In any case, the purchase and resultant sale of gray stock and profit arising therefrom has been factored in the Gross profit which has been examined by the AO. Accordingly, on this account, it cannot be said that AO s order under section 143(3) call for intervention of ld CIT under section 263. Cash payment and related disallowances u/s 40A(3) - As submitted by AR that admittedly, the assessee made payments below ₹ 20,000/- to the small persons engaged in the work of washing etc. which does not require much investment and they are financially weak and therefore, they always insist for cash payment. They even do not have their bank a/c and therefore, cash payment has to be made. It was further submitted that the AO has verified the cashbook produced before him alongwith the Tax Audit Report in which the Tax Auditor has not reported any contravention of sec. 40A(3). On pursual of the assessment order, it is noted that the cash book was produced during the course of hearing on 15.01.2013 and it is also stated that the AO has done the verification of the cash deposits. It therefore cannot be said that the AO has not verified the cash book and it is likely that on examination of such cash book, he has found the same to be in order including compliance with section 40A(3). Accordingly, on this account, it cannot be said that AO s order under section 143(3) call for intervention of ld CIT under section 263 of the Act. Disallowance u/s 40(a)(ia) - Why the third parties making the payment to the assessee have not made TDS and also the present AO has not intimated to the concerned AO of the such persons making payment to make disallowance u/s 40(a)(ia). In our view, the same cannot form the basis for assuming jurisdiction under section 263 in the case of the assessee. Payment of job work charges - CIT believes that the Assessing officer ought to have examined whether TDS are made or not and whether the provisions of section 40a(ia) is applicable in the assessee s case. In this regard, it is noted that the assessee vide its letter dated 11.01.2013 has submitted copy of TDS returns as well as copy of account of job work/process charges where it is shown that the assessee has done TDS on such payments. In our view, the same cannot form the basis for assuming jurisdiction under section 263 in the case of the assessee. We are of the view that the order passed by AO under section 143(3) cannot be held to be an erroneous order which is prejudicial to the interest of Revenue. The AO has made sufficient enquiries, considered the survey records and the surrender made by the assessee and after considering the submissions of the assessee and due application of mind completed the assessment proceedings under section 143(3) of the Act. Hence, the impugned order issued by ld CIT under section 263 lacks the inherent jurisdiction. - Decided against revenue.
Issues Involved:
1. Invocation of Section 263 by the Principal Commissioner of Income Tax (Pr. CIT). 2. Assumption of jurisdiction under Section 263. 3. Alleged errors in the assessment order related to: - Excess consumption of color and chemicals. - Outstanding liabilities in the accounts of Sundry Creditors. - Valuation of stock and sales made. - Excessive claims of expenses. - Non-compliance of TDS provisions. Detailed Analysis: 1. Invocation of Section 263 by the Principal Commissioner of Income Tax (Pr. CIT): The Pr. CIT invoked Section 263 of the Income Tax Act, 1961, holding that the assessment order dated 18.01.2013 was erroneous and prejudicial to the interest of the Revenue. The Pr. CIT's primary contention was that the Assessing Officer (AO) had not made proper inquiries into various aspects, including the consumption of color and chemicals, outstanding liabilities, valuation of stock, excessive claims of expenses, and TDS compliance. 2. Assumption of Jurisdiction under Section 263: The assessee challenged the Pr. CIT's jurisdiction under Section 263, arguing that the AO had conducted a detailed inquiry during the assessment proceedings under Section 143(3). The assessee provided various documents and explanations to the AO, who had examined the books of accounts, cash book, and other relevant records. The assessee contended that the AO had applied his mind and made a reasoned decision, thus the Pr. CIT's assumption of jurisdiction was unwarranted. 3. Alleged Errors in the Assessment Order: (i) Excess Consumption of Color and Chemicals: The Pr. CIT noted an increase in the consumption of color and chemicals from 44.80% to 50.21% during the year under consideration. The Pr. CIT argued that the AO did not make any inquiry into this increase. The assessee countered that the increase was due to reduced job outsourcing and the impact of a rotational system introduced by local authorities, which led to higher wastage. The assessee also highlighted that the AO had considered the survey findings and the surrendered amount, which included excess consumption of color and chemicals. (ii) Outstanding Liabilities in the Accounts of Sundry Creditors: The Pr. CIT pointed out substantial outstanding amounts in the accounts of five sundry creditors and alleged that the AO did not inquire into these liabilities. The assessee argued that these creditors were long-standing business partners, and the outstanding balances were part of normal business practice. The AO had obtained confirmations from these creditors and found no discrepancies. (iii) Valuation of Stock and Sales Made: The Pr. CIT raised concerns about the valuation of excess stock of gray cloth found during the survey and the selling price of processed gray cloth. The assessee had surrendered the excess stock value during the survey, which was included in the return of income. The AO had accepted this valuation and included it in the assessment, thus no further inquiry was deemed necessary. (iv) Excessive Claims of Expenses: The Pr. CIT alleged that the AO did not examine the increased claims of expenses under various heads such as interest, water, wages, and electricity. The assessee explained that these expenses were genuine and supported by proper documentation. The AO had verified these expenses during the assessment proceedings and found them to be reasonable. (v) Non-Compliance of TDS Provisions: The Pr. CIT contended that the AO did not examine whether TDS was deducted on job work receipts and payments made by the assessee. The assessee argued that it had complied with TDS provisions and provided necessary documentation to the AO. The AO had verified the TDS compliance and found no discrepancies. Conclusion: The Tribunal found that the AO had conducted a detailed inquiry during the assessment proceedings, considering the survey findings and the surrendered amount. The AO had applied his mind and made reasoned decisions on all the issues raised by the Pr. CIT. The Tribunal held that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the invocation of Section 263 by the Pr. CIT was quashed, and the appeal filed by the assessee was allowed.
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