2016 (3) TMI 1425 - AT - Income Tax

Revision u/s 263 by CIT - assessee firm was beneficiary of hawala transactions - lack of proper enquiry or case of lack of enquiry - case of the assessee was picked up for scrutiny - As per CIT AO had failed to verify the transactions and had accepted the books of account and the financial results at face value - HELD THAT - AO issued a questionnaire to the assessee to furnish complete details in respect of purchases made by the assessee. In reply, the assessee not only filed date-wise details of purchases, but also filed confirmations from the parties from whom the said purchases were made. The said details include purchases made from Sampark Steels, Prayan Trading Co., Vitarag Trading Co. and Siddhivinayak Steel. The relevant details and information is filed by the assessee in the Paper Book - perusal of assessment order reflects that the AO had made elaborate enquiries in respect of transportation of purchases, where the Assessing Officer had considered all the particulars filed before him and had also noted the various aspects of transactions i.e. the transport of the goods purchased by the assessee and had also enhanced income in the hands of assessee. Merely because elaborate discussion has not been made by the Assessing Officer on this aspect does not make the order passed by the Assessing Officer as being accepting transactions at face value. AO had made enquiries in the case and had discussed the aspect of transportation of goods in the assessment order elaborately, but had not discussed the information and details filed by the assessee with regard to purchases, does not make the order passed by the Assessing Officer to be a prima facie case of assumption of incorrect computation of income or under assessment of income. We find support from the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT The order passed by the AO cannot be said to be erroneous or passed on assumption of incorrect computation of income on the ground that the Assessing Officer had failed to carry out the exercise of verification of transactions with the said four parties involving purchases.assessee himself has filed the confirmations from the said parties, which are available on record. Further, evidence of transportation of the goods also have been filed which have been taken note by the Assessing Officer and elaborately recorded the same in the assessment order. May be, it can be the case of lack of proper enquiry, but it is not the case of lack of enquiry and once enquiry has been made by the Assessing Officer and he has taken one view, the same cannot be set-aside by the Commissioner since he does not agree that the view taken by the Assessing Officer was a possible view. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Erroneous and prejudicial order to the interest of Revenue.
3. Verification of transactions by the Assessing Officer.
4. Re-determination of income after full verification.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income-tax Act, 1961:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (CIT) invoking jurisdiction under section 263 of the Income-tax Act, 1961. The CIT noted that the assessee firm was a beneficiary of hawala transactions totaling ?37,79,207/- and that the Assessing Officer (AO) failed to verify these transactions, thus making the order erroneous and prejudicial to the interest of the revenue. The CIT issued a show-cause notice under section 263 to the assessee.

2. Erroneous and prejudicial order to the interest of Revenue:
The CIT contended that the AO did not verify the transactions and accepted the books of accounts and financial results at face value, leading to an incorrect computation of income or under-assessment. The CIT held that this failure made the order erroneous and prejudicial to the interest of revenue, warranting re-determination of income after full verification.

3. Verification of transactions by the Assessing Officer:
The assessee argued that the AO had conducted extensive enquiries and verification of records during the assessment proceedings, including the verification of purchases from the listed parties. The assessee provided confirmations from the parties involved and detailed records of purchases. The assessee cited legal precedents, including CIT Vs. Gabriel India Ltd. and CIT Vs. Design and Automation Engineers (Bombay) P. Ltd., to support the argument that the AO's judgment cannot be replaced by the CIT's judgment under section 263.

4. Re-determination of income after full verification:
The Tribunal analyzed the provisions of section 263, noting that the CIT can invoke jurisdiction only if the assessment order is both erroneous and prejudicial to the interest of revenue. The Tribunal referenced several legal precedents, including Malabar Industrial Co. Ltd. Vs. CIT, to emphasize that an erroneous order must deviate from the law and result in a loss of revenue. The Tribunal found that the AO had indeed made enquiries and verified the transactions, and the mere absence of elaborate discussion in the assessment order did not make it erroneous.

The Tribunal held that the conditions prescribed under section 263 were not fulfilled, as the AO had taken a possible view based on the enquiries conducted. The Tribunal concluded that the jurisdiction exercised by the CIT under section 263 was invalid and without basis, thus setting aside the CIT's order and allowing the assessee's appeal.

Conclusion:
The appeal of the assessee was allowed, and the order of the CIT invoking jurisdiction under section 263 was set aside. The Tribunal held that the AO had made necessary enquiries and the assessment order was neither erroneous nor prejudicial to the interest of revenue.