2015 (1) TMI 1473 - HC - Income Tax

Revision u/s 263 by CIT - as per CIT unexplained cash credits in the capital account cannot be considered as business income arising out of the assessee s contract activities - assessee has shown huge expenditure under various heads in the profit and loss account. The Assessing Authority should have probed into these and critically examined the correctness of the same. There is nothing on record to show that the AO has gone through any material in respect of such transactions - HELD THAT - The material on record discloses that, ₹ 35.38 crores is the gross bill. The assessee is working under the main contractor M/s IVRCL. They deducted a sum of ₹ 22.99 crores from the bill of the assessee on account of the materials supplied and expenditure incurred by them. Only a sum of ₹ 12.38 crores was actually paid to the assessee. On that basis a sum of ₹ 4,95,970/- was the income offered by the assessee in the return of income. However, the Assessing Authority after scrutiny of the entire material on record added a sum of ₹ 80,64,764/-. Thus, the total income was determined at ₹ 85,60,730/-. The said income with reference to the contract receipts of ₹ 13.37 crores works out to 6.4%. Therefore, the contention that it works out to 0.12% is erroneous. Even in respect of the main contract, in respect of civil contracts 8% is taken normally as the income earned out of such contracts. When such a contractor gives the work to a sub contractor normally about 5% is taken as the income of the contractor. In the instant case it works out to 6.4%. The tenor of the order of the Commissioner under Section 263 discloses that, because the net profit shown in the Profit and Loss Account was only ₹ 4.63 lakhs which works out to 0.12% the proceedings are initiated. Factually it is incorrect. In those circumstances, in the absence of any other material which was before the Commissioner he was not justified in recording a finding that the assessing authority has not applied its mind, not verified the expenses, not verified the receipts and looked into the book and, therefore, a case for interference under Section 263 is made out cannot be accepted. - Decided in favour of the assessee and against the revenue.

Summary

Issues:
1. Appeal against Tribunal's order setting aside Commissioner's order under Section 263 of the Income Tax Act and restoring assessing authority's order.
2. Assessing authority's treatment of unexplained cash credits in the capital account.
3. Tribunal's decision on the appeal filed by the assessee.
4. Substantial questions of law admitted for consideration by the High Court.

Analysis:

1. The High Court heard an appeal against the Tribunal's decision setting aside the Commissioner's order under Section 263 of the Income Tax Act and reinstating the assessing authority's order. The Commissioner had found the assessing officer's order erroneous and prejudicial to the revenue's interest due to lack of verification of facts and blind acceptance of results in the profit and loss account. The High Court analyzed the Commissioner's concerns and the Tribunal's decision, ultimately upholding the Tribunal's ruling and dismissing the appeal.

2. The assessing authority's treatment of unexplained cash credits in the capital account was a key issue. The Commissioner held that the assessing officer failed to verify facts and blindly accepted results, leading to the incorrect taxation of unexplained cash credits as business income. The High Court noted that the assessing authority should have probed into the expenditure details and critically examined them. Ultimately, the High Court agreed with the Tribunal's decision to set aside the Commissioner's order and restore the assessing authority's assessment.

3. The Tribunal's decision on the appeal filed by the assessee was crucial. The Tribunal found that the assessing authority's order was not prejudicial to the revenue's interest, as the income returned by the assessee was appropriately taxed. The Tribunal determined that the assessing authority followed the permissible course of law in assessing the income, leading to the restoration of the assessing authority's order. The High Court upheld the Tribunal's decision in this regard.

4. The High Court considered substantial questions of law admitted for review. These questions included whether the Tribunal was justified in setting aside the Commissioner's order under Section 263, the justification for setting aside the revisional order, and the applicability of Section 263 in the case. The High Court analyzed the arguments presented by both parties, ultimately ruling in favor of the assessee and against the revenue. The High Court found no justification to interfere with the Tribunal's decision, leading to the dismissal of the appeal.