2017 (6) TMI 1364 - AT - Income Tax

Revision u/s 263 - valuation of work-in-progress (WIP) and profit element contained therein - HELD THAT - We find that in the instant case, it is not in dispute that during the course of assessment, the AO called for details of closing work-in-progress, which was furnished by the assessee and was also examined by the AO. It is not the case of the ld Commissioner of Income Tax that the Assessing Officer has not examined the valuation of closing work in progress. That being so, in our considered view, CIT could have interfered with the order of the Assessing Officer u/s.263 only when it finds that the conclusion of the Assessing Officer is either erroneous in fact or erroneous in law. Without returning a clear finding that the order of the Assessing Officer was erroneous, the ld Commissioner of Income Tax could not interfere with such an order u/s.263 for making a fishing or roving enquiry. In the instant case, we find that CIT has simply observed that the submission of the assessee needs verification. As per the provisions of section 263, CIT could have either himself verified the submission of the assessee or could have got the submission of the assessee verified by other agencies and thereafter if he would have come to the conclusion that the order passed by the Assessing Officer in respect of the issue was actually erroneous then only he could have interfered with the order of the Assessing Officer. In the circumstances, we find that the order of the ld Commissioner of Income Tax in respect of this issue is bad in law and untenable. We, therefore, set aside the order of the Commissioner of Income Tax in respect of this issue. As per revised computation furnished by the assessee, its total income was ₹ 11,58,84,250/-, which was mistakenly taken by the Assessing Officer at ₹ 1,58,48,250/- and short levy of interest u/s.234C - In respect of second and third issue, mentioned herein above before us, ld A.R. of the assessee has candidly conceded that there was mistake in the order of the Assessing Officer. The only submission is that the error in the assessment order in respect of the said two issues could have been rectified by the Assessing Officer u/s.154 of the Act and, therefore, exercise of power u/s.263 of the Act was excessive. We find that as per provisions of section 263 of the Act, the ld Commissioner of Income Tax can exercise the jurisdiction when he finds that the order of the Assessing officer is erroneous and prejudicial to the interests of the revenue. Nowhere, the said section provides that if the error is apparent then powers conferred u/s.263 upon the Commissioner of Income Tax cannot be exercised. Hence, we do not find any force in the above submission of the assessee. Therefore, the order of the Commissioner of Income Tax in respect of above two issues are confirmed and the related grounds of appeal of the assessee are dismissed.

Summary

Issues involved:
1. Jurisdiction of Commissioner of Income Tax under Section 263 of the Income Tax Act.
2. Valuation of work-in-progress and profit element as per Accounting Standard on construction.
3. Mistakes in the assessment order regarding total income and interest calculation.

Issue 1: Jurisdiction of Commissioner of Income Tax under Section 263:
The appeal challenged the order under section 263 of the Income Tax Act by the Commissioner of Income Tax, Bhubaneswar, for the assessment year 2009-2010. The appellant contended that the notice and order were bad in law, void ab initio, and liable to be quashed, arguing that the Commissioner erred in invoking jurisdiction without satisfying pre-conditions. The Tribunal noted that the Commissioner's order set aside the assessment and directed a re-evaluation of the work-in-progress, stating that the Assessing Officer had examined the valuation. The Tribunal referenced a Delhi High Court case emphasizing that the Commissioner must find the Assessing Officer's conclusion erroneous before intervening, and as the Commissioner did not establish error, the order was deemed legally untenable. Consequently, the Tribunal set aside the Commissioner's order on this issue.

Issue 2: Valuation of work-in-progress and profit element:
The Commissioner's order under section 263 focused on three grounds, including the profit element in work-in-progress not added to income as per Accounting Standard on construction (AS-7). The Tribunal observed that the Assessing Officer had examined the closing work-in-progress valuation, and the Commissioner's intervention required a finding of error by the Assessing Officer. Citing a legal precedent, the Tribunal emphasized that the Commissioner must establish error before directing further inquiry. As the Commissioner failed to prove error, the Tribunal concluded that the order was legally flawed and set it aside, directing a re-evaluation of the assessment.

Issue 3: Mistakes in the assessment order:
Regarding the errors in the assessment order related to total income and interest calculation, the appellant conceded the mistakes but argued they could be rectified under section 154 of the Act, rendering the exercise of power under section 263 excessive. The Tribunal clarified that the Commissioner can act under section 263 if the Assessing Officer's order is erroneous and prejudicial to revenue, regardless of the error's apparent nature. Dismissing the appellant's argument, the Tribunal confirmed the Commissioner's order on these issues, leading to a partial allowance of the appeal.

In conclusion, the Appellate Tribunal, in the case before it, analyzed the jurisdiction of the Commissioner of Income Tax under Section 263, the valuation of work-in-progress and profit element, and the mistakes in the assessment order. The Tribunal set aside the Commissioner's order on the first issue due to the lack of established error by the Assessing Officer. However, the Tribunal confirmed the Commissioner's order on the other issues, emphasizing that the Commissioner's jurisdiction under Section 263 is not limited to rectifying apparent errors but extends to cases where the Assessing Officer's order is erroneous and prejudicial to revenue.