2020 (4) TMI 901 - AT - Income Tax

Revision u/s 263 by CIT - assessee company has not included the financials of Bhilai in the audited financial statements prepared for the AY 2013-14 - As submitted that the Bhilai unit of the assessee company was under control of Sh. Sunil Aggarwal, younger brother of Sh. Anil Aggarwal. Since, Sh. Sunil Aggarwal had obtained restrain order from CLB, the assessee company managed by Sh. Anil Aggrawal was not allowed to interfere with functioning of the Bhilai Unit. Therefore, the assessee company was not having financial details of the said unit - HELD THAT - Admittedly, the assessee has its unit in Bhillai and the assessee has not included the financials of its Bhilai unit in the audit financial statements prepared by it for the AY 2013-14 due to alleged dispute between the promoters. As pointed out by the CIT, the AO issued notice u/s 133 (6) of the Act for obtaining financial statements of Bhilai unit from the other promoter of the assessee company. However, no details were received by the AO. We further notice that the AO has not mentioned any reason for not making any addition in respect of Bhilai unit. As pointed out by the Ld. counsel, addition of 5% of the turnover made from the AY 2004-05 to 2007-08 and 2010-11 to 2012-13, however in the assessment year under consideration, the AO has not made any addition whereas in the assessment year 2014-15 and 2015-16 the AO had made ad-hoc addition. AO has not given any reason in the assessment order or even not discussed about the financial statements of Bhilai unit which shows that the AO has failed to exercise due diligence to determine the income arising from the operations of assessee s company at its Bhilai unit. Since, the AO has passed the assessment order without conducting proper enquiry in respect of Bhilai Unit, the same is erroneous as well as prejudicial to the interest of the revenue. As has been laid down by the Hon ble Supreme Court in the case of Malabar Industries Company Ltd. vs. Commissioner of Income Tax 2000 (2) TMI 10 - SUPREME COURT , if due to an erroneous order of the AO revenue is losing tax lawfully payable by the assessee, the order passed by the AO is prejudicial to the interest of the revenue. Therefore, in our considered view, since the order passed by the AO is erroneous as well as prejudicial to the interest of the revenue, the Ld. Pr. CIT has rightly revised the assessment order passed by the AO. - Decided against assessee.

Summary

Issues:

1. Revision of assessment order under section 263 of the Income Tax Act for the assessment year 2013-14.
2. Proper enquiry conducted by the Assessing Officer (AO) in respect of the Bhilai unit.
3. Inclusion of financials of Bhilai unit in audited financial statements.
4. Erroneous and prejudicial nature of the assessment order passed by the AO.
5. Legal implications of the transaction and relevant case laws.
6. Justification of the revision of the assessment order by the Principal Commissioner of Income Tax (Pr. CIT).
7. Legal infirmity in the order passed by the Pr. CIT and dismissal of the appeal by the assessee.

1. Revision of Assessment Order under Section 263:
The appeal was filed against the order passed by the Ld. Pr. CIT for the assessment year 2013-14, where the AO determined the total income of the assessee at ?14,24,69,214 after making various additions. The Ld. Pr. CIT revised the assessment order under section 263 of the Act, citing that the financials of the Bhilai unit were not included in the audited financial statements, leading to an erroneous and prejudicial assessment order.

2. Proper Enquiry Conducted by the AO:
The Ld. Pr. CIT noticed that the AO did not conduct proper enquiries regarding the Bhilai unit of the assessee company, leading to the revision of the assessment order under section 263. The assessee contended that the AO had sent a notice under section 133(6) to the Bhilai unit for financial details and decided not to make any additions based on proper enquiry, which the Ld. Pr. CIT disagreed with.

3. Inclusion of Financials in Audited Statements:
The Ld. Pr. CIT held that the failure to include the profit arising from the Bhilai unit in the taxable income rendered the assessment order erroneous and prejudicial to the revenue's interest. The AO's omission to incorporate findings and legal implications of the transaction supported the revision under section 263.

4. Erroneous and Prejudicial Nature of Assessment Order:
The Ld. Pr. CIT found that the AO's failure to conduct a meaningful enquiry and the absence of financial details from the Bhilai unit led to an erroneous assessment order. The AO's decision not to make any additions without proper diligence was considered prejudicial to the revenue's interest.

5. Legal Implications and Case Laws:
The assessee cited various case laws to support their argument that the AO's decision not to make additions after enquiry should not render the assessment order erroneous. However, the Ld. Pr. CIT and the Tribunal found that the AO's actions were not in line with legal precedents and statutory requirements.

6. Justification of Revision by Pr. CIT:
The Ld. Pr. CIT justified the revision under section 263 based on the failure of the AO to conduct proper enquiries and incorporate relevant financial details in the assessment order. The notice issued highlighted the importance of necessary enquiries and the impact on revenue's interest.

7. Legal Infirmity and Dismissal of Appeal:
The Tribunal upheld the findings of the Ld. Pr. CIT, dismissing the appeal filed by the assessee for the assessment year 2013-14. The decision was based on the AO's failure to conduct due diligence in determining the income from the Bhilai unit, rendering the assessment order both erroneous and prejudicial to the revenue.

The detailed analysis of the judgment highlights the key issues surrounding the revision of the assessment order under section 263 and the failure of the AO to conduct proper enquiries, ultimately leading to the dismissal of the appeal by the Tribunal.