2016 (3) TMI 677 - AT - Income Tax

Revision u/s 263 - Held that - We observe that since the assessee has debited a number of other expenses as also wages all of which are also not duly vouched or supported by any material evidence and nothing has been brought on record so as to ascertain the correctness of the same, the actual profit earned by the assessee will further increase by substantial amount then ₹ 3 crores taken by conservative estimate of profits basis upon inflated purchases only. In the background of the aforesaid discussions, we are of the considered opinion that Ld. CIT has rightly made the addition of ₹ 2,95,58,101/- which does not need any interference on our part, hence, we uphold the same. As regards second part CIT has observed that there are fresh unsecured loans to the tune of ₹ 12069799/- and abnormal sundry creditors to the tune of ₹ 38020903/- which were also the reason for selection of the case for scrutiny on the one hand while as such the assessee is duty bound and heavy onus lies on him to explain the credit entries including the liabilities appearing in its books of account by establishing identity, genuineness and creditworthiness of the alleged parties. In our considered opinion, this conclusion of the Ld. CIT does not need any interference, hence, we uphold the same. As regards third part we note that Ld. CIT has noted that the entries in the fixed assets ₹ 4957110/- was to be looked into from different angles including actual investment, date of actual use, if any, admissibility of depreciation etc. and the AO has directed to enquire the same now. In our view the same also do not need any interference on our part, hence, we uphold the same. As regards last point we find that Ld. CIT has observed that the balance of ₹ 34,13,194/- certified by the bankers as on is not shown in the Balance sheet and are not reflected in the respective accounts of the assessee. The same are also liable to be added in the income to the income of assessee for which the AO may provide the assessee reasonable opportunity of being heard and reconcile the difference with supporting evidence, if any. In our considered opinion, this conclusion of the Ld. CIT also does not need any interference on our part, hence, we uphold the same. Thus we are of the view that the AO was found to be erroneous and prejudicial to the interest of revenue since at the time of the assessment the AO was duty bound to call for such details and examine them. We also find that in the case of M/s Malabar Industries, 2000 (2) TMI 10 - SUPREME Court has held that incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. We further note that in the same category fall order passed without applying the principles of natural justice or without application of mind. Accordingly, Ld. CIT has passed a well reasoned revisional order u/s. 263 which does not need any interference on our part, hence, we uphold the same and dismiss the Appeal of the Assessee. - Decided against assessee

Issues Involved:
1. Whether the assessment order dated 30.11.2010 was erroneous and prejudicial to the interest of the revenue.
2. Whether the Assessing Officer (AO) failed to make adequate inquiries before accepting the assessee's claims.
3. Whether the Commissioner of Income Tax (CIT) was justified in invoking Section 263 of the Income Tax Act.
4. Whether the addition of Rs. 2,95,58,101 made by the CIT was arbitrary, unjust, and illegal.
5. Whether the directions issued by the CIT regarding fresh unsecured loans, sundry creditors, and fixed assets were justified.

Detailed Analysis:

1. Erroneous and Prejudicial Assessment Order:
The CIT found that the assessment order dated 30.11.2010 was erroneous and prejudicial to the interest of the revenue. The CIT noted that the AO accepted the assessee's claims without proper examination or inquiry. The AO's order was found to be non-speaking and passed in a hurried manner, which did not address several discrepancies and issues raised in the scrutiny process.

2. Inadequate Inquiries by AO:
The AO issued a detailed questionnaire to the assessee but accepted the assessee's claims without verifying the documentary evidence or making any further inquiries. The CIT observed that the AO did not make any attempt to verify the claims related to unsecured loans, sundry creditors, and fixed assets. The AO also failed to address the discrepancies in the assessee's books of accounts and the low net profit rate.

3. Justification for Invoking Section 263:
The CIT invoked Section 263 of the Income Tax Act, which allows the revision of an assessment order if it is found to be erroneous and prejudicial to the interests of the revenue. The CIT cited several case laws to support the view that an order passed without proper inquiry or application of mind is erroneous. The CIT emphasized the need for the AO to investigate the facts stated in the return, especially when there are circumstances that provoke inquiry.

4. Addition of Rs. 2,95,58,101:
The CIT made an addition of Rs. 2,95,58,101 to the assessee's income on account of alleged suppressed income and inflated expenses. The CIT found that the assessee's books of accounts were unreliable and the purchases and expenses were highly inflated. The CIT rejected the assessee's books under Section 145(3) and concluded that the assessee had suppressed its income by inflating paper consumption and other expenses.

5. Directions Regarding Unsecured Loans, Sundry Creditors, and Fixed Assets:
The CIT issued directions to the AO to examine the fresh unsecured loans, sundry creditors, and fixed assets in detail. The CIT noted that the AO failed to verify the identity, genuineness, and creditworthiness of the loan creditors and the correctness of the entries related to fixed assets. The CIT directed the AO to provide the assessee with a reasonable opportunity to reconcile the differences with supporting evidence.

Conclusion:
The Tribunal upheld the CIT's order, concluding that the assessment order was indeed erroneous and prejudicial to the interest of the revenue. The Tribunal agreed that the AO failed to make necessary inquiries and accepted the assessee's claims without proper verification. The Tribunal dismissed the assessee's appeal and upheld the CIT's directions for a fresh assessment after proper examination of the issues.

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