2016 (3) TMI 1006 - AT - Income Tax

Revision u/s 263 - AO could not make the verification for the amount towards the income of labour charges which was not disclosed by assessee in his return of income - Held that - AR had not brought anything on record that the disputed income was declared by the assessee in the subsequent year and the TDS was also deducted in the subsequent year. The case cited by the ld. AR above regarding the labour charges income is different from the facts of the instant case. The case law was on the issue of project completion method and percentage completion method for working out the profit of the assessee engaged in the construction of commercial and residential premises. Accordingly we are not inclined to interfere in the order of the ld. CIT. - Decided against assessee Commission expenses unverified - Held that - It is settled law that the commissioner of income tax can exercise his jurisdiction u/s 263 of the Act only in cases where no enquiry is made by the Assessing Officer. In the instant case, it is admitted by the Income Tax Department that the Assessing Officer had made some enquiries though according to them it was not a proper enquiry. In our view of the fat that some enquiry was made is sufficient to debar the authorities from exercising the powers u/s 263 of the Act. The Tribunal was accordingly justified in setting aside the order passed u/s 263 of the Act. We do not find any substantial question of law arising for consideration the appeal is accordingly dismissed. In the case one hand, the AO has made an addition by disallowing the commission expenses after making the necessary enquiry. The instant case is duly covered with the decision of Hon ble Allahabad High Court M/s Ashok Handloom Factory Pvt. Ltd. (2016 (3) TMI 650 - ALLAHABAD HIGH COURT) as discussed above, therefore relying on the same, we reverse the order of Ld. CIT for u/s 263 of the Act. - Decided in favour of assessee

Summary

Issues:
1. Discrepancy in financial statements submitted to the bank and income tax office.
2. Claimed commission expenses for project awarded by The West Bengal Government.
3. Validity of AO's order and Ld. CIT's decision under section 263 of the Income Tax Act, 1961.

Issue 1: Discrepancy in Financial Statements:
The appeal concerned a partnership firm's discrepancy in financial statements submitted to the bank and the income tax office. The Ld. CIT observed that the firm declared debtors differently, leading to a show cause notice under section 263 of the Act. The firm claimed to follow cash system of accounting, justifying the discrepancy due to TDS deductions. However, the Ld. CIT disregarded this claim, citing a violation of section 145 of the Act. The tribunal found that the firm failed to provide evidence of declaring the income in subsequent years, leading to dismissal of the appeal on this ground.

Issue 2: Claimed Commission Expenses:
The firm claimed commission expenses related to a project by The West Bengal Government. The Ld. CIT found discrepancies in the agreements and billings, questioning the expenses' genuineness and purpose. The AO's lack of verification on the expenses' business relevance led to the Ld. CIT deeming the AO's order erroneous. The tribunal referenced a case law emphasizing the need for no prior enquiry by the AO for Ld. CIT's jurisdiction under section 263. As the AO had made some enquiries, albeit insufficient, the tribunal reversed the Ld. CIT's order under section 263, citing the AO's proper enquiry and dismissal of the appeal on this ground.

Issue 3: Validity of AO's Order and Ld. CIT's Decision:
The tribunal addressed the validity of the AO's order and the Ld. CIT's decision under section 263 of the Act. The AO's failure in verifying labor charges income and the commission expenses' business purpose raised concerns. The tribunal noted the AO's proper enquiry into the commission expenses, aligning with a relevant High Court decision. As some enquiry was made by the AO, the tribunal reversed the Ld. CIT's order under section 263. Consequently, the tribunal partly allowed the firm's appeal, emphasizing the importance of proper enquiries by the AO to prevent Ld. CIT's intervention under section 263.

This detailed analysis of the judgment highlights the key issues, arguments, and decisions made by the tribunal concerning the discrepancies in financial statements, claimed commission expenses, and the validity of the AO's order and Ld. CIT's decision under section 263 of the Income Tax Act, 1961.