2016 (4) TMI 340 - AT - Income Tax

Revision u/s 263 - case selected for scrutiny under Computer Aided Scrutiny Selection CASS method for verifying the sources of cash deposits - Held that - Expenditure claim towards IMFL is either from the sale proceeds of the IMFL or withdrawals from the bank account. It may be true that AO did not leave any notes about the examination of various items. But having completed assessment by recording the above noting, it can be safely presumed that AO has examined the deposits and withdrawals in the course of assessment proceedings. Even otherwise, AO disallowed a round-sum of ₹ 3 Lakhs, out of the expenditure claims which indicate that he has satisfied himself about the other claims made in the P&L A/c. As seen from the P&L A/c, apart from purchases of ₹ 2,05,05,123/-, the other charges are (freight ₹ 1,93,185/-), salaries ₹ 1,80,000/- and other expenses ₹ 1,78,008/-. The major item of expenditure is only rates and taxes of ₹ 38,20,875/-. Therefore, it cannot be stated that AO did not examine this major item. Be that as it may, in our opinion, furnishing of proof in the course of assessment on record may not be required in all cases, when AO takes up the scrutiny for examining specific issues since the case has been selected under CASS system. May be that AO is constrained to examine only the issue on which scrutiny was taken up. In view of this, it cannot be held that order of the AO is erroneous and prejudicial to the interest of Revenue. - Decided in favour of assessee As already stated item No. 4 & 5 ie. advance receipts of ₹ 60,000/- from Reliance tower and rent receivable from Bidar does not even pertain to assessee. This indicates that the notice issued by the CIT on the above issues is erroneous. Be that as it may, there is the first issue only on which the proceedings u/s 263 could have been validly upheld. Consequently, while upholding the proceedings u/s. 263, the directions given with reference to item Nos. 2 to 5 are hereby set aside. We modify the directions of the CIT only to the issue of making the addition of ₹ 24,200/- which should have been added by the AO in the original order - Decided partly in favour of assessee

Summary

Issues Involved:
Challenging jurisdiction under section 263 of the Income Tax Act, delay in filing appeal, validity of CIT's directions on various issues.

Analysis:

1. Challenging Jurisdiction under Section 263:
The appellant, a retail dealer of IMFL, challenged the jurisdiction invoked by the Commissioner of Income Tax-VI under section 263. The Assessing Officer (AO) had accepted the explanations provided by the appellant during scrutiny assessment regarding cash deposits and withdrawals. However, the AO disallowed a round-sum amount from the claimed expenditure. The Commissioner set aside the assessment, citing reasons such as incomplete verification of income and non-examination of certain financial aspects. The appellant failed to represent before the Commissioner, leading to the assessment being set aside for re-evaluation.

2. Delay in Filing Appeal:
The appellant filed an appeal with a delay of 281 days and submitted a condonation petition explaining the reasons for the delay. The appellant's representative clarified that due to improper service of notices and handling of matters by a relative, the appeal could not be filed in time. The delay was condoned after considering the reasons presented, and the appeal was admitted.

3. Validity of CIT's Directions:
The appellant's counsel argued against the CIT's directions on various issues raised in the show cause notice. It was contended that the AO had properly examined the deposits and withdrawals as required under the CASS method. The counsel emphasized that the AO had accepted the Books of Accounts, and hence, the CIT's direction to estimate income based on net purchases was unwarranted. Additionally, the counsel asserted that the AO had scrutinized the claimed license fee and other expenses, indicating proper examination of financial details. The issues related to advance rent and rent receivable were deemed irrelevant to the appellant, further challenging the CIT's directives.

4. Final Decision:
After evaluating the contentions from both sides, the Tribunal found that the AO had appropriately examined the financial aspects during the scrutiny assessment. The Tribunal concluded that the CIT's directions were not justified, except for the addition of a balance amount as admitted by the appellant. The directions related to estimating income and verifying specific expenses were deemed unnecessary. Consequently, the Tribunal modified the CIT's directions and upheld the proceedings under section 263 only for the specified addition. The appeal was partly allowed, with the order pronounced on 4th March 2016.