2016 (4) TMI 557 - AT - Income Tax

Revision u/s 263 - Held that - For Brokerage expenses the case was selected for scrutiny to verify the admissible of the said expenses, but no enquiry appeared to have been made as to the purpose and basic of payment of brokerage, its connection with the business and whether the payment commensurate to the benefit derived by the Company. However, a complete list of the agents alongwith addresses was available on records, but no attempt apparently was made to verify even one of these persons. Therefore, in our considered opinion, Ld. CIT has rightly set aside the issue to the file of the AO for making enquiries and arrive at conclusion about admissibility of business expenses Difference in sales and purchases as per the purchase/sales register vis-a-vis the VAT returns and the purchases and sales disclosed in the profit and loss account is concerned, we find that VAT return and purchase and sales registers in order to reconcile the figure of sales and purchases as disclosed in the P&L A/c are yet to be reconciled. It was seen that the reconciliation statement shows addition of credit note to Purchases in order to reconcile the figure of total purchases. Similarly, sales have been reconciled by adding a figure under the nomenclature Sale High Seas (not part of VAT return) and no reason whatsoever for such addition has been given nor any evidence was produced. Reconciliation of bank balance as on 31.3.2010 as per the Bank Statement the book of account as there appeared to be a huge difference in respect of assesse s bank account in HDFC Bank and State Bank of Patiala is concerned, we find that in a Bank reconciliation statement various cheques issued by the assessee but not presented in bank as well as cheques received but not encashed by the assessee, these entries requires verification from the bank account of the assessee in various banks, however, AO has not made any attempt to verify/examine the same.CIT has rightly set aside the issue in dispute to the file of the AO to examine the same afresh Various loans amounting to ₹ 9 crores is concerned, we find that the same was also not enquired into and verified by the AO during the assessment proceedings. On this issue, the assessee has furnished copies of bank account of the lenders as well as their assessment details, but the same was not verified entry wise from the books of account as well as bank account of the assessee. CIT has rightly set aside the issue in dispute to the file of the AO to examine the same afresh. For purchases from M/s Star Wire India Ltd. is concerned, we find that the same has also not been examined from the angle of provision of section 40A(2)(b) of the I.T. Act, 1961. On this issue assessee has submitted that transaction with associate concern was made at the prevailing rates. However, it was noticed from the documents furnished by the assessee as against purchase @ of ₹ 33,000/- per MT from M/s Star Wire India Ltd., on 3.6.2009 in respect of goods described as round , another seller M/s Narayan & Company has sold the same to another person @Rs.32,330/- per MT on the same date. This reveals that purchases from related parties have been shown by the assessee at inflated price. Therefore, in our considered opinion, Ld. CIT has rightly set aside the issue in dispute to the file of the AO to examine the same afresh - Decided against assessee

Summary

Issues Involved:
1. Legitimacy of the order passed under Section 263 of the Income-tax Act, 1961.
2. Examination of brokerage expenses.
3. Reconciliation of sales and purchases discrepancies.
4. Reconciliation of bank balances.
5. Verification of loans amounting to ?9 crores.
6. Applicability of Section 40A(2)(b) regarding transactions with related parties.

Detailed Analysis:

1. Legitimacy of the order passed under Section 263 of the Income-tax Act, 1961:
The appeal by the Assessee challenges the order dated 18-03-2015 passed by the Commissioner of Income Tax (CIT) under Section 263, which set aside the original assessment order dated 31-12-2012. The CIT found the original assessment to be erroneous and prejudicial to the interests of the Revenue, thus necessitating a reassessment.

2. Examination of brokerage expenses:
The CIT observed that the Assessing Officer (AO) did not adequately verify the brokerage expenses amounting to ?50,85,988. The Assessee argued that brokerage is integral to its business operations. However, the Tribunal noted that the AO failed to examine the purpose and basis of these payments, and no verification of the agents was conducted. The Tribunal upheld the CIT’s decision to re-examine this issue.

3. Reconciliation of sales and purchases discrepancies:
The CIT found discrepancies between the purchase/sales registers and VAT returns compared to the profit and loss account. The Assessee provided a reconciliation statement, but the Tribunal noted that the AO did not verify the reasons for these variations. The Tribunal agreed with the CIT that this issue required fresh consideration.

4. Reconciliation of bank balances:
The CIT noted significant differences between the bank balances shown in the Balance Sheet and those reflected in bank statements. The Assessee provided a bank reconciliation statement, but the AO did not verify these entries. The Tribunal upheld the CIT’s directive for a fresh examination of this issue.

5. Verification of loans amounting to ?9 crores:
The CIT highlighted that the AO did not verify the loans raised from various parties, including Dyna Power and National Housing Development Finance Corporation. The Assessee provided bank statements and confirmations, but the AO did not verify these against the books of account. The Tribunal supported the CIT’s decision to re-examine these transactions for identity, creditworthiness, and genuineness.

6. Applicability of Section 40A(2)(b) regarding transactions with related parties:
The CIT questioned the reasonableness of purchases from M/s Star Wire (I) Ltd. and the payment of salary to Shri Surendra Kumar Gupta. The Assessee argued that transactions were at prevailing rates, but the Tribunal noted discrepancies in purchase prices. The Tribunal upheld the CIT’s decision to re-examine whether these transactions were excessive or unreasonable under Section 40A(2)(b).

Conclusion:
The Tribunal concluded that the AO’s assessment was erroneous and prejudicial to the interests of the Revenue due to a lack of proper inquiry and verification. The Tribunal upheld the CIT’s order under Section 263, directing a fresh examination of the issues raised. The appeal by the Assessee was dismissed.