2016 (7) TMI 614 - AT - Income Tax

Revision u/s 263 - Held that - CIT did not make any specific observation as to how the order of the AO is erroneous and prejudicial to the interest of Revenue as it is a condition precedent to invoke the jurisdiction under section 263 of the Act. Therefore, in the absence of such observation, the impugned order before us is not in accordance with law. - Decided in favour of assessee

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the Income Tax Act.
2. Treatment of unrecorded sales and purchases in the assessment.
3. Proper exercise of jurisdiction under section 263 by the CIT.

Analysis:
1. The appeal was filed by the Assessee against the order passed by the CIT, Kolkata-XIV-Kolkata, under section 263 of the Income Tax Act, relating to the assessment year 2008-09. The main contention was whether the CIT correctly invoked jurisdiction under section 263 of the Act. The Assessee argued that the AO had conducted a proper enquiry before making the assessment, and the CIT should not substitute its view unless the AO's order is shown to be erroneous and prejudicial to the revenue. The Tribunal referred to previous cases and held that the AO had considered all relevant factors before making the assessment, and the CIT's intervention was not justified. The order under section 263 was quashed, and the appeal by the Assessee was allowed.

2. The dispute also revolved around the treatment of unrecorded sales and purchases in the assessment. The AO had added Gross Profit on unrecorded sales to the Assessee's total income. However, the CIT contended that the entire unrecorded sales or peak purchases should have been added as income. The Assessee argued that only Gross Profit on unrecorded sales should be treated as income, relying on legal precedents. The Tribunal found that the AO had conducted a proper enquiry and made a reasonable assessment based on available evidence. The CIT's assertion that further inquiries should have been made was not considered valid, and the addition made by the AO was deemed appropriate. Therefore, the Tribunal ruled in favor of the Assessee on this issue as well.

3. The Tribunal further analyzed the exercise of jurisdiction under section 263 by the CIT. It was observed that there was a distinction between "lack of enquiry" and "inadequate enquiry," and the CIT's intervention was warranted only in cases of the former. The Tribunal found that the AO had made necessary inquiries and considered all relevant aspects before making the assessment. The CIT's contention that the AO should have delved deeper into the issue of unrecorded purchases was not deemed necessary, as the AO's decision was based on a possible view supported by legal precedents. Therefore, the Tribunal concluded that the CIT did not properly exercise jurisdiction under section 263, and the order was quashed in favor of the Assessee.

In conclusion, the Tribunal ruled in favor of the Assessee on all issues, quashing the order passed by the CIT under section 263 of the Income Tax Act and allowing the appeal.