2016 (10) TMI 925 - AT - Income Tax

Revision u/s 263 - an order prejudicial and erroneous to the revenue - Held that - It is a general presumption of law that the A.O. has considered all the details before completion of assessment and the CIT cannot presume that the enquiries conducted by the A.O. is insufficient and also the A.O. has not applied his mind, unless CIT categorically proves that the assessment order passed by the A.O. is erroneous. Though, the A.O. made further disallowance in the consequential proceedings towards cash expenditure under the head contract work expenses which earns more revenue to the department which is only disallowed on estimation basis for want of further bills and vouchers. To this extent, the order passed by the A.O. may be prejudicial to the interest of the revenue, but it is not erroneous, because the A.O. has examined the above issues at the time of completion of assessment u/s 143(3) of the Act, which is evident from the assessment order, wherein the A.O. has specifically discussed about the work contract expenditure. Under the provisions of section 263 of the Act, the CIT can assume jurisdiction once the assessment order passed by the A.O. is erroneous and also it is prejudicial to the interest of the revenue. In the present case on hand, though the order passed by the A.O. is prejudicial to the interest of the revenue but it is not erroneous, therefore, the CIT cannot assume jurisdiction to revise the assessment order passed by the A.O. u/s 143(3) of the Act. The assessment order passed by the A.O. u/s 143(3) of the Act dated 9.1.2013 is not erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, we quash the order passed by the CIT u/s 263 of the Act and restore the order passed by the A.O. u/s 143(3) of the Act. - Decided in favour of assessee

Issues Involved:
1. Validity of the assessment order under section 143(3) of the Income Tax Act, 1961.
2. Examination of specific issues by the Assessing Officer (A.O.) including contract work expenses, depreciation on mobile phones, secured and unsecured loans, sub-contract works, and advances to M/s. M.R. Constructions.
3. Jurisdiction of the Commissioner of Income Tax (CIT) under section 263 of the Act.
4. Adequacy of the enquiry conducted by the A.O. during the assessment.
5. Prejudicial impact on the interest of revenue due to the assessment order.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3):
The assessee, engaged in civil contracts, filed a return declaring an income of ?17,02,790/-. The return was processed and selected for scrutiny. The A.O. issued notices under sections 143(2) and 142(1), and after examination, determined a total income of ?21,02,790/- by making an adhoc disallowance of ?4 lakhs for lack of proper bills and vouchers.

2. Examination of Specific Issues by the A.O.:
The CIT issued a show cause notice proposing to revise the assessment order, citing omissions and commissions that rendered the order erroneous and prejudicial to the revenue. The CIT observed that the A.O. did not verify issues such as contract work expenses, depreciation on mobile phones, details of loans, sub-contract works, and advances to M/s. M.R. Constructions. The assessee contended that all these issues were examined by the A.O., who made an adhoc disallowance after verifying the books of accounts and relevant details.

3. Jurisdiction of the CIT under Section 263:
The CIT, after considering the explanations, held that the A.O. failed to examine the issues properly, causing prejudice to the revenue. The CIT set aside the assessment order and directed the A.O. to re-do the assessment. The assessee argued that the CIT invoked jurisdiction without pointing out specific defects and that the A.O. had already examined the issues during the assessment.

4. Adequacy of the Enquiry Conducted by the A.O.:
The CIT assumed jurisdiction for lack of proper enquiry by the A.O. The assessee provided a paper book with details filed before the A.O., showing that all issues raised by the CIT were addressed. The A.O. made an adhoc disallowance for want of proper bills and vouchers, indicating that the issues were examined. In the consequential order, the A.O. accepted most explanations provided by the assessee, except for a further disallowance of ?6,27,780/- for cash payments under section 40A(3).

5. Prejudicial Impact on the Interest of Revenue:
The CIT can revise an assessment order if it is erroneous and prejudicial to the revenue. The tribunal noted that the A.O. conducted a detailed enquiry and examined all issues. The CIT's assumption of jurisdiction was deemed incorrect as the order was not erroneous, though it might have been prejudicial to the revenue. The tribunal concluded that the assessment order was not erroneous and quashed the CIT's revision order, restoring the original assessment order.

Conclusion:
The appeal filed by the assessee was allowed, and the order passed by the CIT under section 263 was quashed, restoring the assessment order passed by the A.O. under section 143(3). The tribunal emphasized that both conditions—erroneous and prejudicial to the revenue—must co-exist for the CIT to assume jurisdiction under section 263.

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