2016 (12) TMI 291 - AT - Income Tax

Revision u/s 263 - estimation of net profit - Held that - A.O. has not examined the issues pointed out by the CIT in the revision proceedings before rejection of books of accounts and estimation of net profit. We further noticed that the A.O. has simply rejected books of accounts and estimated net profit of 5% without any comparable cases of similar nature to justify the net profit applied by the A.O. The CIT, on the other hand has brought out number of issues wherein he has recorded his categorical finding to the effect that the A.O. has not verified any of the issues which is the reason for revision of assessment order. The CIT questioned number of issues right from additions to capital account to estimation of net profit. The assessee neither appeared before the CIT nor furnished any details to justify his case. Since, the assessee failed to appear before the CIT, we are of the opinion that the CIT cannot presume things which are in the mind of the assessee, as such opined that the CIT has rightly assumed his jurisdiction to revise assessment order on the information available on record. Accordingly, we uphold the CIT order u/s 263 of the Act and dismiss the appeal filed by the assessee. Appeal against the assessment completed as per the directions of the CIT u/s 263 - Held that - On perusal of the assessment records, we find that the CIT has given an open direction to the A.O. u/s 263 of the Act to re-do the assessment de-novo after duly examining the issues pointed out by the CIT. Therefore, in our considered view, the directions given by the CIT is an open direction and it is open to the assessing officer to examine the issues on merits as per the provisions of the Act. The A.O. has passed fresh assessment order u/s 144 r.w.s. 263 of the Act and accordingly, assessment order passed u/s 143(3) or 144 of the Act, is an appealable order u/s 246A of the Act. Therefore, we are of the view that the CIT(A) was erred in not adjudicating the appeal filed by the assessee on merits. Hence, we set aside the order passed by the CIT(A) and restore the appeal to the file of CIT(A) for fresh adjudication of the issues on merits.

Issues Involved:
1. Validity of the assessment order passed under section 143(3) of the Income Tax Act, 1961.
2. Jurisdiction of the Commissioner of Income Tax (CIT) under section 263 of the Act.
3. Rejection of books of accounts and estimation of net profit.
4. Examination of specific issues such as increase in capital account, additions to fixed assets, applicability of TDS provisions, genuineness of trade creditors, and correctness of net profit.
5. Appeal against the CIT's order under section 263.
6. Adjudication by the CIT(A) on the assessment order passed under section 144 read with section 263.

Detailed Analysis:

1. Validity of the assessment order passed under section 143(3):
The assessee, engaged in civil work contracts, filed returns for AY 2007-08 and 2008-09. The Assessing Officer (A.O.) completed the assessment under section 143(3) by estimating income at 5% on gross contract receipts, determining total incomes of ?18,00,210/- and ?10,41,980/- for the respective years.

2. Jurisdiction of the CIT under section 263:
The CIT issued a show-cause notice proposing to revise the assessment order, citing that the A.O.'s order was erroneous and prejudicial to the interest of the revenue. The CIT observed that the A.O. did not verify several critical aspects, including the increase in capital account, additions to fixed assets, applicability of TDS provisions, genuineness of trade creditors, and correctness of net profit.

3. Rejection of books of accounts and estimation of net profit:
The A.O. rejected the books of accounts and estimated net profit at 5% on gross contract receipts. The CIT contended that the A.O. should have estimated the net profit at 8% and criticized the lack of examination of key issues before rejecting the books of accounts.

4. Examination of specific issues:
The CIT noted several discrepancies:
- The sudden increase in the capital account to ?38,66,917/- without adequate explanation.
- Fixed assets shown at ?76,75,704/- without supporting details, questioning the correctness of depreciation claims.
- Financial charges of ?5,11,133/- claimed without verifying TDS applicability under section 40(a)(ia).
- No confirmations obtained for sundry creditors listed in the balance sheet.

The CIT concluded that the A.O.'s failure to investigate these issues rendered the assessment order erroneous and prejudicial to the revenue's interest.

5. Appeal against the CIT's order under section 263:
The assessee argued that once the books of accounts are rejected, the A.O. need not examine other issues from the same books. However, the Tribunal found no merit in this argument, upholding the CIT's jurisdiction to revise the assessment due to the lack of proper enquiry by the A.O.

6. Adjudication by the CIT(A) on the assessment order passed under section 144 read with section 263:
Following the CIT's direction under section 263, the A.O. completed a fresh assessment under section 144, determining total incomes of ?87,20,758/- and ?39,52,420/- for AY 2007-08 and 2008-09, respectively. The CIT(A) dismissed the appeal, stating it could not adjudicate an order passed as per the CIT's directions. However, the Tribunal disagreed, noting that under section 246A, the CIT(A) could adjudicate appeals against orders passed under sections 143(3) or 144, even if directed by the CIT under section 263. The Tribunal set aside the CIT(A)'s order and remanded the case for fresh adjudication on merits.

Conclusion:
The Tribunal upheld the CIT's order under section 263, dismissing the assessee's appeal. It also allowed the appeals for statistical purposes, remanding the case to the CIT(A) for fresh adjudication on the merits of the assessment order passed under section 144 read with section 263.

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