2017 (2) TMI 501 - AT - Income Tax

Revision u/s 263 - addition claimed by the assessee for loss on account of machinery - Held that - No query in respect of sale of machinery was made by the Assessing Officer. In absence of any stamp of acknowledgement by the Department on the letter dated 15/11/2010 and 25/11/2010, it cannot be treated that same were filed before the Assessing Officer. Even if it is considered that the assessee filed reply dated 15/11/2010 and 25/11/2010 before the Assessing Officer, the Assessing Officer was required to carry out Inquiry in respect of the claim of loss on sale of machinery, however, no such enquiry was made by the Assessing Officer, and, therefore, the case of the assessee falls in the category of complete lack of Inquiry on the issue of loss from sale of machinery. In view of above, we are of considered opinion that the assessment order on the issue is erroneous insofar as prejudicial to the interest of the Revenue and the learned Commissioner of Income Tax is right in assuming jurisdiction under section 263 of the Act. Correctness of the claim towards financial charges, correctness of unsecured loan and sundry creditors and provisions of TDS and disallowance under section 40(a)(ia) of the Act in respect of the freight expenses - Held that - The submission of the assessee that no confirmation were filed in respect of the sundry creditors. Similarly, it is clear from the queries raised by the Assessing Officer that no details in respect of deduction of TDS on freight charges was examined by the Assessing Officer. Similarly, neither detail in respect of financial charges was also asked by the Assessing Officer nor any information was filed by the assessee. In view of the above, the learned Commissioner of Income Tax is correct in holding that further enquiry was necessary to examine the sundry creditors, financial charges, liability of TDS on freight charges. The Hon ble jurisdictional High Court in the case of Meerut Roller Flour Mills Ltd (2013 (6) TMI 11 - ALLAHABAD HIGH COURT) held the assessment order as erroneous and prejudicial to the interest of the Revenue when the Assessing Officer had not conducted a proper Inquiry to verify cash credits and trade creditors and the matter remanded to the Assessing Officer under section 263 of the Act. Thus Commissioner of Income Tax was justified in cancelling the assessment order by holding it as erroneous and prejudicial to the interest of the Revenue. The impugned order is accordingly upheld. - Decided against assessee

Summary

Issues Involved:
1. Validity of notice under Section 263.
2. Justification for the addition of ?49,46,196/- as loss on account of machinery.
3. Directions for further inquiries into financial charges, unsecured loans, sundry creditors, and TDS provisions.
4. Penalty proceedings initiated by the Commissioner of Income Tax (CIT).

Detailed Analysis:

1. Validity of Notice under Section 263:
The appellant contended that the notice issued under Section 263 by the CIT was vague, based on incorrect facts and law, and did not provide a reasonable opportunity to be heard, thus violating the principles of natural justice. However, this ground was not pressed by the appellant's representative during the proceedings and was therefore dismissed as infructuous.

2. Justification for Addition of ?49,46,196/- as Loss on Account of Machinery:
The appellant argued that the loss on the sale of machinery was accepted by the Assessing Officer (AO) after due consideration. The loss was debited in accordance with the Companies Act, 1956, and guidelines issued by the Institute of Chartered Accountants of India, supported by Section 50 of the Income-tax Act. The appellant provided details of the sale, including that the transactions were with unrelated parties and supported by sale bills and 'C' forms. Despite this, the CIT found that the AO did not inquire into the significant loss, which was higher than the entire turnover, and failed to verify whether the transaction was collusive or involved parties covered under Section 40A(2)(b). The Tribunal upheld the CIT's decision, noting that the AO's lack of inquiry rendered the assessment order erroneous and prejudicial to the interest of the Revenue.

3. Directions for Further Inquiries:
The CIT directed the AO to further inquire into several aspects:
- Financial Charges: The AO did not inquire into the correctness of financial charges, which had doubled during the year.
- Unsecured Loans and Sundry Creditors: The AO called for confirmations but did not receive or verify them properly.
- TDS Provisions on Freight Expenses: The AO failed to examine the liability of TDS on freight expenses of ?6.93 lakhs.

The Tribunal found that the AO's inquiries were insufficient and that further investigation was necessary. It was noted that mere submission of details by the appellant without proper verification by the AO was inadequate. The Tribunal referenced the jurisdictional High Court's judgment in Meerut Roller Flour Mills Ltd. and the Gujarat High Court's judgment in Mukur Corporation, which supported the CIT's authority to remand the matter for further inquiry if the initial assessment lacked sufficient investigation.

4. Penalty Proceedings Initiated by the CIT:
This ground was also not pressed by the appellant's representative and was dismissed as infructuous.

Conclusion:
The Tribunal upheld the CIT's order under Section 263, finding the assessment order erroneous and prejudicial to the interest of the Revenue due to the AO's lack of proper inquiry into significant issues. The appeal filed by the assessee was dismissed, and the CIT's directions for further inquiries were deemed justified. The decision was pronounced in the open court on 18th November 2016.