2017 (3) TMI 320 - AT - Income Tax

Validity of best judgment assessment - absence of the copy of the remand report being made available the assessee as non opportunity to file a replication to meet out the same - ingenuineness of other expenses - Held that - A perusal of the details of the Other expense aggregating to Rs. 3, 77, 44, 684/-(supra) reveals that the same comprised of expenses in the nature of Govt. dues of Rs. 1, 00, 33, 581/- paid by the assessee while for out of the remaining expenses of Rs. 2, 77, 11, 103/- expenses aggregating to Rs. 2, 35, 87, 815/- had been incurred by the assessee vide cheques and as such expenses only to the tune of Rs. 41, 23, 288/- were met out in cash. Thus from the aforesaid details as had been brought to our notice by the Ld. A.R we find that expenses of Rs. 41, 23, 288/- out of total expenses of Rs. 3, 77, 44, 684/- which therein works out to 10.92% are found to have been incurred by the assessee in cash. Thus in light of the aforesaid facts as have been placed on record by the Ld. A.R which though are subject to verification we are unable to persuade ourselves to subscribe to the finding of the A.O in the remand report that most of the expense were incurred in cash and as such the genuineness of the same could not be established. We are further of the considered view that in the absence of a copy of the remand report being made available to the assessee the latter had remained divested of any opportunity of bringing the aforesaid serious infirmities in the body of the remand report to the notice of the CIT(A). Thus the observations of the A.O in the body of the remand report do not inspire any confidence and the same when pitted against the facts projected before us by the assessee are apparently found to be incorrect. A.O is herein directed to verify the genuineness and veracity of the bifurcated details of the Other expense aggregating to Rs. 3, 77, 44, 684/- as had been furnished by assessee at Page 5 of APB furnished before us and in the backdrop of the fact that the details as regards the same were not open for verification before the A.O during the course of the original assessment proceedings shall therein proceed with and make necessary verifications as regards the allowability of the same as per the statutory provisions contemplated under the Income tax statute. - Decided in favour of assessee for statistical purposes. Disallowance of purchases - Held that - In light of the claim of the assessee that no copy of the remand report was made available during the course of the appellate proceedings coupled with the fact that though the confirmations of the remaining parties could not be collected during the course of proceedings before the lower authorities due to reasons beyond the control of the assessee but had now been collected and last but not the least the methodology adopted by the CIT(A) for working out the disallowance being based on misconceived facts and all the more adopting an irrational method thus does not inspire any confidence we therefore in all fairness and in totality of the aforesaid facts therein restore the issue to the file of the A.O for making necessary verifications.- Decided in favour of assessee for statistical purposes. Ex-parte order passed under Sec. 144 - Held that - We are unable to persuade ourselves to subscribe to the contention of the revenue that an appellate authority after justifying the validity of framing of a best judgment assessment in the backdrop of the facts attending thereto thereafter stands divested of its jurisdiction to modify the assessment on merits. We are of the considered view that the appellate courts on coming across a best judgment assessment which is assailed before it on finding that the income of the assessee has been unreasonably assessed at a high pitched amount which is either not found justifiable in the backdrop of the method adopted for framing of such an assessment or is found to be based on illogical reasonings therein duly stands vested with the jurisdiction to modify such an assessment and therein bring the same within the parameters of an assessment which can safely be held as a fair assessment of the income of the assessee. In the backdrop of the aforesaid scope and gamut of the powers of the CIT(A) while adjudicating an appeal involving a best judgment assessment under Sec. 144 the order passed by the CIT(A) in the case of the present assessee remaining within the arena of his jurisdiction, thus cannot be principally faulted with. We are unable to subscribe to the contention of the revenue that the additions/disallowances made by an A.O in an assessment framed under Sec. 144 cannot be dislodged by an appellate authority on merits. - Decided against revenue

Summary

Issues Involved:
1. Disallowance of Rs. 1,25,92,563/- out of purchases due to lack of verification.
2. Disallowance of Rs. 94,36,170/- being 25% of other expenses.
3. Validity of ex-parte assessment under Sec. 144 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 1,25,92,563/- out of purchases due to lack of verification:

The assessee challenged the CIT(A)'s decision to uphold the disallowance of Rs. 1,25,92,563/- made by the A.O. due to the inability to verify purchases. The CIT(A) had restricted the disallowance to 25% of the unverified purchases, amounting to Rs. 1,27,92,563/-. The Tribunal observed that the CIT(A) had erred in its arithmetic approach by concluding that the assessee had filed confirmations for only 26 out of 49 parties, leading to a disallowance based on misconceived facts. The Tribunal noted that the assessee had actually made purchases from 78 parties and had now collected the necessary confirmations. Consequently, the Tribunal remanded the issue back to the A.O. for fresh verification, emphasizing the need for a fair and logical assessment process.

2. Disallowance of Rs. 94,36,170/- being 25% of other expenses:

The CIT(A) upheld the A.O.'s disallowance of Rs. 94,36,170/- out of other expenses on the grounds that most expenses were incurred in cash and supported only by self-made vouchers. The Tribunal found that the CIT(A) had accepted the A.O.'s remand report without confronting the assessee with it, thereby depriving the assessee of an opportunity to rebut the findings. The Tribunal also noted discrepancies in the A.O.'s observations regarding cash expenses, as the assessee provided bifurcated details showing that only 10.92% of the expenses were incurred in cash. Therefore, the Tribunal remanded the issue back to the A.O. for fresh verification, instructing the A.O. to afford the assessee a reasonable opportunity to substantiate its claims.

3. Validity of ex-parte assessment under Sec. 144 of the Income Tax Act, 1961:

The revenue contended that the CIT(A) erred in deleting various additions based on additional evidence and remand reports despite confirming the ex-parte assessment under Sec. 144. The Tribunal acknowledged the A.O.'s jurisdiction to frame a best judgment assessment under Sec. 144 due to the assessee's non-compliance but emphasized that such assessments must be fair and judicious. The Tribunal rejected the revenue's argument that the CIT(A) lacked jurisdiction to modify the assessment on merits. It held that the CIT(A) acted within its jurisdiction by deleting unsustainable additions and ensuring a fair assessment. Consequently, the Tribunal upheld the CIT(A)'s order and dismissed the revenue's appeal.

Conclusion:

The Tribunal allowed the assessee's appeal for statistical purposes, remanding the issues of disallowance of purchases and other expenses back to the A.O. for fresh verification. It dismissed the revenue's appeal, affirming the CIT(A)'s jurisdiction to modify the assessment on merits. The Tribunal emphasized the importance of a fair and logical assessment process, even in the context of best judgment assessments under Sec. 144.