2017 (11) TMI 1414 - AT - Income Tax

Revision u/s 263 - different categories of jewellery manufactured and sold undisclosed - Held that - Not only in the tax audit report but also in the course of assessment proceedings, the assessee had produced monthwise and carat wise details of different categories of jewellery manufactured and sold by it. It is also a fact on record that the Assessing Officer has not only enquired into the issue but has also examined the details furnished by the assessee before completing the assessment. Therefore, observations of the learned PCIT that the Assessing Officer has not made proper enquiry and not called for necessary details is wholly unsubstantiated and baseless. Further, the learned PCIT has not stated in clear terms what prejudice was caused to the Revenue as a result of alleged inaction of the Assessing Officer in making proper enquiry. Therefore, without any specific conclusion / finding by the learned PCIT with regard to prejudice caused to the Revenue, the conditions of section 263 are not fulfilled . For the genuineness of advance received of ₹ 55 lakh from Prabodh B. Thakkar is concerned, it is noticed, the Assessing Officer in the notice issued under section 142(1) of the Act on 15th January 2014, has called upon the assessee to furnish the name and address and other details of the parties from whom advances were received along with the confirmations. In response to the notices issued by the Assessing Officer, the assessee vide letter dated 10th December 2014, has furnished the details of advances received from customers. A perusal of the party wise details of unsecured loans / advances, received a copy of which is at Page 96 of the paper book reveals that the assessee has shown an aggregate amount of ₹ 1,30,49,675 towards advances to have been received from 80 customers. The revisional authority has not questioned the advances received from other 79 customers amounting to ₹ 75,49,675. He has picked up the advances received of ₹ 55 lakh from a single customer. Notably, as per the materials on record, it is evident that the Assessing Officer has not only made enquiry relating to the advances received from different parties but after analyzing the details furnished by the assessee has completed the assessment. Assessing Officer having made enquiry and found the assessee s claim to be correct, the learned PCIT cannot question the decision of the Assessing Officer, merely because in his opinion the Assessing Officer should have made some more enquiry without specifying what more enquiry should have been conducted by the Assessing Officer. Reasonableness of payment to Anmol Jewellery qua section 40A(2)(b)in the course of assessment proceedings, the Assessing Officer has enquired into the issue of payment made to persons specified under section 40A(2)(b) and after applying his mind to materials brought on record has completed the assessment. Learned PCIT has held the assessment order to be erroneous and prejudicial to the interests of Revenue, since, according to him the Assessing Officer has not examined the reasonableness of such payment looking at the fair market value of the goods and services received from the concerned party. A perusal of the show cause notice under section 263 as well as the impugned order passed under section 263 does not reveal any conclusive observation / finding of the learned PCIT that the payment made by the assessee to Anmol Jewellery is not in conformity with the fair market value of the goods purchased. Nothing has been brought on record by the learned PCIT to even remotely suggest that the payment made by the assessee to Anmol Jewellery was either excessive or more than fair market value of the goods purchased. Thus, it indicates that the learned PCIT himself was not sure whether the payments made to Anmol Jewellery were not commensurate with the fair market value. That being the case, by merely observing that the Assessing Officer should have made some more enquiry to ascertain the reasonableness of payment he could not have held the assessment order to be erroneous and prejudicial to the interests of Revenue. - Assessee appeal allowed.

Issues Involved:
1. Non-furnishing of carat-wise details of gold and diamond jewelry.
2. Genuineness of the advance received from Shri Prabodh B. Thakkar.
3. Reasonableness of payment to Anmol Jewellery under section 40A(2)(b) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Non-furnishing of Carat-wise Details of Gold and Diamond Jewelry:
The Principal Commissioner of Income-tax (PCIT) initiated proceedings under section 263 of the Income-tax Act, 1961, on the grounds that the Assessing Officer (AO) did not call for carat-wise details of gold and diamond jewelry manufactured and sold. However, the assessee provided these details in the tax audit report and during the assessment proceedings. The AO had issued a notice under section 142(1) calling for month-wise details of opening and closing inventory, which the assessee furnished. The tribunal found the PCIT's observation vague and contrary to the record, noting that the AO had made a detailed inquiry and examined the information provided by the assessee. Consequently, the tribunal held that the PCIT's action was unsubstantiated and baseless, and the conditions of section 263 were not fulfilled, thus invalidating the PCIT's exercise of power on this issue.

2. Genuineness of Advance Received from Shri Prabodh B. Thakkar:
The PCIT questioned the genuineness of an advance of ?55 lakh received from Shri Prabodh B. Thakkar, asserting that the AO accepted the claim without proper inquiry. The tribunal noted that the AO had issued a notice under section 142(1) calling for details and confirmations of advances received, and the assessee had furnished the necessary details, including party-wise information. The tribunal found that the AO had conducted a thorough inquiry and accepted the assessee's claim after due examination. The PCIT's action was deemed arbitrary and based on mere presumption, as he did not question advances from other customers under similar circumstances. The tribunal concluded that the AO's inquiry was sufficient, and the PCIT's exercise of power under section 263 on this issue was invalid.

3. Reasonableness of Payment to Anmol Jewellery under Section 40A(2)(b):
The PCIT held the assessment order erroneous and prejudicial to the interests of Revenue because the AO did not examine the reasonableness of a payment of ?12.71 crore to Anmol Jewellery. The tribunal observed that the AO had called for details of payments to persons specified under section 40A(2)(b) and the assessee had furnished the necessary information. The PCIT did not provide any conclusive evidence that the payments were excessive or more than the fair market value. Additionally, the tribunal noted that the purchases corresponding to the payments were made in the assessment year 2011-12, and the reasonableness of the payments should be examined in that year, not the impugned assessment year. Therefore, the tribunal found the PCIT's exercise of power under section 263 on this issue invalid.

Conclusion:
The tribunal set aside the PCIT's order passed under section 263 and restored the assessment order passed by the AO, allowing the assessee's appeal. The tribunal emphasized that the AO had conducted necessary inquiries and applied his mind to the materials on record, and the PCIT's intervention was unwarranted and based on insufficient grounds. The tribunal upheld the principles that the revisional authority cannot arbitrarily question the sufficiency of the AO's inquiry and must provide specific evidence of error and prejudice to the Revenue.

← Previous Next →