2017 (12) TMI 1219 - AT - Income Tax

Revision u/s 263 - accrual of commission - Held that - From the agreement, it is evident that the assessee is entitled for commission as well as the overheads, but the same was not admitted in the return of income. The assessee is following mercantile system of accounting and the assessee required to admit the income on accrual basis, which the AO did not verify at the time making the assessment. The assessee did not place any evidence to establish that the commission has not accrued or there was change in terms of the agreement. Therefore, we hold that the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue and accordingly we uphold the order of the CIT on this issue and dismiss the appeal of the assessee. Non deduction of tax at source on freight charges - Held that - As on the date of taking up the case for revision u/s 263, there is a difference of opinion prevailing with regard to the legal position on disallowance u/s 40(a)(ia) for non deduction of tax at source. If, two views are possible on an issue and the ITO has taken one view, the said order cannot be treated as prejudicial and erroneous to the interest of the revenue as held by Hon ble Supreme Court in the case of CIT Vs. Max India Ltd. 2007 (11) TMI 12 - Supreme Court of India . In the instant case, there is no dispute that the freight payment already made and two views are possible for disallowance u/s 40(a)(ia) and the AO has taken one of the possible views. Hence, there is no case for taking up the case for revision u/s 263. Accordingly, we set aside the order of the Ld.CIT on this issue and allow the appeal of the assessee on this ground. Addition on account of sundry creditors - Held that - After due verification of the books of accounts, the AO completed the assessment. Outstanding sundry creditors is not the income and it is a liability to be paid by the assessee. Merely for not submitting the confirmations, there is no case for under assessment which is prejudicial to the interest of the revenue and cannot be held against the assessee. Since the assessee has produced the books of accounts and after due verification of the books of accounts, assessment was completed, without referring any defects with regard to sundry creditors, the CIT cannot hold that the assessment as erroneous and prejudicial to the interest of revenue. Accordingly, we set aside the order of the Ld.CIT on this issue and allow the appeal of the assessee. Low profit margin - Held that - Once the books of accounts and the relevant vouchers are placed before the AO, after due verification of the books of accounts the assessment is completed u/s 143(3), the observation of the CIT with regard to low profit margin is baseless and there is no case for revision u/s 263. Therefore, the order passed by the CIT u/s 263 on this issue is unsustainable. Accordingly, we set aside the order of the Ld.CIT on this issue and allow the appeal of the assessee.

Summary

Issues Involved:
1. Revision u/s 263 by CIT on assessment order u/s 143(3)
2. Delay in filing appeal
3. Non-admission of commission and overheads in income tax returns
4. Non-deduction of tax at source on freight charges
5. Sundry creditors' addition
6. Low profit margin assessment

Detailed Analysis:

1. Revision u/s 263:
The CIT set aside the assessment order u/s 143(3) due to errors found in the assessment. The issues included non-admission of commission, overheads, sundry creditors, and low profit margin. The ITAT heard arguments from both parties and upheld the CIT's decision on non-admission of commission and overheads but set aside the decision on sundry creditors and low profit margin.

2. Delay in Filing Appeal:
The ITAT condoned a two-day delay in filing the appeal after hearing explanations from the assessee, allowing the appeal to proceed.

3. Non-Admission of Commission and Overheads:
The CIT observed discrepancies in the declaration of income related to commission and overheads from an agreement with Dodla Dairy Ltd. The ITAT found that the assessee did not admit the commission and overheads in the returns, leading to an erroneous assessment. The ITAT upheld the CIT's decision on this issue.

4. Non-Deduction of Tax at Source:
Regarding non-deduction of tax at source on freight charges, the ITAT noted that the AO had verified and disallowed a sum, following proper procedures. The ITAT referred to legal opinions and decided in favor of the assessee, setting aside the CIT's decision on this issue.

5. Sundry Creditors' Addition:
The CIT directed the AO to investigate outstanding sundry creditors, but the ITAT found no under-assessment or defects in the books of accounts. The ITAT set aside the CIT's decision, ruling in favor of the assessee.

6. Low Profit Margin Assessment:
The CIT questioned the low profit margin, but the ITAT found no basis for revision as the books were maintained, audited, and verified during assessment. The ITAT set aside the CIT's decision on this issue.

In conclusion, the ITAT partly allowed the assessee's appeal, overturning the CIT's decision on some issues while upholding it on others.