2018 (1) TMI 1286 - AT - Income Tax

Validity of order u/s 263 - addition towards undisclosed sales - Held that - We find that assessee has supplied detailed information to the assessing authority relating to issue of stock difference given to bank vis- -vis books of account. After considering this detailed reply of the assessee dated 26/11/2009 the AO has framed the assessment order on 16/12/2009 and completed the assessment proceedings after making addition towards undisclosed sales. Therefore, are satisfied to the extent that against the specific query raised by the Assessing Officer relating to stock statement given to bank and after going through this reply, assessment has been completed taking one of the possible views thereby accepting that assessee had a bonafide reason for such difference of value of stock within the range of 10%. It has been consistently held in various judgments that it is not mandatory for the Assessing Authority to mention each and every information recorded or details received during the course of assessment proceedings in the body of assessment order. This even applies in the instant appeal also where even though details were specifically filed replying to the Assessing Officer s query, it did not find any mention in the body of the order because of the satisfaction of the Assessing Authority on the issue. The assessment order passed u/s 143(3) of the Act dated 16/12/2009 is neither erroneous nor prejudicial to the interest of Revenue and therefore, CIT erred in passing order u/s 263 - Decided in favour of assessee.

Summary

Issues Involved:
Validity of order u/s 263 challenging proper opportunity of being heard; Discrepancy in stock valuation; Jurisdiction of CIT u/s 263 based on under valuation of closing stock.

Analysis:

Issue 1: Validity of order u/s 263 and opportunity of being heard
The appeal challenged the validity of the order u/s 263 of the Act dated 28/03/2012 framed by CIT-1, Jabalpur. The assessee contended that proper opportunity of being heard was not provided. The Tribunal examined the facts and submissions made by both parties. The CIT had directed the Assessing Officer to pass a fresh assessment order due to discrepancies in stock valuation. The Tribunal considered the arguments presented and concluded that the assessment order u/s 143(3) was neither erroneous nor prejudicial to the interest of Revenue, thus quashing the order u/s 263.

Issue 2: Discrepancy in stock valuation
The CIT observed a difference in the valuation of stock shown in the profit & loss account compared to the stock records provided to the bank for obtaining OD facilities. The difference was &8377; 7,97,545. The CIT deemed the assessment order u/s 143(3) as erroneous and prejudicial to the Revenue's interest, leading to the direction for a fresh assessment. The assessee argued that the stock valuation difference was due to the practice of filing stock statements subject to a 10% variation. The Tribunal analyzed the submissions and held that the assessment order was based on a possible view, not erroneous or prejudicial, leading to the allowance of the appeal.

Issue 3: Jurisdiction of CIT u/s 263 based on under valuation of closing stock
The key issue was whether the CIT had the correct jurisdiction to frame the order u/s 263 based on the under valuation of closing stock by the assessee. The Tribunal referred to the judgment of the Hon'ble Apex Court in Malabar Industrial Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC) regarding the conditions for exercising jurisdiction u/s 263. The Tribunal examined the sequence of events, including queries raised by the Assessing Officer and the detailed responses provided by the assessee. The Tribunal found that the assessment order was based on the information provided, and the CIT erred in assuming jurisdiction under section 263. The order u/s 263 was set aside, and the original assessment order was restored.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the assessment order u/s 143(3) was not erroneous or prejudicial to the interest of Revenue, thereby quashing the order u/s 263.