2018 (7) TMI 374 - AT - Income Tax

Revision u/s 263 - freight receipts undisclosed - addition on account of net profit - Held that - Not only the AO had made enquiries during the course of scrutiny assessment proceedings but also the assessee gave specific replies which were supported by documentary evidences. Yet, the CIT, in his wisdom, not only proceeded with his fallacious view but also computed the addition on account of net profit at ₹ 26,81,028/- to be added to the total income of the assessee from business. - No error in the assessment order which could make it erroneous and prejudicial to the interest of the Revenue which could have prompted the CIT to assume jurisdiction u/s 263 of the Act. Therefore, to this extent, the order of the CIT is bad in law and on facts of the case in hand. Insurance claim receivable - Held that - CIT is of correct opinion that insurance claim was not received in A.Y 2007-08 and since the assessee is following the mercantile system of account, he was liable to credit insurance claim receivable in profit and loss account on accrual basis Non verification of TDS details in respect of 10 persons to whom total freight paid to hire tanker owners totalling to ₹ 84.24 lakhs - Held that - A perusal of the assessment order vis a vis the enquiry made during the assessment proceedings show that the AO did not make any enquiry on these issues and the CIT has rightly assumed jurisdiction u/s 263 of the Act and has rightly set aside these issues to the file of the AO for proper verification. Therefore, to the extent of these issues, we do not find any infirmity in the order framed u/s 263 of the Act and accordingly to this extent the order of the CIT is confirmed. Thus on the first issue, the CIT has wrongly assumed jurisdiction u/s 263 of the Act and to that extent the order of the CIT is set aside and that of the AO is restored. On the other two issues, the order of the CIT is upheld. - Decided partly in favour of assessee.

Issues Involved:
1. Validity of the order under section 263 of the Income-tax Act, 1961.
2. Assumption of jurisdiction by the Commissioner of Income Tax (CIT) under section 263.
3. Verification of freight receipts and handling charges.
4. Insurance claim receivable.
5. Non-verification of TDS details for freight paid to hire tanker owners.

Detailed Analysis:

1. Validity of the Order under Section 263:
The assessee challenged the validity of the CIT's order framed under section 263 of the Income-tax Act, 1961, pertaining to the assessment year (A.Y.) 2008-09. The grievance was that the CIT wrongly assumed jurisdiction under section 263 and that such assumption was arbitrary, unjustified, and illegal.

2. Assumption of Jurisdiction by the CIT under Section 263:
The CIT assumed jurisdiction under section 263, alleging that the assessment order passed by the Assistant Commissioner of Income Tax (ACIT) was erroneous and prejudicial to the interest of the Revenue since the Assessing Officer (AO) did not verify certain points properly. The CIT raised three main issues:
- Freight receipts and handling charges.
- Insurance claim receivable.
- Non-verification of TDS details for freight paid to hire tanker owners.

3. Verification of Freight Receipts and Handling Charges:
The CIT contended that the AO failed to verify the freight receipts and handling charges correctly. The assessee had shown freight receipts from its own trucks and handling charges in its profit and loss account. The CIT believed that the AO did not match the freight receipts shown in the profit and loss account with those in Form No. 26AS. However, it was found that the AO had indeed made efforts to verify these details during the assessment proceedings and had even issued a notice under section 154 to rectify any discrepancies. The Tribunal referred to judicial precedents, including the case of Gabriel India Ltd 203 ITR 108, which established that an order cannot be termed erroneous unless it deviates from the law. It was concluded that the AO had made sufficient enquiries, and the CIT's assumption of jurisdiction under section 263 on this issue was not justified.

4. Insurance Claim Receivable:
The CIT pointed out that the insurance claim receivable of ?4,52,360/- was not credited in the profit and loss account on an accrual basis, despite the assessee following the mercantile system of accounting. The Tribunal agreed with the CIT on this issue, noting that the AO did not make any enquiry regarding the insurance claim during the assessment proceedings. Therefore, the CIT rightly assumed jurisdiction under section 263 for this issue and directed the AO for proper verification.

5. Non-verification of TDS Details for Freight Paid to Hire Tanker Owners:
The CIT also highlighted that the AO did not verify the TDS details for freight paid to ten hire tanker owners, totaling ?84.24 lakhs. The Tribunal observed that the AO had not made any enquiry on this issue during the assessment proceedings. Consequently, the CIT's assumption of jurisdiction under section 263 was upheld for this issue as well, and the matter was rightly set aside to the AO for proper verification.

Conclusion:
The Tribunal concluded that the CIT wrongly assumed jurisdiction under section 263 regarding the verification of freight receipts and handling charges, and to that extent, the order of the CIT was set aside. However, the Tribunal upheld the CIT's order concerning the insurance claim receivable and the non-verification of TDS details for freight paid to hire tanker owners. Thus, the appeal of the assessee was partly allowed.

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