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2018 (8) TMI 664 - AT - Income TaxRevision u/s 263 - Revenue Recognition - valuation of stock - an order erroneous in as much as it is prejudicial to the interests of the revenue - The assessee duly placed the clarification in the form of letter dated 14.7.2015 from a chartered accountant along with the reply to section 154 notice before the ld AO stating that there was a clerical typing error in the notes on accounts point no. 2.6. Revenue Recognition . Held that - There is no dispute that the TCS collected by the assessee from the buyer of liquor from the assessee, had been duly remitted to the account of the Central Government by the assessee. Hence we have no hesitation in holding that there is absolutely no error committed either by the assessee with regard to TCS, sales tax and excise duty or by the ld AO. Hence the order of the ld AO cannot be treated as erroneous warranting revisionary jurisdiction u/s 263 of the Act. Regarding valuation of stock - Held that - there is neither a debit towards excise duty in the profit and loss account ( in respect of goods lying in closing stock) for consequential inclusion of the same in the valuation of closing stock as per section 145A of the Act. Hence we hold that there is no violation of section 145A of the Act. All these details were duly available before the ld AO himself which has been duly appreciated by the ld AO while framing the assessment by not making any addition towards the same. The order of the ld AO is neither erroneous nor prejudicial to the interests of the revenue warranting revisionary jurisdiction u/s 263 of the Act. - Decided in favor of assessee.
Issues Involved:
1. Justification of invoking revisionary jurisdiction u/s 263 of the Income Tax Act by the CIT. 2. Alleged under-assessment of income due to Sales Tax and TCS deductions. 3. Clarification and rectification of clerical errors in financial statements. 4. Examination of the AO's assessment order for errors or prejudicial actions towards the revenue. Issue-wise Detailed Analysis: 1. Justification of Invoking Revisionary Jurisdiction u/s 263: The primary issue in this appeal is whether the CIT was justified in invoking the revisionary jurisdiction under section 263 of the Income Tax Act. The CIT treated the AO's order as erroneous and prejudicial to the interests of the revenue on the grounds of incorrect deductions related to Sales Tax and TCS. 2. Alleged Under-assessment of Income Due to Sales Tax and TCS Deductions: The CIT noted that the assessee derived income from operations and deducted Excise Duty, Sales Tax, TCS, and Service Tax to arrive at the net income from operations. The CIT argued that Sales Tax of ?94,99,332 and TCS of ?1,14,270 were wrongly deducted from sales, resulting in under-assessment of income. However, the assessee clarified that these amounts were included in the gross sales and were deducted to derive net sales, which was a clerical error in the notes to accounts. 3. Clarification and Rectification of Clerical Errors in Financial Statements: The assessee responded to the show cause notice, explaining that the notes to accounts contained a clerical error. The correct statement should have been that sales include Excise Duty, Sales Tax, TCS, and VAT. The assessee provided a clarification letter from a Chartered Accountant and detailed sales statements to support this claim. The AO had issued a notice under section 154 to rectify the mistake, and the assessee had duly responded, clarifying the clerical error. 4. Examination of the AO's Assessment Order for Errors or Prejudicial Actions Towards the Revenue: The Tribunal found that the AO had already addressed the issue of Sales Tax and TCS deductions and had made necessary inquiries. The AO had issued a notice under section 154 and received clarifications from the assessee, including a Chartered Accountant's letter. The Tribunal noted that the CIT misunderstood the TCS collected by the assessee from buyers as TCS deducted to the credit of the assessee. The Tribunal held that there was no error in the AO's assessment order regarding TCS, Sales Tax, and Excise Duty, and there was no violation of section 145A or section 43B of the Act. The AO had already made a disallowance of ?97,481 under section 43B, indicating that the AO had duly considered the relevant provisions. Conclusion: The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interests of the revenue, and thus, the invocation of revisionary jurisdiction under section 263 by the CIT was not justified. The Tribunal quashed the revision order passed by the CIT and allowed the appeal of the assessee. The appeal was allowed, and the order pronounced on 01.08.2018.
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