2018 (9) TMI 1323 - HC - Income Tax

Revision u/s 263 - as assessee itself having offered net profit at 27.48%, the Assessing Officer could not have computed profit at the rate of 15% of the total receipt - Held that - AO had after detailed inquiry, come to the conclusion that the assessee s projection of 12.5% of profit on the gross receipts was not substantiated. He therefore rejected the assessee s accounts and proceeded to estimate the net profit independently. That is how he came to the conclusion that 15% would be a reasonable profit and that is how he taxed the assessee. Assessee who was aggrieved by this order and carried the matter before the Commissioner (Appeals). Commissioner (Appeals) substantially confirmed the view of the Assessing Officer but placed the matter back before the Assessing Officer for recomputation of scheme or project-wise profit at the same rate of 15% of net profit ratio. In terms of the Clause (c) in Explanation 1 to subsection 1 of Section 263, the powers of the Commissioner would extend to such matters as had not been considered and decided in an appeal arising out of such order of assessment. In the present case, this issue having been subject matter of appeal and duly discussed by the Appellate Authority, was beyond the purview of the Commissioner s revision powers. Addition of statutory payments Assessing Officer had taken a holistic picture and arrived at the net profit percentage that the assessee could be reasonably expected to have earned out of the ventures. While doing, so he had also examined various aspects, including the payments such as for commission, for interest etc., and whether the assessee had deducted tax at source on such payments. Thus, the element of disallowing certain expenditure was in the mind of the Assessing Officer. It is true that with respect to statutory payments which may have bar of Section 43B of the Act on claiming without actual deposit with the Government revenue, there was no direct inquiry during the assessment or discussion in the order of assessment. Commissioner merely referred to some possibility on such expenditure not being allowable without collecting proof of payment in the Government revenue. He did not even prima facie come to the conclusion that in absence of such deposit the expenditure was not allowable. His order exercising revisional powers therefore on such grounds cannot be sustained. - Decided against revenue.

Summary

Issues:
1. Correct rate of net profit estimation by Assessing Officer.
2. Verification of statutory liabilities by Assessing Officer in absence of production of books of accounts.
3. Commissioner's revisional powers under Section 263 of the Income Tax Act, 1961.
4. Scope of Commissioner's revision powers post appellate authority's decision.
5. Commissioner's direction for further inquiries into statutory payments by Assessing Officer.

Issue 1: Correct rate of net profit estimation by Assessing Officer:
The Revenue challenged the judgment of the Income Tax Appellate Tribunal, arguing that the Assessing Officer had estimated the net profit at a substantially lower rate than what the assessee had offered. The Tribunal reversed the decision of the Commissioner of Income Tax, emphasizing that the Commissioner's power to revise an assessment order could only be exercised if it was found to be erroneous and prejudicial to the revenue's interest. The Tribunal held that the Commissioner could not set aside an assessment simply because of insufficient inquiry by the Assessing Officer. The Tribunal also noted that once the issue of the assessee's undisclosed income had been addressed by the Appellate Authority, the Commissioner could not intervene under Section 263 of the Income Tax Act.

Issue 2: Verification of statutory liabilities by Assessing Officer in absence of production of books of accounts:
The Commissioner of Income Tax, in exercising his revisional powers under Section 263 of the Income Tax Act, raised concerns about the Assessing Officer not verifying certain statutory liabilities due to the absence of production of books of accounts. The Commissioner highlighted the possible violation of Section 40(A)(3) of the Act and ordered further verification. However, the High Court found that the Assessing Officer had considered various aspects, including payments and deductions, during the assessment process. The Court ruled that the Commissioner's order for additional inquiries into statutory payments lacked a proper basis and could not be sustained.

Issue 3: Commissioner's revisional powers under Section 263 of the Income Tax Act, 1961:
The Commissioner of Income Tax invoked his revisional powers under Section 263, citing concerns over the correct rate of net profit estimation by the Assessing Officer and the verification of statutory liabilities. The Commissioner found the assessment order to be erroneous and prejudicial to the revenue's interest. However, the High Court determined that the Commissioner's revision powers were limited post the appellate authority's decision on the matter, as the issues raised had already been considered and decided during the appeal process.

Issue 4: Scope of Commissioner's revision powers post appellate authority's decision:
The High Court clarified that the Commissioner's objection to the assessment order, regarding the rate of net profit estimation, was beyond the scope of revision proceedings. The Assessing Officer had conducted a detailed inquiry and independently estimated the net profit after rejecting the assessee's accounts. Since this issue had been addressed in the appeal before the Commissioner (Appeals), it was not within the Commissioner's revision powers to revisit the same matter.

Issue 5: Commissioner's direction for further inquiries into statutory payments by Assessing Officer:
The Commissioner directed the Assessing Officer to conduct further inquiries into statutory payments, specifically regarding TDS, VAT, and service tax. The High Court found that while the Assessing Officer had considered various aspects during the assessment, the Commissioner's order for additional inquiries lacked a proper basis. The Court emphasized that the Commissioner's revisional powers could not be exercised on such grounds without sufficient evidence or reasoning.

In conclusion, the High Court dismissed the tax appeal, emphasizing the limitations on the Commissioner's revision powers and the necessity for proper inquiries and evidence before revising an assessment order under the Income Tax Act.