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2020 (3) TMI 1020 - AT - Income TaxRevision u/s 263 - referring the case back to the A.O. for fresh examination of estimating the NP at 1% on the turnover declared by the appellant - whether the actions of the AO can be termed as prejudicial to the interest of Revenue? - HELD THAT - From perusal of the records of A.Y. 2011-12, wherein the book of accounts of the assessee company was rejected and the profit was computed @1% of total sales engaged in the same line of business, observed that during the relevant year also the assessee has failed to produce copy of bills of purchase and sale of goods to examine the actual purchases and sales. AO further held that no labour payment was made for loading and unloading of goods and no transportation cost was claimed by assessee for inward and outward movement of goods. Finally, the AO arrived at the conclusion that in absence of bills evidencing the purchase and sale of goods, the entire trading of goods could not be examined, which under such circumstances were to be treated as paper transactions, implying that there was neither any sale nor purchase. AO had rightly assessed the business income at Nil since no income can arise out of non existent sales and purchases. Therefore, order passed by the AO should not be erroneous. Another stand of the PCIT was that that sufficient/proper enquiries were not conducted by the Ld. AO during the assessee s assessment u/s 143(3) for the relevant Assessment Year. We are of the view that the assessee cannot be held to be at fault and subjected to revision proceedings u/s 263(1) for inadequate enquiry' being conducted by the Ld. AO.In other words, fresh enquiry cannot be conducted on completed assessments on the premise that the enquiries and investigations conducted during assessment were not proper/incomplete/inadequate. AO has considered the documents and submissions made by assessee and AO has also considered the assessment order for A.Y. 2011-12 passed in assessee s case and taking into account all the facts and circumstances the AO has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the AO cannot be treated as erroneous and prejudicial to the interest of the revenue as held in Malabar Industries Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is null in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Alleged failure of the Assessing Officer (AO) to examine the entire trading of goods. 3. Disallowance of gross loss and estimation of Net Profit (NP). 4. Adequacy of inquiry by the AO. 5. Validity of the Principal Commissioner of Income Tax (PCIT) invoking Section 263. Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The primary issue raised by the assessee is whether the Principal CIT erred in assuming jurisdiction under Section 263 of the Income Tax Act. The Principal CIT invoked Section 263 on the grounds that the AO's order was erroneous and prejudicial to the interests of the revenue. The Tribunal examined whether the conditions for invoking Section 263 were met, referencing the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which requires the order to be both erroneous and prejudicial. 2. Alleged Failure of the AO to Examine the Entire Trading of Goods: The Principal CIT argued that the AO failed to examine the entire trading of goods due to the absence of bills and challans for purchases and sales. The AO had rejected the audited books of account, treated the transactions as paper transactions, and reduced the gross loss declared by the appellant to nil. The Tribunal noted that the AO had conducted detailed inquiries and investigations, including referencing the assessment order for the previous year (A.Y. 2011-12), where similar issues were identified. 3. Disallowance of Gross Loss and Estimation of NP: The Principal CIT directed the AO to estimate the NP at 1% of the turnover, differing from the AO's view of treating the entire transaction as paper transactions. The Tribunal observed that the AO had considered the facts and circumstances, including the absence of actual trading activities, and had rightly assessed the business income at nil. The Tribunal held that the AO's decision was one of the possible views permissible in law. 4. Adequacy of Inquiry by the AO: The Principal CIT contended that the AO did not conduct sufficient inquiries. However, the Tribunal emphasized that the AO had conducted detailed inquiries and had referred to the assessment order for A.Y. 2011-12. The Tribunal cited judicial precedents, including the Delhi High Court's decision in Sunbeam Auto Ltd., which held that an order cannot be termed erroneous merely because the inquiry was inadequate. The Tribunal concluded that the AO had exercised quasi-judicial power and arrived at a conclusion based on the inquiries conducted. 5. Validity of the Principal CIT Invoking Section 263: The Tribunal examined whether the Principal CIT's invocation of Section 263 was valid. The Tribunal noted that the AO had considered the documents and submissions made by the assessee and had adopted one of the permissible views in law. The Tribunal held that the AO's order was neither erroneous nor prejudicial to the interests of the revenue. Consequently, the Tribunal quashed the Principal CIT's assumption of jurisdiction under Section 263. Conclusion: The Tribunal concluded that the AO had conducted proper inquiries and had taken a plausible view in assessing the business income at nil. The Tribunal held that the Principal CIT's invocation of Section 263 was invalid as the AO's order was neither erroneous nor prejudicial to the interests of the revenue. The appeal of the assessee was allowed, and the Principal CIT's order was quashed. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the Court on 20.03.2020.
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