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2021 (7) TMI 733 - AT - Income TaxRevision u/s 263 - under-reporting of sales turnover in respect of yarn and said under-reporting has been worked out on the basis of closing stock declared by the assessee and quantitative details of goods produced and sold in Form 3CD - HELD THAT - Principal CIT first arrived at average selling price of yarn on the basis of quantity of yarn declared in Form 3CD and value of closing stock in the profit loss account. Further, he has compared sales figure declared by the assessee to estimate sales worked out by himself on the basis of sale of quantity of yarn declared in Form 3CD. As the explanation of the assessee before the Principal CIT that quantity of sales of yarn declared in column no.35B(b) of tax audit report includes quantity of yarn transferred to clothing division. If we exclude quantity of yarn transferred to clothing division, then sales quantity of yarn declared in Form 3CD and value of sales declared in books of account does not have any difference. This fact has been explained before the Principal CIT by filing reconciliation of quantitative details of goods produced and sales declared in books of account. The Principal CIT, ignoring all evidences filed by the assessee has simply arrived at difference in sales purely by estimating sales figure without pointing out how sales declared in books of account is incorrect. Therefore, we are of the considered view that the Principal CIT has erred in revision of assessment order by making certain general observations based on suspicion and wrong working of sales and without specifying errors which are prejudicial to the interests of revenue, contrary to the settled principles of law that assessment order cannot be revised merely on suspicious and surmises grounds We are of the considered view that assessment order passed by the Assessing Officer is neither erroneous nor pre-judicial to the interests of revenue which can be subject matter of proceedings u/s.263 of the Income Tax Act, 1961. Hence, we quash revision order passed by the Pr.CIT and restore assessment order passed by the Assessing Officer u/s.143(3). - Decided in favour of assessee.
Issues Involved:
1. Whether the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, is against the law and facts of the case. 2. Whether the PCIT erred in considering the quantitative figures of products reported in the tax audit report and values in the Profit and Loss account. 3. Whether the PCIT was correct in accepting the closing stock rate for the yarn sold to arrive at the sale value. 4. Whether the PCIT considered market fluctuations in yarn and cloth prices. 5. Whether the PCIT considered the quantity of Yarn specified in Form 3CD, including Yarn supplied for conversion division. 6. Whether the PCIT erred in arriving at the sale quantity without considering the production capacity of the unit. 7. Whether the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue. Detailed Analysis: 1. Legality and Factual Basis of PCIT’s Order: The assessee argued that the PCIT's order was against the law and facts of the case. The assessment for the year 2015-16 was completed under section 143(3) of the Income Tax Act, 1961, with a determined total loss. The PCIT initiated revision proceedings under section 263, alleging under-reporting of sales turnover based on discrepancies between the Profit and Loss account and Form 3CD. The assessee contended that the Assessing Officer had thoroughly examined the sales figures and found them satisfactory, thus the order should not be revised. 2. Consideration of Quantitative Figures: The PCIT observed inconsistencies in the figures reported in the tax audit report and the Profit and Loss account. The PCIT noted that the assessee failed to provide month-wise sales details, raising suspicion about the accuracy of the sales figures. The assessee argued that the PCIT's calculations were based on suspicion without concrete evidence of discrepancies. 3. Acceptance of Closing Stock Rate: The PCIT accepted the closing stock rate for the yarn sold to determine the sale value, which the assessee contested. The assessee explained that the sales figures included internal transfers of yarn to the clothing division, which the PCIT did not adequately consider. 4. Market Fluctuations in Prices: The assessee argued that the PCIT did not consider market fluctuations in yarn and cloth prices, which affect the sales value. The PCIT's calculations were based on a static rate, ignoring the dynamic nature of market prices. 5. Quantity of Yarn in Form 3CD: The assessee contended that the quantity of yarn specified in Form 3CD included yarn supplied for conversion division. The PCIT failed to consider this aspect, leading to incorrect calculations of sales turnover. 6. Production Capacity Consideration: The PCIT arrived at the sale quantity without considering the production capacity of the unit. The assessee argued that the PCIT's calculations were flawed as they did not account for the actual production capabilities. 7. Erroneous and Prejudicial Assessment Order: The tribunal emphasized that for the PCIT to invoke section 263, the assessment order must be both erroneous and prejudicial to the interests of the revenue. The PCIT's findings were based on suspicions and estimations without concrete evidence. The tribunal cited the Supreme Court decision in M/s. Malabar Industries Co. Ltd. vs. CIT, which requires the PCIT to prove both conditions. Conclusion: The tribunal concluded that the PCIT's order was based on general observations and suspicions without specific evidence of errors prejudicial to the revenue. The PCIT's calculations were flawed as they did not consider internal transfers, market fluctuations, and production capacity. The tribunal quashed the PCIT's revision order and restored the original assessment order passed by the Assessing Officer under section 143(3). Result: The appeal filed by the assessee was allowed, and the order pronounced in the open court on 16th July 2021.
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