2022 (10) TMI 28 - AT - Income Tax

Revision u/s 263 by CIT - case of the assessee was selected for limited scrutiny under CASS to examine interest expenses, sundry creditors other expenses claimed in the Profit Loss Account - HELD THAT - All the three aspects of limited scrutiny were duly examined and verified by Ld. AO and certain addition was made after perusal of all the evidences. Therefore, it would not be correct to say that the assessment was framed without due verification or examination. No error could be found in the assessment order which would justify revision of the order. In such a case, Explanation-2 to Sec.263 would have no application. Observations of CIT that the assessee did not furnish adequate details of other expenses of Rs.32.04 Crores are not correct. The observation that there was fall in the Net Profit rate and therefore, the income should have been estimated @8%, is also without any basis. As seen that the assessee s books were subjected to Tax Audit and no defects could be pointed out by Ld. AO in the books of accounts maintained by the assessee. Hence, there is no justification for rejection of books of accounts. Assessee s income could not be estimated u/s 44AD since the turnover is beyond threshold limit of Sec. 44AD. The assessee s books were audited and there could be various reasons for fall in the net profit rate. However, even otherwise, this aspect was beyond the scope of limited scrutiny. Last allegation of CIT that the payment to collectorate was not genuine, we find that this payment is being made by the assessee since past several years which has been allowed by higher judicial authorities in earlier years. Nevertheless, the assessee had filed sufficient evidences and explanation during the course of assessment proceedings in support of claim of this payment. The same was duly considered and accepted by Ld. AO with due application of mind. The acceptance of the claim could not be termed as erroneous. It is not a case wherein no inquiries were made by Ld. AO. Rather the case was selected for limited scrutiny to examine and verify three aspects which were duly examined and verified by Ld. AO. Secondly, this explanation is subjected to satisfaction of primary conditions of Sec.263 i.e., the order should be erroneous as well as prejudicial to the interest of the revenue. Upon perusal of assessment order, we do not find any error in the same and unable to accept this plea of Ld. CIT-DR.- Decided in favour of assessee.

Summary

Issues:
Challenge to revisional jurisdiction under section 263 by Principal Commissioner of Income Tax.

Detailed Analysis:

Assessment Proceedings:
The assessee contested the revisional jurisdiction exercised by the Principal Commissioner of Income Tax (Pr. CIT) under section 263 against the assessment order framed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act. The grounds raised by the assessee primarily focused on the adequacy of the assessment conducted by the AO, limited scrutiny selection, examination of various expenses, and the estimation of income based on the books of accounts.

Revisional Proceedings:
The Pr. CIT found the original assessment order to be erroneous and prejudicial to the revenue's interest, particularly highlighting inadequate details of expenses, a significant reduction in net profit rate, and lack of evidence for certain expenses. The assessee defended the assessment order by providing explanations for the expenses and justifying the payment made to the collectorate. However, the Pr. CIT concluded that there were duplications in expenses claimed and insufficient evidence for certain expenditures, leading to the setting aside of the assessment order for a re-evaluation by the AO.

Findings and Adjudication:
Upon careful consideration, the ITAT Chennai observed that the limited scrutiny aspects were duly examined by the AO, and additions were made after thorough verification of evidences. The ITAT noted that the assessment was not conducted without due verification, and there was no justification for the revision under section 263. The ITAT further analyzed the issues raised by the Pr. CIT, such as inadequate details of expenses, net profit rate reduction, and genuineness of payments to the collectorate. The ITAT concluded that the assessment was conducted appropriately, and the reasons cited by the Pr. CIT did not warrant revision under section 263. Consequently, the ITAT allowed the appeal of the assessee and quashed the revisional order.

In summary, the ITAT Chennai ruled in favor of the assessee, holding that the original assessment was conducted appropriately, and there were no grounds for revision under section 263. The ITAT emphasized the importance of proper verification and examination of aspects during assessment proceedings, ultimately allowing the appeal and setting aside the revisional order.