2022 (10) TMI 839 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - HELD THAT - Assessee has disclosed the income earned from commodity trading in its audited profit and loss account and had offered it for taxation. This verifiable fact was placed before the Ld. AO in the assessment proceedings who treated the said income as unexplained cash credit under section 68 of the Act and disallowed the related expenses towards brokerage. Since this income was already disclosed in the audited profit and loss account of the assessee and formed part of the business loss reported in the return, AO did not make a separate addition while computing the assessed income of the assessee except for reducing the business loss by making the addition towards disallowance of brokerage expenses claimed in the audited profit and loss account. Assessee had reiterated these facts before the Ld. PCIT in the revisionary proceedings also. Before us also, Ld. Counsel demonstrated the factual position by corroborative documentary evidences placed on record in the paper book as referred in the discussion above. From the above factual matrix of the issue raised by the ld. PCIT, we find that he has not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s 263 of the Act.We observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, assessee had furnished the relevant details and explained the issues raised through the show cause notice by the Ld. PCIT, supporting its contentions by corroborative documentary evidences. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. We find that the issue in the present case is purely on facts which are verifiable from the records of the assessee. Examination and verification of the audited financial statements i.e. Balance Sheet and Profit Loss account of the assessee reveals the correct state of its affairs in respect of the issue raised in the impugned revisionary proceedings for which both, ld. PCIT and the ld. CIT, DR could not bring any material on record to controvert the verifiable factual position - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed by the Ld. Pr. CIT under section 263 of the Income-tax Act, 1961.
2. Justification for initiating proceedings under section 263.
3. Treatment of commodity profit of Rs. 83,76,790/- and its non-addition by the A.O. while computing the total taxable income.
4. Examination of whether the assessment order was erroneous and prejudicial to the interest of the revenue.

Issue-wise Detailed Analysis:

1. Validity of the order passed by the Ld. Pr. CIT under section 263 of the Income-tax Act, 1961:
The assessee challenged the order passed by the Ld. Pr. CIT under section 263, asserting that it was "bad in law and is liable to be quashed." The Tribunal examined whether the conditions for invoking section 263 were met. It was observed that the assessee had disclosed the income earned from commodity trading of Rs. 83,76,790/- in its audited profit and loss account and had offered it for taxation. The Ld. AO had treated this income as unexplained cash credit under section 68 of the Act but did not make a separate addition while computing the assessed income, except for reducing the business loss by disallowing brokerage expenses of Rs. 34,620/-. The Tribunal found that the Ld. Pr. CIT did not apply his mind properly and that the order was not erroneous or prejudicial to the interest of the revenue.

2. Justification for initiating proceedings under section 263:
The Ld. Pr. CIT initiated proceedings under section 263, observing that the AO had treated the amount of Rs. 83,76,790/- as income under section 68 but did not add it to the total taxable income, resulting in under-assessment. The assessee argued that this income was already disclosed in the profit and loss account and offered for taxation. The Tribunal noted that the Ld. AO had verified the details and concluded that the income was already included in the audited financial statements. Therefore, the initiation of proceedings under section 263 was not justified as the income had already been accounted for.

3. Treatment of commodity profit of Rs. 83,76,790/- and its non-addition by the A.O. while computing the total taxable income:
The Ld. AO had treated the commodity profit of Rs. 83,76,790/- as unexplained cash credit under section 68 but did not add it separately while computing the total taxable income, as it was already included in the profit and loss account. The Tribunal found that the Ld. AO had correctly assessed the income by verifying the details provided by the assessee, including the audited profit and loss account. The Ld. Pr. CIT's observation that the income was not added back was incorrect, as the income was already part of the business loss reported in the return.

4. Examination of whether the assessment order was erroneous and prejudicial to the interest of the revenue:
The Tribunal referred to the judgment in Malabar Industries Ltd. vs. CIT, which stated that for invoking section 263, the order must be erroneous and prejudicial to the interest of the revenue. The Tribunal found that the Ld. Pr. CIT did not demonstrate that the AO's order was erroneous or that it resulted in prejudice to the revenue. The income of Rs. 83,76,790/- was already disclosed and offered for taxation, and the AO had reduced the business loss by disallowing brokerage expenses. Thus, the conditions for invoking section 263 were not satisfied.

Conclusion:
The Tribunal quashed the impugned order under section 263, holding that the Ld. Pr. CIT did not apply his mind and that the order was not erroneous or prejudicial to the interest of the revenue. The appeal of the assessee was allowed.