2022 (12) TMI 102 - AT - Income Tax

Revision u/s 263 - unaccounted turnover - additions towards additional capital employed/invested for maintaining the minimum additional stock - information received from Directorate General of GST Intelligence - addition on account of additional net profit by applying the net profit rate of 4.42% on the alleged undisclosed sales - HELD THAT - Firstly, we don t agree with the contention of the ld CIT DR that the whole of the assessment order has been set-aside to the file of the AO - assessment order has been set-aside for the limited purposes of examining the matter relating to additional capital employed/invested for maintaining the minimum additional stock to carry out unaccounted turnover, thus where the assessee has challenged the matter relating to estimation of net profit on the unaccounted turnover before the Coordinate Bench, the assessee is very much within its rights to rely on the findings of the Coordinate Bench. Also gone through the order of the Coordinate Bench 2022 (9) TMI 922 - ITAT CHANDIGARH in assessee s case and the findings contained therein as recorded a finding that very foundation for making the additions on account of unrecorded sales stands demolished and has no sound basis and the additions on account of additional net profit earned on alleged unrecorded sales were directed to be deleted. It is a settled position that for achieving certain turnover, the assessee has to deploy and invest certain funds/capital. Where a finding has already been recorded as in the instant case that there is no basis for determining unrecorded sales and the whole of the additions have been deleted, the question of capital employed for achieving such unrecorded sales/turnover doesn t arise for consideration. In view of the same, where there is no addition on account of unaccounted sales and the resultant additional net profit, then the question of alleged capital employed to carry out such alleged unaccounted sales and turnover as per the order of the Ld. Pr. CIT doesn t have any legal basis and the same deserve to be set-aside. In the result, the order of the ld PCIT passed u/s 263 of the Act is hereby set-aside. - Decide against revenue.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Consideration of information from Directorate General of GST Intelligence.
3. Completion of assessment after due consideration.
4. Merging of the assessment order with the order of the CIT(A).
5. Prejudice to the interest of the revenue.
6. Basis of third-party evidence and assumptions.
7. Jurisdiction under Section 263 based on audit objections.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The appellant challenged the jurisdiction assumed by the Ld. PCIT (Central), Ludhiana, under Section 263, arguing that the original assessment was completed after due application of mind by the Assessing Officer (AO). The appellant contended that the AO had considered all relevant information, including that from the Directorate General of GST Intelligence, and had taken a conscious decision on the issue of alleged capital employed on undisclosed sales.

2. Consideration of information from Directorate General of GST Intelligence:
The appellant argued that the AO was aware of and had considered the information received from the Directorate General of GST Intelligence during the assessment process. This information included alleged suppression of turnover and unaccounted sales, supported by parallel invoices and statements from third parties. The AO had reopened the case under Section 148 based on this information and completed the reassessment with an additional net profit by applying a net profit rate on the alleged undisclosed sales.

3. Completion of assessment after due consideration:
The appellant maintained that the AO had duly considered various replies and taken a possible view while completing the assessment. The reassessment was completed under Section 144 read with Section 147, and the AO had thoroughly discussed each issue and calculated the undisclosed sales and additional net profit.

4. Merging of the assessment order with the order of the CIT(A):
The appellant contended that the issue of alleged undisclosed turnover was also considered by the CIT(A), and the appeal had been decided, implying that the assessment order had merged with the CIT(A)'s order. Therefore, no action under Section 263 was warranted.

5. Prejudice to the interest of the revenue:
The appellant argued that even after considering the addition of capital employed, there would be no prejudice to the revenue's interest since the Minimum Alternate Tax (MAT) was applicable, and there would be no difference in tax liability for the year under consideration.

6. Basis of third-party evidence and assumptions:
The appellant argued that the assessment was based on third-party evidence without corroborative evidence of alleged undisclosed investment in stock. The appellant contended that the conclusions drawn by the PCIT were based on assumptions and presumptions, which were against the facts and circumstances of the case.

7. Jurisdiction under Section 263 based on audit objections:
The appellant argued that the jurisdiction under Section 263 was wrongly assumed based on audit objections. The appellant cited judgments from the Jurisdictional High Court and the ITAT, Chandigarh Bench, to support their claim that the proceedings initiated based on audit objections were void ab initio.

Conclusion:
The Tribunal found that the assessment order was set aside for the limited purpose of examining the matter relating to additional capital employed for maintaining additional stock to carry out unaccounted turnover. The Tribunal noted that the Coordinate Bench had already recorded a finding that the foundation for making additions on account of unrecorded sales had no sound basis, and the additions were deleted. Consequently, the question of capital employed for achieving unrecorded sales did not arise. The Tribunal set aside the order of the Ld. PCIT passed under Section 263, as there was no legal basis for the alleged capital employed to carry out unaccounted sales. The appeal of the assessee was partly allowed.

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