2023 (5) TMI 38 - AT - Income Tax

Revision u/s 263 by CIT - low income from liquor business - case was selected for complete scrutiny under CASS to verify the low income from TCS receipts-liquor - As per CIT AO ought to have verified the books, purchase bills and sale bills etc., since the case was selected for complete scrutiny and the reason was low income - HED THAT - Since in the instant case, the assessee has furnished the requisite details to substantiate its low income from liquor business and the Assessing Officer, after considering the details, has taken a possible view, therefore, the learned PCIT, in our opinion, is not justified in invoking the jurisdiction u/s 263. PCIT are adopting profit rate of 3% to 5% profit from liquor trade only when the books are rejected. However, in the instant case, the books of account, which are duly audited and furnished before the Assessing Officer, were never rejected and therefore, the observation of the PCIT that the Assessing Officer should have adopted profit rate of 3% to 5% from liquor trade cannot be sustained. We, therefore, hold that the PCIT is not justified in invoking jurisdiction u/s 263 on the first issue i.e. low income from liquor trade. PCIT held the order to be erroneous and prejudicial to the interest of the Revenue for which he has invoked the provisions of section 263 i.e. non-verification of introduction of capital and withdrawal - Since AO in the instant case has not called for any information on the issue of introduction of capital and withdrawal and since there is nothing on record to show that the assessee has explained the source of introduction of such capital, therefore, the order of the AO on this issue has become erroneous and prejudicial to the interest of the Revenue and therefore, the PCIT, in our opinion, was fully justified in invoking revisional power u/s 263 of the I.T. Act. We, therefore, uphold the order of the PCIT invoking the jurisdiction u/s 263 of the Act on the second issue i.e. introduction of capital and withdrawal.

Summary

Issues Involved:
1. Validity of the order passed under Section 263 of the I.T. Act by the PCIT-I.
2. Non-verification of introduction of capital and withdrawals.

Summary:

Issue 1: Validity of the Order under Section 263 of the I.T. Act

The assessee, engaged in the business of trading liquor, filed a return of income for A.Y. 2016-17 which was accepted by the Assessing Officer (AO) under Section 143(3) after scrutiny. The PCIT invoked Section 263, questioning the low income reported from liquor trading and the AO's acceptance of the assessee's explanations without thorough verification. The PCIT argued that the AO should have verified the books, purchase bills, and sale bills, especially since the case was selected for complete scrutiny due to low income from TCS receipts-liquor.

The Tribunal found that the assessee had provided requisite details during the assessment, including a note on low income, cash flow statements, and bank statements. The AO had accepted these details without rejecting the books of account. Citing the Supreme Court's decision in Malabar Industrial Co. Ltd vs. CIT, the Tribunal noted that the AO's acceptance of the assessee's details constituted a possible view, and thus, the PCIT's invocation of Section 263 on this ground was not justified. The Tribunal emphasized that revisional powers cannot be exercised merely because the AO did not adopt a different approach or make more detailed inquiries.

Issue 2: Non-verification of Introduction of Capital and Withdrawals

The PCIT also highlighted that the AO did not verify the introduction of capital amounting to Rs. 1,25,95,000/- and withdrawals of Rs. 74,95,000/-. The Tribunal observed that despite the case being selected for complete scrutiny, the AO did not query the assessee about these significant transactions. The absence of any inquiry or explanation from the assessee regarding the source of such capital introduction rendered the AO's order erroneous and prejudicial to the interest of the Revenue. Consequently, the Tribunal upheld the PCIT's invocation of Section 263 on this issue.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the PCIT's order under Section 263 concerning the non-verification of capital introduction and withdrawals, but rejecting the PCIT's invocation of Section 263 regarding the low income from liquor trading.