2007 (11) TMI 326 - AT - Income Tax

Summary

Issues Involved:
1. Justification of CIT's initiation of proceedings u/s 263.
2. Legality and sustainability of CIT's directions to the Assessing Officer.
3. Basis and material for CIT's assumption that the block assessment order was erroneous and prejudicial to the revenue.

Summary:

1. Justification of CIT's initiation of proceedings u/s 263:
The sole issue for consideration was whether the CIT was justified in setting aside the block assessment by invoking section 263 and directing the Assessing Officer to redo the assessment. The CIT initiated proceedings u/s 263, alleging that the block assessment order dated 18-3-2005 was erroneous and prejudicial to the revenue. The CIT was dissatisfied with the undisclosed income determined from soda sales, which was Rs. 17,71,528 as admitted by the assessee.

2. Legality and sustainability of CIT's directions to the Assessing Officer:
The CIT directed the Assessing Officer "to take suitable action to re-compute the undisclosed income earned by the assessee from 'suppression of income from Soda Sales' after verifying the genuineness of the various claims put forward by the assessee." The assessee argued that this direction was illegal and unsustainable, as it amounted to a roving enquiry without any material basis.

3. Basis and material for CIT's assumption that the block assessment order was erroneous and prejudicial to the revenue:
The CIT noted that during the search action u/s 132, it was found that the assessee was showing purchases of soda from an outside agency, whereas the soda was actually manufactured "in house" by an employee. The CIT believed that the Assessing Officer did not examine the manufacturing cost of soda amounting to Rs. 71,12,809 and thus considered the assessment order erroneous and prejudicial to the revenue. However, the Tribunal found that the Assessing Officer had taken a possible and reasonable view based on the material available, and merely because the CIT did not agree with this view, it did not render the order erroneous.

Conclusion:
The Tribunal concluded that the CIT had exceeded his powers as the order passed by the Assessing Officer was not erroneous. The appeal by the assessee was allowed, and the order passed by the CIT u/s 263 was canceled.