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2006 (3) TMI 255 - AT - Income TaxValidity of revisionary order passed u/s 263 - Erroneous And Prejudicial Order - HELD THAT - The words 'prejudicial to the interest of the Revenue' , have not been defined but legally it is well settled that they only mean that order should not have been passed in accordance with the provisions of law, in consequence thereof the lawful revenue, due to the state, has not been realised or cannot be realised. Likewise, the expression erroneous has not been defined in the Act. But its plain meaning is that the term 'erroneous' involves error or deviation from law. Therefore, an assessment order made by complying the provision of law cannot be branded as erroneous by the CIT simply because according to him the same should have been passed or framed in a different manner. The assessee was purchasing goods on behalf of the parties and also sending goods to them after purchasing from his own account. The transaction of sale and purchase of wheat from M/s Vijay Trading from assessees own wheat account and appears in the copy of arath account of 1983-84. The assessee had purchased 110 bales of cotton for Rs. 7,12,280 from Oriental Cotton Traders, for and on behalf of the arathies and the same did not appear in the trading account of the assessee. The assessee had also filed datewise copies of arath account, which revealed datewise receipt of arath. The observation of the CIT that the assessee received arath of Rs. 6,90,738 while net income is Rs. 1,31,085 which was neither reflected in the audit report nor was enquired into by the AO, is not correct. The audit report contained P L ale, copy of which is placed at p. 24 of the paper book and it shows total receipt of Rs. 9,30,58 (sic) from arath and GP in dealing in these commodities. Against this gross income, the assessee had shown the debit of Rs. 4,80,000 towards interest and Rs. 3,18,489 towards expenses like salary, telephone expenses, vehicle expenses and depreciation etc. Therefore, P L a/c shows the net income of Rs. 1,31,085. The audit report contained all these details duly examined by the AO and, therefore, did not find any discrepancy therein. Thus, we come to conclusion that the ground taken by the learned CIT for revising the assessment order are not erroneous insofar as these are prejudicial to the interests of the Revenue. In the result, we quash the revisionary order passed u/s 263.
Issues Involved:
1. Revisionary powers of the CIT under Section 263. 2. Verification of purchases and sales. 3. Interest receipts and payments. 4. Cash credits and their verification. 5. Details of arath (commission) income. Issue-wise Detailed Analysis: 1. Revisionary Powers of the CIT under Section 263: The CIT has the power to revise an erroneous assessment order that is prejudicial to the interest of the Revenue. The prerequisites for this are that the order must be erroneous and prejudicial to the Revenue. This power is derived from Section 263 of the Income Tax Act. The CIT can call for and examine records of any proceedings under the Act without needing to show any reason, as part of his administrative control. The CIT must be satisfied with twin conditions: the order of the AO sought to be revised is erroneous and prejudicial to the Revenue. If either condition is absent, Section 263 cannot be invoked. The CIT must provide a show-cause notice to the assessee, detailing how the order is erroneous and prejudicial, and allow for a personal hearing before passing a speaking order. 2. Verification of Purchases and Sales: The CIT noted that the details of purchase and sales on 10th March 2003 were neither certified by the auditor nor filed during the survey. The AO had examined the trading accounts and the accounts of the parties who dealt with the assessee. The assessee had provided date-wise copies of 'arath account' and the AO verified the purchases and sales of goods on which the assessee earned 'arath'. The assessee's records were found to be correct and complete, and payments were made through account payee cheques. Therefore, it was concluded that the AO had applied his mind and this ground did not warrant revision under Section 263. 3. Interest Receipts and Payments: The CIT observed that the AO did not properly verify the interest receipts and payments. The assessee had provided complete details of interest receipts and payments, which were examined by the AO. In the case of Mukesh Kumar, the CIT concluded that excess interest was claimed. However, the assessee explained that interest was credited on the opening credit balance, and the CIT's calculation was based on his interpretation rather than the method followed by the assessee. Similarly, in the case of Vijay Traders, the CIT's conclusions were based on his own calculations. The assessee had provided confirmations and copies of accounts for interest transactions. The AO had applied his mind, and multiple views were possible on the issue, so this ground did not justify revision under Section 263. 4. Cash Credits and Their Verification: The CIT noted that the creditors were not produced for verification, and the identity of one creditor, Shri Hari Ram, was not established. The assessee had provided lists and copies of accounts of creditors, most of whom were old balances or regular traders. Shri Hari Ram had deposited Rs. 5,00,000 by account payee cheque and had died, but his creditworthiness was supported by evidence such as his bank account and death certificate. The AO had directed the assessee to file copies of accounts, which were provided. The identity, creditworthiness, and genuineness of transactions were verified through documents. Thus, the AO had applied his mind, and this ground did not meet the criteria for revision under Section 263. 5. Details of Arath (Commission) Income: The CIT observed discrepancies in the arath income reported by the assessee. The assessee had filed date-wise copies of arath accounts, showing receipts and expenses. The audit report contained details of arath income and expenses, which were examined by the AO. The AO found no discrepancies in the audit report. The CIT's observation that the AO did not inquire into the arath income was incorrect. The AO had examined the details, and the assessee's records were found to be accurate. Therefore, this ground did not warrant revision under Section 263. Conclusion: The Tribunal concluded that the grounds taken by the CIT for revising the assessment order were not erroneous or prejudicial to the interests of the Revenue. The revisionary order passed under Section 263 was quashed.
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