2008 (1) TMI 496 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction under s. 263.
2. Declaration of additional income.
3. Assessment order's validity.

Summary:

Issue 1: Jurisdiction under s. 263
The assessee contested the CIT's assumption of jurisdiction under s. 263, arguing that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. The Tribunal examined precedents, including the Supreme Court's ruling in Malabar Industrial Co. Ltd. v. CIT, which held that an order could not be deemed erroneous if the AO acted in accordance with law, even if it resulted in a loss of revenue. The Tribunal concluded that the CIT's order under s. 263 was based on an incorrect presumption of facts and quashed it.

Issue 2: Declaration of additional income
During a survey conducted u/s 133A, a partner of the assessee firm declared Rs. 41 lakhs as excess stock. The CIT argued that this amount should have been included in the total assessed income. However, the Tribunal noted that the AO had considered the partner's statement and assessed the income at Rs. 26,50,000 after detailed examination. The Tribunal found that the CIT did not demonstrate why the AO's order was erroneous, merely stating that the declared income should have been assessed.

Issue 3: Assessment order's validity
The Tribunal reviewed the AO's assessment process, which included examining the statement given during the survey and discussing the matter in detail. The Tribunal cited multiple precedents, including CIT v. Gabrial India Ltd., which held that the CIT could not substitute his judgment for that of the AO unless the order was erroneous. The Tribunal concluded that the AO had exercised his quasi-judicial power in accordance with law, and the CIT's dissatisfaction with the AO's conclusion did not render the order erroneous. Consequently, the Tribunal quashed the CIT's order under s. 263 and allowed the assessee's appeal.