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2011 (1) TMI 1367 - AT - Income TaxRevision u/s 263 - no evidence that any inquiry was conducted in respect of creditors and sundry creditors and the truthfulness of the confirmation letter was accepted without demur - case selected for scrutiny in order to verify low gross profit, high sundry creditors, advances and fresh loans - HELD THAT - In the case of Rampyari Devi Saraogi, 1967 (5) TMI 10 - SUPREME COURT came to the conclusion that non-verification of initial capital, gifts, sale of ornaments and profits from business lead to an assessment, which is erroneous and prejudicial to the interest of revenue. To our mind, the ratio of this case is applicable to the facts of case at hand. In the case of Gee Vee Enterprises 1974 (10) TMI 29 - DELHI HIGH COURT clearly mentioned that the Assessing Officer cannot remain passive in the face of the return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances are such as to provoke an inquiry. Looking to the reasons for taking up the case for scrutiny, it was incumbent on the Assessing Officer to make inquiries into genuineness of book profits and credits. Nothing like that has been done. Relying on the decision in the case of Gee Vee Enterprises, the order of the CIT was upheld. The facts of our case are in pari-materia with the facts of our case on this point. On consideration of these cases, we are of the view that the learned CIT was right in exercised her revisionery jurisdiction. Appeal is dismissed.
Issues Involved:
1. Disallowance of expenses by the Assessing Officer (AO). 2. Examination of the assessee's records by the Commissioner of Income Tax (CIT) under section 263. 3. Whether the assessment order was erroneous and prejudicial to the interest of the revenue. 4. The adequacy of inquiries conducted by the AO. Detailed Analysis: 1. Disallowance of Expenses by the Assessing Officer (AO): The assessee filed a return declaring a total income of Rs. 3,41,860/-. The AO processed the return under section 143(1) and later selected it for scrutiny, issuing notices under sections 143(2) and 142(1). The AO found that expenses under traveling and conveyance, vehicle repairs and maintenance, telephone, and car depreciation were not fully vouched. Consequently, 20% of these expenses, amounting to Rs. 23,445/-, were disallowed, resulting in a total income computation of Rs. 3,65,310/-. 2. Examination of the Assessee's Records by the CIT under Section 263: The CIT reviewed the assessee's records and found the case was selected for scrutiny due to low profit and high sundry creditors, advances, and loans. The AO did not examine these aspects thoroughly. The CIT issued a notice under section 263, indicating the order might be set aside as erroneous and prejudicial to the revenue. Despite various submissions by the assessee, the CIT was unconvinced, noting the AO accepted the assessee's version without proper inquiry or verification. The CIT set aside the assessment order, directing the AO to re-examine the issues properly. 3. Whether the Assessment Order was Erroneous and Prejudicial to the Interest of the Revenue: The CIT argued that the AO's failure to make necessary inquiries rendered the assessment order erroneous and prejudicial to the revenue. The assessee contended that confirmed accounts for unsecured loans and creditors were filed and examined by the AO, and the books of account were produced. However, the CIT maintained that the AO's acceptance of the assessee's submissions without inquiry was against settled law, citing cases such as Rampyari Devi Saraogi vs. CIT and Tara Devi Aggarwal vs. CIT. 4. The Adequacy of Inquiries Conducted by the AO: The CIT's revisionary order highlighted that the AO's assessment was sketchy and stereotyped, accepting the assessee's submissions without necessary inquiries. The CIT emphasized that the AO's role is both adjudicative and investigative, requiring verification of the facts stated in the return. The assessee relied on cases like International Travel House Limited and M/s Vikas Polymers, arguing that the AO had accepted explanations after due inquiry. However, the CIT and the Tribunal found these cases distinguishable, noting the lack of inquiry into low net profit and the genuineness of credits, which were critical reasons for scrutiny. Conclusion: The Tribunal upheld the CIT's revisionary order, agreeing that the AO's failure to conduct proper inquiries resulted in an erroneous and prejudicial assessment. The Tribunal emphasized the AO's duty to verify the truthfulness of the return, especially given the reasons for scrutiny. The appeal was dismissed, affirming the CIT's direction for a re-examination of the issues. Pronouncement: The order was pronounced in open court on 21-01-2011.
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