2012 (9) TMI 694 - AT - Income Tax

Invoking jurisdiction u/s.263 by CIT(A)- disallow business expenses claimed against undisclosed income - order passed after scrutiny u/s.143(3) is erroneous - Held that - The survey disclosure has been considered by the A.O. considering unpaid freight and liability and no addition was made on account of outstanding liability from unaccounted income u/s 69C whereas the CIT has passed the order u/s 263 on the basis of liability of Rs.1,03,24,530/- has been shown as unpaid freight as on 31.03.2006 and liability paid Rs.77,01,958/- during the F.Y. 05-06, which has been considered by the A.O. Thus the CIT has framed different opinion on similar facts considered by the A.O. in assessment order. Therefore, the CIT order u/s 263 is a change of opinion - set aside the order of CIT - in favour of assessee.

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the IT Act
2. Treatment of undisclosed income and expenses under section 69C of the IT Act
3. Merging of assessment order with CIT's order

Jurisdiction of CIT under section 263 of the IT Act:
The appeal involved a challenge to the jurisdiction of the CIT under section 263 of the IT Act. The Assessee contended that the CIT erred in invoking section 263 against the order passed under section 143(3) on the grounds that the original order was neither erroneous nor prejudicial to the interest of revenue. The CIT had issued a notice based on the disclosure of additional income during a survey, which the Assessee argued had already been considered by the assessing officer. The CIT, however, found the original order to be erroneous and prejudicial to revenue, leading to the appeal.

Treatment of undisclosed income and expenses under section 69C of the IT Act:
The case involved the treatment of undisclosed income and expenses under section 69C of the IT Act. During a survey, the Assessee had disclosed additional income from unpaid freight, which was paid from unaccounted income. The CIT directed the computation of the disclosed unaccounted expenditure by invoking section 69C and disallowing business expenses claimed against undisclosed income. The CIT found that the assessing officer had failed to apply the deeming provisions of section 69C and allowed set off of business expenses, leading to the order being deemed erroneous and prejudicial to revenue.

Merging of assessment order with CIT's order:
Another issue raised was the merging of the assessment order with the CIT's order. The Assessee argued that the assessment had been merged with the order of the CIT and was pending before the ITAT, thus questioning the CIT's jurisdiction to pass an order under section 263. The ITAT found that the CIT's order under section 263 was a change of opinion as the assessing officer had already considered the relevant facts. Consequently, the ITAT set aside the CIT's order dated 10.03.2011.

In conclusion, the ITAT allowed the Assessee's appeal, primarily on the grounds of the CIT's jurisdiction under section 263 and the treatment of undisclosed income and expenses under section 69C of the IT Act. The judgment highlighted the importance of correctly applying the provisions of the IT Act and ensuring that orders are not deemed erroneous or prejudicial to the interest of revenue based on a change of opinion.