2012 (12) TMI 628 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - Stock Shortages - Held that - The assessee before us demonstrated that the purchases have been accepted by the AO and the amount was shown in the closing stock being held by the Government authorities on the basis of billing by the assessee when the sale price remains determined by them only - Thus assessee on demonstrating that the issues were dealt with by the AO in his order u/s.143(3) when he took note of the survey proceedings on 17.1.2008 for the impugned AY when the financial year closed on 31.3.2008. The gross profit is estimated at the time of survey which gross profit was on the basis of sales up to 31.3.2008. Moreover, it has been submitted that the valuation becomes erroneous to the extent that the purchases having been accepted, sales having been accepted and closing stock having been accepted, by no stretch of imagination can the amount be brought to tax being the stock difference in the middle of the year can be re-verified on assuming jurisdiction u/s.263 would be an exercise in futility. CIT(A) has again directed to verify the assuming of estimating of gross profit rate which could neither be an error or loss to the Revenue being prejudicial to the interest of Revenue, thus this issue could not be dealt with by the CIT u/s.263. Unexplained investment in construction of factory building - Held that - Valuation here again on assumption or presumption was predominantly in the mind of the learned CIT. After verifying or observing the error, the learned CIT deleted the issue for reconsideration rightly noted that the revisionary power cannot be extended to the issue - no direction to the Assessing Officer by holding a different view alone on which revisionary power can be extended to. Disallowance of expenses - Held that - Unable to satisfy with the contention of the CIT-DR that details of various accounts were to be called for when the details of unsecured loans, sundry debtors, purchases etc., which are grossly interconnected to the extent that the CIT himself does not know as to what would be done on calling the details thereof. The CIT was to assume jurisdiction u/s.263 when on the basis of assessment record he has found errors committed by the Assessing Officer prejudicial to the interest of Revenue. He cannot ask the Assessing Officer for roving enquiry based on a view which has also not been specified by him in his order.

Summary

Issues Involved:
1. Legality of the order under Section 263.
2. Stock shortage valuation and gross profit rate application.
3. Estimation of unexplained investment in factory building.
4. Ad hoc disallowance of expenses.
5. Verification of various accounts.

Issue-wise Detailed Analysis:

1. Legality of the order under Section 263:
The assessee challenged the legality of the order passed under Section 263, arguing that the learned CIT could not adjudicate issues already dealt with by the CIT(A) without pointing out any error prejudicial to the interest of the Revenue. The Tribunal found that the assumption of jurisdiction by the learned CIT under Section 263 was faulty in law and facts. The issues had already been addressed by the Assessing Officer in his order under Section 143(3) and by the CIT(A) in his order dated 11.10.2011. Thus, the Tribunal quashed the impugned order under Section 263, allowing the appeal of the assessee.

2. Stock shortage valuation and gross profit rate application:
The CIT had directed the Assessing Officer to reconsider the stock shortage valuation and the gross profit rate applied. The Tribunal noted that the gross profit was estimated at the time of the survey based on sales up to 31.3.2008. The valuation was erroneous as the purchases, sales, and closing stock had been accepted. The Tribunal held that the enhancement in the closing stock would have to be allowed as an enhancement in the opening stock of the subsequent year. Therefore, the issue could not be dealt with by the CIT under Section 263, as it had already been adjudicated by the CIT(A).

3. Estimation of unexplained investment in factory building:
The CIT had directed the Assessing Officer to reconsider the unexplained investment in the factory building. The Tribunal found that this matter had been fully adjudicated by the CIT(A), who deleted the addition on the grounds that it was based on eye estimation and not supported by any expert opinion. The Tribunal held that revisional power could not be extended to this issue, as it had already been dealt with by the CIT(A).

4. Ad hoc disallowance of expenses:
The assessee challenged the ad hoc disallowance of Rs. 50,000 made by the Assessing Officer, which was reduced to Rs. 25,000 by the CIT(A). The Tribunal noted that the assessee had not pressed this issue. Therefore, the ground raised by the assessee was dismissed as not pressed.

5. Verification of various accounts:
The CIT had directed the Assessing Officer to verify various accounts, including unsecured loans, sundry debtors, and purchases. The Tribunal found that the CIT could not ask the Assessing Officer for a roving enquiry based on a view not specified in his order. The Tribunal held that the CIT should have assumed jurisdiction under Section 263 only if errors committed by the Assessing Officer were prejudicial to the interest of the Revenue. The Tribunal quashed the order under Section 263 for this issue as well.

Conclusion:
The Tribunal allowed the appeal of the assessee regarding the legality of the order under Section 263 and the stock shortage valuation. The Tribunal also quashed the order under Section 263 for the unexplained investment in the factory building and verification of various accounts. The ad hoc disallowance of expenses was dismissed as not pressed. Consequently, ITA No.141/CTK/2012 was partly allowed, and ITA No.142/CTK/2012 was allowed.