2013 (6) TMI 663 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - assessee is maintaining its accounts on an exclusive basis, i.e., valuing its inventories as well as purchases and sales, at net of excise duty, which is being accounted for separately, therefore, admittedly there is a technical breach of section 145A - Held that - Section 145A is a non-obstante provision, which, therefore, is to be necessarily followed for the purpose of returning the income under the Act. The A.O. has, firstly, by not discharging his obligations, being duty bound to verify the assessee s return as being in accordance with the law, and then in acting in disregard of the directions by the ld. CIT, has put the assessee to inconvenience, and which cannot but be depreciated. As regards the invocation of s. 263 case of Malabar Industrial Co. Ltd. v. CIT 2000 (2) TMI 10 - SUPREME Court laid down four-way test for invocation of a provision i.e. incorrect assumption of facts, incorrect application of law, without applying the principles of natural justice, and without application of mind. It is the last category, if not perhaps the first one as well, which arise in the instant case. Thus confirming the invocation of section 263 in the instant case, direct the assessing authority to observe the directions of the revisionary authority both in letter and in spirit so as to avoid multiplicity of proceedings.

Summary

Issues:
Appeal against CIT order u/s.263 for AY 2005-06 - Exclusivity in accounting method - Section 145A compliance - Tax impact assessment - Invocation of s.263 - Malabar Industrial Co. Ltd. v. CIT test application.

Analysis:
The appeal was against the CIT's order setting aside the assessee's assessment for AY 2005-06 due to maintaining accounts on an exclusive basis, valuing inventories, purchases, and sales net of excise duty. The assessee argued that despite a technical breach of section 145A, the accounting method was tax-neutral with no prejudice to revenue. The A.O. did not examine this issue, rendering the assessment order erroneous and prejudicial to revenue. The assessee's objections to the notice u/s.263 highlighted the tax-neutral aspect, citing relevant tribunal decisions and the high court's rulings. The ld. DR supported the CIT's findings, emphasizing the need for a lawful assessment. The tribunal observed that section 145A is crucial for income return under the Act, with the CIT directing a redo of the assessment for tax impact evaluation. The tribunal referred to the Hercules Pigment Industry case, emphasizing strict adherence to section 145A. The A.O.'s addition of unutilized cenvat credit to income was deemed a faithful observation of the law, contrary to the assessee's interpretation. The tribunal upheld the invocation of s.263, citing the Malabar Industrial Co. Ltd. v. CIT test for erroneous orders prejudicial to revenue, directing compliance with the revisionary authority's directions to prevent further proceedings.

The tribunal confirmed the invocation of s.263, instructing the assessing authority to adhere to the revisionary authority's directions to avoid additional proceedings, ultimately dismissing the assessee's appeal. The judgment emphasized the importance of following section 145A for income return and the necessity for a lawful assessment to prevent prejudice to revenue. The tribunal's decision aligned with established legal principles, including the Malabar Industrial Co. Ltd. v. CIT test, ensuring orders are not passed without due application of mind. The comprehensive analysis highlighted the significance of tax impact assessment and the implications of exclusive accounting methods on revenue, emphasizing the need for meticulous compliance with statutory provisions to maintain the integrity of assessments and prevent undue prejudice to revenue.