2015 (1) TMI 317 - AT - Income Tax

Revision u/s 263 - assessee had set off the loss on sale and purchase of cotton yarn from the interest income - it was observed by the CIT that there was no such business in the earlier years - Held that - A perusal of the order of the ld. CIT passed under sect ion 263 shows that there is no specific finding by the ld. CIT as to how the order is erroneous and prejudicial to the interest of revenue. All that is being said is that the assessee very likely has tried to reduce its income by booking fictitious loss and that non-verification appeared to be highly suspicious . CIT s powers under section 263 admittedly cannot be invoked on mere presumptions and surmises nor on suspicion. Just by throwing allegation on the assessment proceedings on suspicion and presumptions, the assessment order is held to be erroneous and prejudicial to the interest of revenue. No enquiry has been done by the ld. CIT. This is not permissible. This view of ours also finds support to the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. J.L. Morrison reported in 2014 (6) TMI 154 - CALCUTTA HIGH COURT . In these circumstances, we are of the view that the order passed under section 263 by the ld. CIT is unsustainable on the facts mentioned and consequently the same stands quashed. - Decided in favour of assessee.

Summary

Issues:
Appeal against order under section 263 for assessment year 2007-08. Condonation of delay in filing appeal. Invocation of powers under section 263 based on alleged fictitious loss on sale and purchase of cotton yarn. Assessment order challenged for lack of verification and non-application of mind.

Analysis:
1. Condonation of Delay: The assessee filed an appeal against the order under section 263, which was initially time-barred by 19 days. The assessee submitted a petition for condonation of delay, which was accepted by the tribunal after considering the reasons provided. The delay was condoned, and the appeal was heard on merit.

2. Invocation of Powers under Section 263: The ld. CIT invoked powers under section 263 based on allegations of fictitious loss on sale and purchase of cotton yarn and claimed interest. The assessee argued that the Assessing Officer had conducted thorough verification, including examination of ledger accounts, and had accepted the returned income. The ld. CIT's order lacked specific findings on how the original assessment order was erroneous and prejudicial to revenue. The tribunal emphasized that CIT's powers cannot be invoked on mere presumptions or suspicions without proper inquiry and application of mind.

3. Challenging Assessment Order: The ld. CIT contended that the assessment order lacked proper verification and showed non-application of mind, citing purchases and sales from connected concerns with the same address. However, the tribunal noted that the original assessment proceedings involved multiple hearings, inquiries, and submissions by the assessee. The tribunal highlighted that the ld. CIT must conduct necessary inquiries and apply mind before invoking section 263. The tribunal quashed the order under section 263 as unsustainable due to lack of proper inquiry and reliance on suspicions.

4. Legal Precedents: The tribunal referred to legal precedents emphasizing the requirement for CIT to conduct thorough inquiries and apply mind before deeming an assessment order erroneous under section 263. The decision was aligned with the principles laid down by the Hon'ble Jurisdictional High Court, ensuring that assessments are not overturned based solely on suspicions or presumptions without concrete evidence or proper verification.

In conclusion, the tribunal allowed the appeal filed by the assessee, highlighting the importance of conducting thorough inquiries and applying mind before invoking powers under section 263 to ensure the validity and fairness of assessment orders.