2015 (4) TMI 865 - AT - Income Tax

Revision of assessment order - CIT noticed huge amount of withdrawals/ payments by the party - Provisions contained u/s 263 cannot be used as a tool to start roving and fishing enquiry - Held that - As submitted by the learned counsel for the assessee, similar issue had arisen before the Division Bench of this Tribunal in the case of Shanti Transport 2015 (4) TMI 825 - ITAT HYDERABAD for assessment year 2009-10), wherein the order of the Assessing Officer passed under S.143(3) rejecting the books of account of the assessee and estimating the income by applying higher rate net profit rate was set aside by the Commissioner of Income-tax by exercising the powers conferred under S.263 for the alleged failure on the part of the Assessing Officer to make proper and sufficient enquiries on certain issues. The Tribunal, vide its order dated 10.10.2014, however, quashed the order passed by the learned Commissioner under S.263 and restored the assessment order passed by the Assessing Officer under S.143(3). A perusal of the relevant portion of the Tribunal order dated 10.10.2014 reproduced above, clearly shows that the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of M/s. Shanti Transport decided by the Division Bench of this Tribunal, and this position is not disputed even by the Learned Departmental Representative. I therefore, respectfully follow the order of the Tribunal in the case of Shanti Transport 2015 (4) TMI 825 - ITAT HYDERABAD and accordingly setting aside the impugned order pass by the learned Commissioner under S.263, restore the assessment order passed by the Assessing Officer under S.143(3). - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of books of account by the Assessing Officer (AO).
2. Examination of payments made to various individuals.
3. Adequacy of partners' withdrawals.

Issue-wise Detailed Analysis:

1. Rejection of Books of Account by the Assessing Officer (AO):
The assessee, a partnership firm engaged in the transport contractor business, filed its return of income declaring Rs. 1,53,890. During the assessment proceedings, the AO found that the bulk of the expenditure claimed was not supported by proper vouchers/bills, rendering the genuineness and quantum of expenditure unverifiable. Consequently, the AO rejected the books of account and estimated the income by applying a net profit rate of 10% to the gross receipts of Rs. 56,75,546, leading to a total income determination of Rs. 3,14,340 under S.143(3) of the Income Tax Act, 1961.

2. Examination of Payments Made to Various Individuals:
Upon reviewing the assessment, the Commissioner of Income-tax (CIT) found that significant amounts were paid to various individuals from the assessee's bank account, which attracted the provisions of S.40A(3) of the Act. The CIT noted that the AO had failed to call for and examine the relevant details of these transactions. The assessee explained that these payments were freight charges paid to lorry owners, and the payments were made in lump sums for convenience. However, the CIT did not accept this explanation due to the absence of supporting details, deeming the AO's lack of enquiry on this matter as erroneous and prejudicial to the interests of the Revenue.

3. Adequacy of Partners' Withdrawals:
The CIT also found that the partners' withdrawals were insufficient considering the volume of business and cost of living. The assessee argued that the partners had other sources of income and that the estimated higher income by the AO should account for the withdrawals. However, the CIT rejected this contention, stating that the AO failed to examine this aspect by calling for relevant details. The CIT concluded that the AO's failure to make proper and sufficient enquiries rendered the assessment order erroneous and prejudicial to the interests of the Revenue.

Tribunal's Decision:
The Tribunal considered the arguments and perused the relevant material on record. It referred to a similar case (Shanti Transport V/s. ITO) where the CIT's order under S.263 was quashed, and the assessment order was restored. The Tribunal noted that the AO had examined the books and found them unreliable, justifying the rejection and estimation of income. It held that the CIT could not invoke S.263 merely because the AO did not examine specific issues when the books were already deemed unreliable. The Tribunal emphasized that the CIT must establish that the AO's order was not only erroneous but also prejudicial to the Revenue's interests, which was not substantiated in this case. Consequently, the Tribunal set aside the CIT's order and restored the AO's assessment order.

Conclusion:
The appeal of the assessee was allowed, and the assessment order passed by the AO under S.143(3) was restored. The Tribunal's decision was pronounced on 8th April 2015.