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2015 (6) TMI 554 - AT - Income TaxRevision u/s 263 - CIT(A) upheld the rejection of books of account, however, reduced the estimation of gross income of assessee from 1% to 0.7% of the turnover - Held that - The directions of ITAT make it clear that the entire issue is open before AO as he has been directed to make a fresh assessment. In these circumstances, when the assessment order has been restored back by ITAT to the file of AO with a direction to make a fresh assessment after examining the books of account, the impugned order of ld. CIT has become infructuous. Accordingly, we set aside the order of ld. CIT and direct AO to complete the assessment as per the directions of ITAT - Decided in favour of assessee.
Issues:
1. Jurisdiction of CIT under section 263 of the IT Act, 1961. 2. Rejection of books of account and estimation of gross income. 3. Allowance of expenditure on income estimated. Analysis: Issue 1: Jurisdiction of CIT under section 263 of the IT Act, 1961 The appeal was directed against the order passed under section 263 of the IT Act by the ld. CIT-II, Hyderabad for the AY 2009-10. The CIT invoked his powers under section 263 after finding the assessment order erroneous and prejudicial to the interests of revenue. The assessee challenged the jurisdiction invoked under section 263, contending that the assessment order had merged with the order of the CIT(A) and that the CIT cannot substitute his opinion on the issue of income estimation. However, the CIT held that the rejection of books of account and estimation of income warranted a reevaluation of the expenditure allowed. The CIT concluded that the assessment order needed to be set aside for reconsideration of the issue of non-allowability of expenditure from the estimated income. Issue 2: Rejection of books of account and estimation of gross income The AO initially rejected the books of account due to discrepancies and estimated the gross profit at 1% of total sales, leading to a determination of total income. The CIT(A) upheld the rejection of books of account but reduced the estimation of gross income to 0.7%. The assessee appealed against this decision, challenging both the rejection of books of account and the estimation of gross income. The ITAT remitted the matter back to the AO for fresh assessment, indicating that the entire issue was open for reassessment. Consequently, the rejection of books of account and estimation of gross income were subject to appeal and reconsideration. Issue 3: Allowance of expenditure on income estimated The CIT found that once income is estimated, no further allowance of expenditure can be given. The assessee argued that since the issue of allowance of expenditure was not considered and decided by the appellate authority, the CIT had no jurisdiction under section 263. However, the ITAT's directions for a fresh assessment implied that the issue of allowance of expenditure was open for review. The ITAT set aside the CIT's order, directing the AO to complete the assessment as per the ITAT's directions, rendering the CIT's order infructuous. Consequently, the appeal was allowed, and the CIT's order was set aside. In conclusion, the ITAT's decision emphasized the importance of a thorough reassessment process in cases where the rejection of books of account and estimation of income are challenged. The jurisdiction of the CIT under section 263 was upheld, but the reassessment process was deemed necessary for a fair determination of income and expenditure.
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