2015 (6) TMI 931 - AT - Income Tax

Revision u/s 263 - The assessee showed lesser profit from the trading activity, which was not properly looked into by the Assessing Officer - Held that - The order sheet entry of 9.11.2010 divulges that the assessee s counsel appeared and produced books of account, which were test checked by the AO. Again, on 16.11.2010, the assessee s C.A. appeared and produced books of account, which were again test checked and the assessment proceedings were completed on 8.12.2010. A bare perusal of the order sheet entry of the AO amply demonstrates that the assessee was called upon to produce books of account, which were duly produced on at least two occasions and the same were also checked by the AO. The observations of the ld. CIT about the non-production of books of account are, therefore, not tenable. Further, we are unable to find any rationale of the ld. CIT in applying a net profit rate of 5% on total turnover for computing income of ₹ 65.84 lac from business operations. This is again an application of the ad hoc net profit rate, unsubstantiated with any cogent reason. As the AO did carry out investigation on all the relevant aspects of the matter, which is evident from the order sheet entry, and the reply of the assessee giving details on several occasions, the assessment order cannot be termed as erroneous. We, therefore, set aside the action of the ld. CIT in making an addition of ₹ 65.84 lac by applying an ad hoc net profit rate. - Decided in favour of assessee. Non-verification of sundry creditors and advances from customers by AO - Held that - It is a simple case of certain creditors appearing in books of the assessee and the AO getting satisfied with their genuineness after examining the details called for by him. It is not a case of no investigation at all by the AO of such creditors and advances or the AO reaching a patently incorrect conclusion or not conducting any further inquiry, which the attending circumstances suggested. Simply saying that it was for the assessee to prove the genuineness and credit worthiness of the creditors, without any thing to the contrary in the extant facts of the case, is not enough to exercise jurisdiction u/s 263.- Decided in favour of assessee. Non verification of TDS claim and even TDS certificates were not on record - Held that - The assessee did furnish the necessary details before the AO, which are available on pages 296 onwards of the paper book. The ld. CIT has not spelt out as to how these details were lacking or incorrect. We are disinclined to accept the view point of the ld. CIT on this score as well. - Decided in favour of assessee.

Summary

Issues involved:
1. Jurisdiction of CIT under section 263 of the Income-tax Act, 1961 regarding assessment year 2008-09.
2. Examination of profit from trading activity, verification of sundry creditors, advances from customers, and TDS claim by the Assessing Officer.
3. Criteria for determining if an assessment order is erroneous and prejudicial to the interest of the Revenue.
4. Non-production of books of account, rejection of books, and computation of business income.
5. Validity of applying a net profit rate of 5% on total turnover for computing income.
6. Adequacy of investigation by the Assessing Officer on expenses and self-made vouchers.
7. Disallowance of expenses and the role of the CIT in substituting the opinion of the AO.
8. Examination of sundry creditors and advances from customers by the Assessing Officer.
9. Verification of the genuineness of TDS claim by the Assessing Officer.
10. Justification of cancelling the assessment order by the CIT.

Analysis:

1. The jurisdiction under section 263 of the Income-tax Act was invoked by the CIT for the assessment year 2008-09 based on various grounds, including the examination of profit from trading activity, verification of sundry creditors, advances from customers, and TDS claim by the Assessing Officer.

2. The Tribunal clarified that for an assessment order to be considered erroneous and prejudicial to the interest of the Revenue, it must be shown that the order is both erroneous and prejudicial. Merely being prejudicial is insufficient. Errors include non-investigation by the AO on relevant issues or taking a patently erroneous view. The Tribunal emphasized the importance of distinguishing between patently erroneous views and debatable issues.

3. Regarding the non-production of books of account, the Tribunal found that the books were produced before the AO on multiple occasions, contradicting the CIT's claim of non-production. The Tribunal also criticized the application of an ad hoc net profit rate without substantial reasoning.

4. The Tribunal analyzed the expenses, self-made vouchers, and the AO's decision to make an ad hoc addition, emphasizing that the AO conducted a holistic examination before arriving at the decision. The Tribunal rejected the CIT's argument that the disallowance of expenses was a patent mistake, stating it was a debatable issue.

5. The Tribunal reviewed the verification of sundry creditors and advances from customers, concluding that the AO did investigate these aspects adequately, and there was no indication of further inquiry necessity. The Tribunal disagreed with the CIT's assessment that the assessment order was erroneous in this regard.

6. The Tribunal also examined the genuineness of the TDS claim, finding that the necessary details were furnished before the AO. The Tribunal disagreed with the CIT's view that the TDS claim was not adequately examined.

7. Ultimately, the Tribunal concluded that the CIT was unjustified in canceling the assessment order, as it was not erroneous and prejudicial to the interest of the Revenue. The appeal was allowed, and the impugned order was set aside.