2015 (8) TMI 866 - AT - Income Tax

Revision u/s 263 - fall in the gross profit rate set off of the brought forward losses and depreciation - Held that - The assessee has been able to demonstrate before us that the Assessing Officer made detailed enquiry at the assessment stage with regard to the fall in the gross profit rate set off of the brought forward losses and depreciation. The Assessing Officer issued several statutory notices to the assessee and called for complete details with regard to the manufacturing process, month-wise production, consumption, quantitative sales and justification of major expenses. The assessee furnished complete details and replies before the Assessing Officer at the assessment stage and also produced the books of account which have been test checked by the Assessing Officer and no infirmity in the replies of the assessee and books of account have been found at the assessment stage. The Assessing Officer, almost took up each and every issue with regard to manufacturing activity of the assessee and was satisfied with the explanation of the assessee. The assessee has shown surrender of income as was made during the course of survey in the computation of income and after claiming set off of business loss and unabsorbed depreciation, shown taxable income at ₹ 63.42 lakhs. The nature of business of the assessee is manufacturing of sweet items on which the assessee explained that it was not possible to maintain the details of manufactured items or of the closing stock. The nature of business of the assessee clearly revealed that it may not be possible to give the exact detail of the manufacturing of the sweet items. The Assessing Officer has examined this aspect considering the history of the assessee and the learned Commissioner of Income-tax did not adversely committed upon the same in the impugned order that when the assessee is continuing with the same nature of business from the earlier year and similar data of manufactured items have not been prepared and have not been doubted by the Revenue-Department why such an item is considered in the proceedings under section 263 of the Act. The record further revealed that whatever objections have been raised by the learned Commissioner of Income-tax, have been met by the assessee by explaining the same before the Assessing Officer at assessment stage. The assessee explained the issue of set off of unabsorbed loss of ₹ 14,84,641 by referring to the reply filed before the Assessing Officer dated May 21, 2012 paper book 103 along with the details.The assessee also replied to the query raised by the Assessing Officer with regard to surrendered income, copies of the replies are filed on record. The assessee also explained that the Assessing Officer, after consideration of all the replies, has allowed the depreciation and the depreciation chart is filed at page 44 of the paper book. It is, therefore, clear that the assessee submitted complete details before the Assessing Officer at the assessment stage regarding all the issues which have been raised by the learned Commissioner of Income-tax in the impugned order under section 263 of the Act. It is, therefore, clear that the Assessing Officer was satisfied with all the items which have been raised in notice under section 263 of the Act and allowed the claim of the assessee after conducting proper enquiry into the matter. AO after making complete enquiries has made part addition, which will prove that the issues raised in the proceedings under section 263 of the Act have been correctly examined by the Assessing Officer at assessment stage. Therefore, when the Assessing Officer adopted one of the courses permissible in law and the view taken by the Assessing Officer was not found to be unsustainable in law, CIT(A) should not substitute the opinion of the Assessing Officer in the proceedings under section 263 of the Act. It, therefore, appears that the learned Commissioner of Income-tax changed the opinion by reappraising the evidences and explanation filed on record, thus it would not give revisional jurisdiction to him under section 263 of the Act to set aside the assessment order. - Decided in favour of assessee.

Issues Involved:
1. Whether the Commissioner of Income-tax (CIT) erred in cancelling the assessment framed by the Assessing Officer (AO) under section 143(3) by treating it as erroneous and prejudicial to the interests of the Revenue.
2. Whether the CIT failed to consider the written submissions and detailed discussions provided by the assessee.
3. Whether the assessment framed by the AO was after due application of mind and considering detailed replies.
4. Whether the CIT's cancellation of the assessment and direction for fresh assessment indicates a lack of confirmed view about the assessment being erroneous and prejudicial to the interests of the Revenue.
5. Whether the CIT erred in concluding that the judgment in Kim Pharma (P) Ltd. was applicable and that the AO failed to make necessary inquiries regarding the set off of loss against surrendered income.
6. Whether the CIT failed to point out how non-maintenance of day-to-day production data/stock records led to the conclusion that the assessment was erroneous and prejudicial to the interests of the Revenue.

Detailed Analysis:

1. Error in Cancelling Assessment:
The CIT cancelled the assessment order under section 143(3), treating it as erroneous and prejudicial to the interests of the Revenue. The CIT noted that the AO failed to make adequate inquiries regarding the set off of unabsorbed losses against surrendered income and did not properly verify the evidence related to the surrender of office equipment and construction of the building. The CIT believed that the AO should have rejected the books of account due to the low gross profit rate and lack of detailed production and stock records.

2. Consideration of Written Submissions:
The assessee argued that the CIT failed to consider the written submissions and detailed discussions provided on various dates, including letters dated May 10, 2013, May 27, 2013, July 14, 2013, and July 15, 2013. The CIT's order did not adequately address these submissions, leading to the assessee's contention that due consideration was not given.

3. Application of Mind by AO:
The assessee contended that the AO had applied his mind and considered detailed replies during the assessment proceedings. The AO issued several statutory notices and called for complete details regarding the manufacturing process, production data, and justification of major expenses. The AO test-checked the books of account and found no infirmities. Therefore, the assessee argued that the AO's assessment should not have been substituted by the CIT.

4. CIT's Lack of Confirmed View:
The assessee argued that the CIT's direction for a fresh assessment indicated that the CIT was not of a confirmed view that the assessment was erroneous and prejudicial to the interests of the Revenue. The CIT's order did not provide elaborate reasons for how the assessment was erroneous, leading to the conclusion that the CIT changed the opinion by reappraising the evidence and explanation on record.

5. Applicability of Kim Pharma (P) Ltd. Judgment:
The CIT concluded that the judgment in Kim Pharma (P) Ltd. was applicable and that the AO failed to make necessary inquiries regarding the set off of loss against surrendered income. The assessee argued that the CIT did not appreciate the factual position as per the written submissions and did not give any direction regarding the set off of loss against surrendered income.

6. Non-Maintenance of Production Data/Stock Records:
The CIT noted that the assessee did not maintain day-to-day production data/stock records, leading to the conclusion that the assessment was erroneous and prejudicial to the interests of the Revenue. The assessee explained that in the nature of its business, it was impossible to maintain detailed quantities of sale and production data. The AO accepted this explanation considering the history of the assessee's business.

Conclusion:
The Tribunal found that the AO made detailed inquiries at the assessment stage and was satisfied with the explanations provided by the assessee. The AO's view was permissible in law, and the CIT should not have substituted his opinion in the proceedings under section 263. The Tribunal set aside the CIT's order under section 263 and restored the original assessment order, concluding that the assessment was not erroneous and prejudicial to the interests of the Revenue.

Result:
The appeal of the assessee was allowed, and the original assessment order was restored.

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