2016 (2) TMI 702 - AT - Income Tax

Revision u/s 263 - unrecorded purchases - distinction between lack of enquiry and inadequate enquiry - Held that - AO failed to make proper enquiry which he ought to have made before completing the assessment. There is a distinction between lack of enquiry and inadequate enquiry . If there is an enquiry even inadequate that would not by itself give occasion to the CIT to pass order under s. 263 merely because he has a different opinion in the matter. Such a course of action is open only in cases of lack of enquiry . Although apparently the assessment does not give any reasons why purchased were not being added as income that by itself would not be indicative of the fact that the AO has not applied his mind to the issue. AO is not required to give detailed reason in respect of each and every item of deduction in the assessment order. AO had called for explanation regarding suppressed sales and the assessee had furnished his explanation. Thus it cannot be said that it is a case of lack of enquiry . Further even the CIT is not clear as to whether entire purchases has to be added or peak purchases has to be added or the entire sales has to be added as income. Therefore the view taken by the AO was one of the possible views and the assessment order passed by the AO could not be held to be prejudicial to the Revenue. Even the CIT conceded the position that the AO made the inquiries elicited replies on Gross Profit and thereafter passed the assessment order. The grievance of the CIT was that the AO should have made further inquiries as to whether any addition has to be made on account of unrecorded purchases or whether the entire suppressed sales had to be regarded as income of the Assessee rather than accepting the explanation. Therefore it cannot be said that it is a case of lack of inquiry . The decision of the Hon ble Bombay High Court in the case of Ganbriel India Ltd. (supra) clearly supports the stand taken by the Assessee in this regard. Thus we are of the view that the jurisdiction u/s.263 of the Act was not properly exercised by the CIT as the condition precedent for invoking the same viz. that the order of the AO is erroneous and prejudicial to the interest of the revenue is not shown to be present in the present case. We therefore quash the order u/s.263 of the Act and allow the appeal by the Assessee.

Summary

Issues:
Appeal against order dated 25.3.2013 by CIT, Kolkata-XIV-Kolkata u/s.263 of the Act for AY 2006-07.

Analysis:
The Assessee, an individual dealing in auto parts, filed a return for AY 2006-07. A survey revealed unrecorded sales transactions, leading to proceedings u/s.147 initiated in 2009. The AO found unrecorded sales of Rs. 2,26,293 and applied 17% GP on it, adding Rs. 38,470 to total income. The CIT under s.263 contended that entire sales or unrecorded purchases should be added as income. Assessee argued that only GP on unrecorded sales should be added, citing trade practices. CIT set aside the assessment order, directing a fresh assessment.

The Assessee contended that the AO had considered all evidence before adding GP on unrecorded sales, and CIT's intervention was unwarranted. The Tribunal noted that AO had examined the issue, and lack of detailed reasons in the assessment order did not imply lack of enquiry. The AO's decision was deemed one of the possible views, and CIT's dissatisfaction did not justify invoking s.263. Previous court decisions supported the Assessee's stance, leading the Tribunal to quash the CIT's order under s.263.

Therefore, the Tribunal held that the CIT did not properly exercise jurisdiction under s.263, as the AO's order was not shown to be erroneous or prejudicial to revenue. The appeal by the Assessee was allowed, quashing the order under s.263.