2016 (3) TMI 208 - AT - Income Tax

Revision u/s 263 - Held that - As regards the directions of the Ld.CIT to AO to verify details of the claims of depreciation made by the assessee, the AO in the fresh assessment proceedings held that, the assessee made no claim for depreciation. Thus this observation of the Ld.CIT, Meerut is factually in correct. There is neither an error in the original order of the AO passed u/s 143(3) of the Act on 16.12.2010, nor there is any prejudice caused to the Revenue. Hence this ground of revision is devoid of merit. Directions of the Ld.CIT given to the AO to verify the unsecured creditors, unsecured loans, the AO in his fresh assessment order passed u/s 143(3) r.w.s.263 of the Act, did not draw any adverse inference. This direction of the Ld.CIT was in the nature of directing rowing enquiries. No specific finding was arrived at by the Ld.CIT that there was prejudice caused to the Revenue or that there was an error in the original order of the AO passed u/s 143(3) of the Act. Thus this ground of revision is bad in law. On non maintenance of books of accounts finding of the Ld.CIT is wrong. Maintenance of records and books as prescribed u/s 44 (GG)(AA) r.w.s. 6F(3) of the Act is applicable to only professionals. The assessee being a limited company, cannot be said to be carrying on any profession. The assessee company has maintained books of accounts as required under law. Thus the foundation on which the Ld.CIT, Meerut came to a conclusion that the books of accounts of the assessee have to be rejected by invoking the provisions of S.145(3) is not legally tenable. This is a case where Ld.CIT has rejected the books of accounts, without even examining the same. The turnover as well as profits are estimated on surmises and conjectures. This cannot be sustained as it is totally arbitrary and illegal. - Decided in favour of assessee

Summary

Issues:
- Disallowances made by the Assessing Officer under sections 40(a)(ia) and 36(1)(va) r.w.s. 2(24)(x)
- Rejection of books of accounts by the Ld.CIT, Meerut
- Estimation of net receipts and net profit by the Ld.CIT
- Directions to verify details of depreciation claims, unsecured creditors, and loans
- Legal applicability of maintenance of books of accounts under section 44AA r.w. rule 6F(3) to a limited company
- Application of principles governing the powers of the Ld.CIT under section 263 of the Act

Analysis:

The appeal concerns disallowances made by the Assessing Officer under sections 40(a)(ia) and 36(1)(va) r.w.s. 2(24)(x). The Ld.CIT, Meerut revised the order, citing errors and prejudice to Revenue. The Ld.CIT directed the AO to verify depreciation claims, unsecured creditors, and loans. However, the AO clarified that no depreciation claim was made by the assessee. The Tribunal found these directions to lack merit as they did not affect the Revenue.

Regarding the rejection of books of accounts by the Ld.CIT and estimation of net receipts and profits, the Tribunal held the Ld.CIT's actions as unfounded. The Ld.CIT's finding that the assessee failed to maintain records as per section 44AA r.w. rule 6F(3) was deemed incorrect. The Tribunal referenced precedents to establish that a limited company is not engaged in a profession and thus not subject to the same record-keeping requirements.

The Tribunal further analyzed the principles governing the Ld.CIT's powers under section 263 of the Act. It emphasized the need for the Commissioner to be satisfied of errors prejudicial to Revenue before invoking revision powers. The Tribunal found the Ld.CIT's revision, based on flawed grounds and lack of proper examination, to be legally untenable. Citing legal precedents, the Tribunal quashed the Ld.CIT's order under section 263 as unsound in law.

In conclusion, the Tribunal allowed the assessee's appeal, highlighting the incorrectness of the Ld.CIT's actions and the lack of legal basis for the revision under section 263. The order was pronounced in the Open Court on 27th January 2016.