2016 (9) TMI 998 - AT - Income Tax

Revision u/s 263 - correctness of building maintenance expenditure, interest and finance charges, pre-paid expenses, sales commission, re-payment of loans, advance against purchase of raw materials and payments made to specified persons u/s 40A(2)(b) - Held that - Unless the order passed by the A.O.is erroneous and prejudicial to the interest of the revenue, the CIT cannot assume jurisdiction to revise the assessment order, this is because the twin conditions i.e. the order is erroneous and the same is prejudicial to the interest of the revenue are co-exist. In the present case on hand, on perusal of the facts available on record, we find that the A.O. has conducted detailed enquiry and also examined all the issues pointed out by the CIT in this show cause notice. The assessee has explained each and every issue pointed out by the CIT with necessary evidences. The CIT, cannot assume jurisdiction to revise assessment order, once, assessee explained that it had filed all the details before the A.O. on the issues on which CIT wants further verification. It is the general presumption of law that, the A.O. has considered all the details before completion of assessment and the CIT cannot presume that the enquiries conducted by the A.O. is insufficient and also the A.O. has not applied his mind, unless CIT proves that the assessment order passed by the A.O. is erroneous. Therefore, we are of the view that the assessment order passed by the A.O. u/s 143(3) of the Act dated 29.11.2011 is not erroneous in so far as it is prejudicial to the interest of the revenue. - Decided in favour of assessee

Issues Involved:
1. Validity of the revision order under Section 263 of the Income Tax Act, 1961.
2. Examination of specific issues by the Assessing Officer (A.O.) during the original assessment.
3. Jurisdiction of the Commissioner of Income Tax (CIT) in revising the assessment order.
4. Twin conditions for invoking Section 263: Erroneous and prejudicial to the interest of revenue.
5. Adequacy of inquiry conducted by the A.O.

Detailed Analysis:

1. Validity of the Revision Order under Section 263 of the Income Tax Act, 1961:
The CIT, Rajahmundry issued a show cause notice proposing to revise the assessment order passed by the A.O. under Section 143(3) of the Act, dated 29.11.2011, on the grounds of certain omissions and commissions rendering the order erroneous and prejudicial to the interest of the revenue. The CIT observed that the A.O. had not verified issues such as excise duty payments, building maintenance expenditure, interest and finance charges, pre-paid expenses, sales commission, advances against purchase of material, bank reconciliation statements, payments to specified persons under Section 40A(2)(b), repayment of loan creditors, and differences in raw materials consumed.

2. Examination of Specific Issues by the A.O. During the Original Assessment:
The assessee argued that the A.O. had examined all the issues pointed out by the CIT during the original assessment. The assessee submitted that it had provided books of accounts and other relevant information in response to various show cause notices issued by the A.O. The A.O. had issued specific questionnaires on five occasions, and the assessee had responded with detailed explanations and supporting documents, including excise returns, ledger accounts, bank reconciliation statements, and details of raw materials purchased and consumed.

3. Jurisdiction of the CIT in Revising the Assessment Order:
The CIT, after considering the submissions of the assessee, held that the assessment order was erroneous and prejudicial to the interest of the revenue due to the A.O.'s failure to examine the issues in detail. The CIT noted discrepancies in bank balances, payments to specified persons, sales commission, and differences in creditors' confirmations. The CIT concluded that the A.O. had not applied his mind adequately and directed the A.O. to pass a consequential order after giving the assessee an opportunity of being heard.

4. Twin Conditions for Invoking Section 263: Erroneous and Prejudicial to the Interest of Revenue:
The Tribunal emphasized that for the CIT to assume jurisdiction under Section 263, the twin conditions must be satisfied: the order must be erroneous and prejudicial to the interest of the revenue. The Tribunal noted that the A.O. had conducted detailed inquiries and examined the issues pointed out by the CIT. The assessee had provided necessary details and explanations, which the A.O. had considered before completing the assessment. Therefore, the Tribunal held that the assessment order was not erroneous or prejudicial to the interest of the revenue.

5. Adequacy of Inquiry Conducted by the A.O.:
The Tribunal found that the A.O. had issued detailed questionnaires and the assessee had responded with comprehensive details. The A.O. had examined the issues, including bank reconciliation statements, raw materials consumption, excise duty payments, and other expenses. The Tribunal observed that the CIT cannot assume jurisdiction to revise the assessment order merely because he had a different opinion on the adequacy of the inquiry conducted by the A.O. The Tribunal cited relevant case law, including the decision of the Hon’ble High Court of Delhi in CIT Vs. Sunbeam Auto Ltd., which held that a distinction must be made between "lack of inquiry" and "inadequate inquiry."

Conclusion:
The Tribunal concluded that the assessment order passed by the A.O. under Section 143(3) dated 29.11.2011 was not erroneous in so far as it was prejudicial to the interest of the revenue. The CIT's order under Section 263 was quashed, and the original assessment order was restored. The appeal filed by the assessee was allowed.

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