2017 (1) TMI 809 - AT - Income Tax

Revision u/s 263 - addition on account of defective vouchers - Held that - We find that the assessing officer had framed the assessment specifically on the issue pointed out by the ADI regarding verification of the discrepancies pointed out in the vouchers.Looking to the kind of discrepancies in the vouchers of various expenditure as mentioned above the assessing officer had arrived at the conclusion to make addition on account of defective vouchers. These facts indicate that the assessing officer had taken into consideration, verification and examination the report of the ADI during the course of assessment proceedings. We are not in agreement with the CIT that no inquiries were conducted by the assessing officer. Therefore, considering the above stated facts, findings and material on record we find that the assessment order cannot be said to be erroneous and prejudicial to the interest of revenue. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction and legality of the order under section 263 of the Income Tax Act, 1961.
2. Verification of alleged infusion of capital.
3. Verification of purchase of Bentonite from a related party.
4. Verification of an unsecured loan.
5. Applicability of section 50C on the sale of a plot.
6. Verification of expenses claimed.
7. Adequacy of inquiries conducted by the Assessing Officer (AO).

Detailed Analysis:

1. Jurisdiction and Legality of the Order under Section 263:
The assessee challenged the jurisdiction and legality of the order passed by the Commissioner of Income Tax (CIT) under section 263, arguing that the order was "without jurisdiction and bad in law as also on facts." The assessee contended that the CIT failed to establish that the assessment order was "erroneous and prejudicial to the interest of revenue."

2. Verification of Alleged Infusion of Capital:
The CIT alleged that the Assessing Officer (AO) did not verify the infusion of capital amounting to ?1.43 Crores. The assessee clarified that the capital was transferred from personal books to the books of the proprietary concern, "Shri Hari Impex," and provided evidence such as the capital account and balance sheets to support the claim. The AO was satisfied with the explanation and did not find it necessary to make further inquiries.

3. Verification of Purchase of Bentonite from a Related Party:
The CIT pointed out that the AO did not scrutinize the purchase of Bentonite worth ?50.27 Lakhs from Patel Mines, a related party under section 40(A)(2)(b). The assessee provided comparative statements and sale bills to demonstrate that the purchases were made at prevailing market rates and that no excessive payments were made. The AO accepted this explanation after verification.

4. Verification of Unsecured Loan:
The CIT noted that the AO failed to scrutinize an unsecured loan of ?9,00,000/- taken from Smt. Amrutaben Harji Jodhani. The assessee provided confirmation, balance sheets, and tax returns of the creditor to establish the identity, genuineness, and creditworthiness of the transaction. The AO found the explanation satisfactory.

5. Applicability of Section 50C on Sale of Plot:
The CIT contended that the AO did not verify the applicability of section 50C on the sale of a plot. The assessee argued that the sale consideration was approved by the Kandla Port Trust (KPT) and that section 50C should not apply to leasehold properties. The AO accepted the sale consideration as fair market value based on the material provided.

6. Verification of Expenses Claimed:
The CIT alleged that the AO did not verify the deduction of ?3,46,334/- from the net profit. The assessee clarified that this amount was not claimed as a deduction but was debited as bank interest and charges. The AO verified the computation of income and found no under-assessment.

7. Adequacy of Inquiries Conducted by the AO:
The CIT argued that the AO finalized the assessment without conducting necessary inquiries, citing discrepancies in vouchers and other irregularities. The AO had asked the assessee to furnish various details, which were provided and verified. The AO made a lump-sum disallowance of ?40,000/- for defective vouchers after test-checking the books of accounts and vouchers. The Tribunal found that the AO had conducted adequate inquiries and verification, and the assessment order was not erroneous or prejudicial to the interest of revenue.

Conclusion:
The Tribunal concluded that the AO had made proper inquiries and verifications as required. The assessment order was neither erroneous nor prejudicial to the interest of revenue. Therefore, the appeal of the assessee was allowed, and the order passed under section 263 by the CIT was quashed.

← Previous Next →