2020 (10) TMI 565 - HC - Income Tax

Revision u/s 263 - additions on the basis of the report of the special audit - payment to the related parties covered u/s 40A(2)(b) including the job work charges, purchases of services, etc. - HELD THAT - The finding of fact recorded by the Appellate Tribunal, after due consideration of the relevant aspects of the matter, is that the assessment order was framed u/s 143(3) of the Act after due verification by the A.O. - order of the AO could not be said to be erroneous and prejudicial to the interest of the Revenue. The Tribunal has also recorded a finding that the assessee had furnished complete details of the parties and the accounts. We are convinced with the reasonings assigned by the Appellate Tribunal while allowing the appeal of the assessee. We are of the view that none of the three questions proposed by the Revenue could be termed as the substantial questions of law.

Summary

Issues:
1. Appeal against order passed by Income Tax Appellate Tribunal
2. Consideration of substantial questions of law under Section 260A of the Income Tax Act, 1961
3. Assessment order under Section 143(3) challenged under Section 263
4. Conduct of necessary enquiries by Assessing Officer
5. Application of mind by Assessing Officer during assessment proceedings
6. Verification of fixed assets and unsecured loans
7. Compliance with requirements of notices issued under Section 142(1) of the Act
8. Tribunal's reliance on legal precedents
9. Finding of Appellate Tribunal regarding assessment order

Analysis:
The High Court heard the appeal under Section 260A of the Income Tax Act, 1961, filed by the Revenue against the order of the Income Tax Appellate Tribunal. The substantial questions of law proposed by the Revenue included the justification of quashing the order under Section 263 and the adequacy of necessary enquiries conducted by the Assessing Officer. The Court noted that the assessment order was challenged under Section 263 by the CIT-3, Ahmedabad, deeming it erroneous and prejudicial to revenue's interest. Subsequently, the accounts were audited under Section 142(2A) based on directions from the CIT-3, leading to additions in the assessment order based on the special audit report and the Section 263 order.

The Appellate Tribunal partly allowed the appeal by the assessee, emphasizing that the Assessing Officer had conducted necessary enquiries during the assessment proceedings, particularly regarding fixed assets and unsecured loans. The Tribunal found that the AO had requested details from the assessee, who provided comprehensive responses and submissions, indicating due application of mind by the AO. The Tribunal also considered the compliance with notices issued under Section 142(1) of the Act, where the assessee had furnished required details as per the format specified.

Moreover, the Tribunal's decision was supported by legal precedents from the Supreme Court and High Courts. The Court concurred with the Tribunal's findings, stating that the assessment order was not erroneous or prejudicial to revenue's interest, as the AO had verified the details adequately. Consequently, the Court dismissed the Revenue's appeal, concluding that none of the proposed questions constituted substantial questions of law. The judgment highlighted the importance of proper verification and compliance during assessment proceedings to ensure the validity of the assessment order.