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2021 (7) TMI 204 - AT - Income TaxRevision u/s 263 by CIT - AO failed to take up the case of assessment of assessee from Limited Scrutiny to complete scrutiny - PCIT s observation that since there was drop in G.P, AO should have taken up the case for complete scrutiny and failure to do so, makes the order erroneous - Scope of Conversion of assessment from Limited Scrutiny to complete scrutiny - HELD THAT - When we examine such a contention of Ld. PCIT, first we have to examine whether the AO could have taken up this issue for complete scrutiny as per the CBDT Circular No. 5/2016 - AO could not have done so, because for doing so he should have credible material or information from the records before him for forming such a reasonable view that there is a possibility of under assessment of income. Since there was no such credible material or information available on record and being satisfied by the books of account of the assessee, the AO might have made a conscious decision not to take up the case for complete scrutiny as stipulated in CBDT circular which inference we draw because the Ld. PCIT has not mentioned about any such credible material or information available on record to take the opposite view. So when there is no such material or information available on records, the AO could not have formed a reasonable view of under assessment of income on the issue of drop in G.P. Therefore since there is no credible information or material available on record to form a reasonable view that there is a possibility of under assessment, the Ld. PCIT s allegation on this issue is noted to have been based on surmises and conjectures, so we are to the opinion that AO ought not to have taken up this issue (drop in G.P) for expanding the scope of limited scrutiny as per the CBDT Instruction No. 5/2016 dated 14.07.2016. So the fault pointed out by the Ld. PCIT on this score is erroneous. Receipts which assessee received from IOCL relating to tanker lorry - This issue was enquired into and considered by the AO; and thereafter, the AO had proceeded to tax separately the income by estimating as the income from tanker u/s 44AE of the Act. So therefore it is noted that the AO had enquired about the issue and even though the AO s view of adopting the percentage of profit u/s 44AE of the Act, strictly doesn t fall in its ken, however adoption of percentage of profit/estimate for the purpose of taxation on the facts of the case cannot be ground on which the Ld. PCIT can exercise his revisional jurisdiction because, assessee s case is that there is no business income from the tanker lorry. However, the AO made addition - So there is no prejudice caused to the Revenue; and moreover it is not the case of the Ld. PCIT that despite there was credible information or material to suggest that the assessee s tanker lorry was used for transport business of plying/running of tanker lorry, then also the AO failed to take up the issue for scrutiny by seeking approval as envisaged in the CBDT circular. Therefore, in the absence of any such material, the AO could not have taken up the case for enlarging the scope of scrutiny and further the decision of AO to apply presumptive tax rate u/s 44AD - Therefore, the Ld. PCIT erred in finding fault on this issue. Non-examination by the AO in respect of capital introduction by way of LIC / mutual fund maturity and gift etc . - It is not the case of Ld. PCIT that despite there was credible material or information with the AO to form a reasonable view that there was a possibility of under assessment unless this issue was not scrutinized, still the AO failed to act as envisaged in CBDT circular. So when there was no credible material or information available to the AO he could not have taken up the matter for further scrutiny on this issue. And the Ld. PCIT in the impugned order have not mentioned about any credible material or information on this issue in the assessment record which could have prompted the AO to have taken up the case for further scrutiny and therefore the Ld. PCIT erred in finding fault with the AO for not taking up this issue for scrutiny as stipulated by Instruction No. 5/2016 dated 14.07.2016 of CBDT. We are of the considered opinion that Ld. PCIT misdirected himself in law and facts to find that AO failed to take up the case of assessment of assessee from Limited Scrutiny to complete scrutiny as stipulated by CBDT in Instruction No. 5/2016 dated 14.07.2016. - Decided in favour of assessee.
Issues Involved:
1. Invocation of revisionary jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Examination of the sharp drop in Gross Profit (GP) rate. 3. Examination of substantial receipts from IOCL. 4. Examination of capital introduced in the proprietary concern by way of matured LIC and gifts. Detailed Analysis: 1. Invocation of Revisionary Jurisdiction under Section 263 of the Income Tax Act, 1961: The Assessee challenged the invocation of revisionary jurisdiction under Section 263 by the Principal Commissioner of Income Tax (PCIT), arguing that the conditions precedent—namely, that the Assessing Officer’s (AO’s) order was erroneous as well as prejudicial to the revenue—were not satisfied. The Tribunal referred to the Supreme Court’s decision in Malabar Industries Ltd. vs. CIT, which stipulates that both conditions must be met for the exercise of revisionary jurisdiction. The Tribunal found that the AO had not committed any errors that were prejudicial to the revenue, as the AO had followed due process and there was no credible material to suggest under-assessment of income. 2. Examination of the Sharp Drop in Gross Profit (GP) Rate: The PCIT found fault with the AO for not investigating the sharp drop in the GP rate during the year. The Tribunal noted that the assessee’s turnover had increased substantially, which could naturally lead to a reduction in the profit margin. The Tribunal cited the Calcutta High Court’s decision in Ashoka Refractories (P) Ltd. vs. CIT, which held that books of account cannot be rejected merely due to low GP. The Tribunal concluded that the AO had no credible material or information to form a reasonable view of under-assessment of income based on the drop in GP rate, and thus, the AO's decision not to expand the scope of scrutiny was justified. 3. Examination of Substantial Receipts from IOCL: The PCIT raised concerns about the AO’s failure to disallow the depreciation claim related to the oil tanker. The Tribunal found that the AO had indeed initiated an enquiry into this issue, and the assessee had clarified that the tanker was used only for transporting oil to her petrol pump, not for any business of plying, hiring, or leasing. The AO had made an addition of ?54,000 under Section 44AE of the Act, which the Tribunal found to be a reasonable estimation. The Tribunal noted that the AO had no credible material to suggest that the tanker was used for business purposes, and thus, the PCIT’s allegation was unfounded. 4. Examination of Capital Introduced in the Proprietary Concern by Way of Matured LIC and Gifts: The PCIT found fault with the AO for not scrutinizing the capital introduced by the assessee through matured LIC policies and gifts. The Tribunal noted that the PCIT did not provide any credible material or information that could have prompted the AO to scrutinize this issue further. The Tribunal concluded that in the absence of such material, the AO could not have reasonably formed a view that there was a possibility of under-assessment of income, and thus, the AO's decision not to expand the scope of scrutiny was justified. Conclusion: The Tribunal quashed the PCIT’s order, finding that the AO had not committed any errors that were prejudicial to the revenue and had followed due process as per the CBDT Instruction No. 5/2016 dated 14.07.2016. The appeal of the assessee was allowed.
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