2022 (6) TMI 726 - AT - Income Tax

Revision u/s 263 by CIT - assessee had paid a sum towards electricity charges in cash which are dis-allowable u/s 40A(3) and AO did not examine this aspect at all during assessment proceedings - CIT further held that the explanation of the assessee that payment had to be made in cash since the cheque issued to the electricity company was dishonoured due to insufficient funds was found to be not acceptable because if the cash was available in the books of accounts then the same could have been deposited in the bank before issuing the cheque - Secondly Principal CIT observed that remuneration of Rs. 12, 00, 000/- was paid to partners of the firm - HELD THAT - We note that the order passed by the assessing officer is a brief order and does not discuss in detail the various details called for and the explanation given by the assessee. The AO has accepted the returned income filed by the assessee. Though we note that though the AO had from time to time sought for various details from the assessee and also for certain matters in respect of which Principal CIT has made certain observations the Ld. Assessing Officer had sought for details and analysed the issues for instance one related to payment of remuneration to HUF in respect of which there was an ongoing litigation in previous years however we equally note that in respect of certain issues for instance the difference - in respect of receipts as compared to party -wise ledger accounts there was an obvious omission on the part of the assessing officer in not carrying out the necessary reconciliation between total receipts under the head Sales with the party -wise accounts reflected as job work receipts from the various parties. As noted by the Principal CIT even during the 263 proceedings the assessee has not been able to satisfactorily reconcile the difference. Another aspect for consideration is the disallowance on account of late payment of employees Provident Fund beyond the due date prescribed under the relevant Act. This issue was not analysed by the AO during the course of assessment proceedings especially when the language of the Act is clear and unambiguous. In our view during the course of assessment proceedings the AO did not verify certain details which in our view should have been done in order to assess the correct taxable income of the assessee. Accordingly in a considered view the Principal CIT has not erred in law and facts in setting aside the assessment order under s. 263 of the Act since the same is erroneous and prejudicial to the interests of the revenue. The same is accordingly being set aside to pass a fresh order after giving due opportunity of hearing to the assessee. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act
2. Examination of various issues by Assessing Officer
3. Disallowance of expenses and late payments
4. Reconciliation of discrepancies in accounts
5. Application of penalty provisions

Jurisdiction under Section 263 of the Income Tax Act:
The appeal involved the jurisdiction of the Principal Commissioner of Income Tax-3, Ahmedabad under Section 263 of the Income Tax Act against the order passed under Section 143(3) for the assessment year 2010-11. The Principal CIT initiated proceedings under Section 263, deeming the assessment order as erroneous and prejudicial to the interests of revenue. The grounds of appeal challenged the assumption of jurisdiction by the Principal CIT, arguing that the order under Section 143(3) was not erroneous or prejudicial to the revenue's interest.

Examination of Various Issues by Assessing Officer:
The Principal CIT identified multiple issues where the Assessing Officer (AO) had allegedly failed to conduct proper examination during the assessment proceedings. These issues included disallowance of certain expenses, reconciliation of accounts, late payment of Provident Fund contributions, and discrepancies in TDS claims. The Principal CIT found that the AO did not adequately address these issues, leading to an order that was deemed erroneous and prejudicial to revenue. The appellant contended that the AO had already dealt with these issues during assessment, but the Principal CIT disagreed, emphasizing the need for a thorough examination and verification of relevant details.

Disallowance of Expenses and Late Payments:
The Principal CIT highlighted instances where expenses were disallowed or late payments were made without proper justification. The AO's failure to disallow cash payments for electricity charges, remuneration to partners, delayed PF contributions, and discrepancies in sales receipts led to the order being considered erroneous. The appellant argued that explanations were provided for these expenses, but the Principal CIT found them unsatisfactory, emphasizing the need for adherence to statutory provisions and proper documentation.

Reconciliation of Discrepancies in Accounts:
One significant issue raised was the discrepancy in accounts, particularly the variance between total sales and job work receipts. The AO did not reconcile these differences adequately, leading to a lack of clarity in the assessment order. The Principal CIT noted that the appellant failed to provide a satisfactory explanation for these discrepancies, further supporting the decision to set aside the order for a fresh assessment.

Application of Penalty Provisions:
The Principal CIT also raised concerns regarding the application of penalty provisions, specifically related to advances received and repaid in cash against labor work. The AO's failure to analyze the applicability of relevant sections and penalties further contributed to the order being deemed erroneous and prejudicial to revenue. The appellant argued against the imposition of penalties, citing previous cases and legal provisions, but the Principal CIT upheld the need for a re-assessment to address these issues appropriately.

In conclusion, the Appellate Tribunal upheld the decision of the Principal CIT, setting aside the assessment order and directing a fresh assessment after providing the appellant with a hearing opportunity. The appeal was dismissed, emphasizing the importance of thorough examination, verification of details, and adherence to statutory provisions in income tax assessments.