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2022 (11) TMI 812 - AT - Income TaxRevision u/s 263 - subject matter of appeal before the Ld. CIT(Appeals) and is still pending adjudication - as per CIT, difference in closing stock was not added U/s 68 but net profit was assessed as income and therefore the assessment order dated 30.12.2017 passed u/s 143(3) r.w.s 147 of the Act appears to be erroneous as well as prejudicial to the interest of the revenue - HELD THAT - We could see from the grounds of appeal that the assessee disputed the entire addition including the difference in closing stocks and, therefore, when the larger issue of whether there is any difference in closing stock at all is the subject matter of appeal before the Ld. CIT(Appeals) and is still pending adjudication the Ld. PCIT could not have assumed jurisdiction u/s. 263 of the Act. The jurisdictional High Court in the case of CIT Vs. Vam Resorts and Hotels Pvt. Ltd. 2019 (8) TMI 1418 - ALLAHABAD HIGH COURT held that when an appeal is pending before the Ld. Commissioner (Appeals) the exercise of jurisdiction u/s. 263 of the Act by the CIT is barred as per clause (c) of Explanation 1 to Section 263 of the Act - Also see SMT. RENUKA PHILIP 2018 (12) TMI 129 - MADRAS HIGH COURT Thus since the larger issue of whether there is any difference in closing stock at all is the subject matter of appeal before the Ld. CIT(A) we hold that the Ld. PCIT is barred in assuming jurisdiction u/s. 263 of the Act. Also from the order of the Ld. PCIT the assessment order passed by the Assessing Officer was held to be erroneous and prejudicial to the interest of the Revenue stating that the AO has not made enquiries. The Ld. PCIT is also of the view that the difference in closing stock should have been added as income u/s. 68 of the Act. In the course of assessment proceedings the assessee was required to explain the difference in closing stock and the assessee has furnished charts, reconciliation statement, explanations etc., which was examined by the AO and decision was taken to treat the difference in opening stock, purchases, sales, closing stock, GP/net profit as income of the assessee. Therefore, the observations of the Ld. PCIT that the AO has not carried out any enquiries are not borne out from record. We also observe that the Ld. PCIT having observed that the AO has not made an enquiry the Ld. PCIT failed to point out any deficiency in enquiries and also not made any minimal enquiry by himself to prove that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. As enquiries were certainly made by the Assessing Officer as observed above and it is not a case of no enquiry at all. In view of the decision in the case of DIT vs. Jyoti Foundation 2013 (7) TMI 483 - DELHI HIGH COURT we hold that the Ld. PCIT should not have set aside the assessment order and directed the Assessing Officer to conduct enquiry. - Decided in favour of assessee.
Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Assessment order being erroneous and prejudicial to the interest of the Revenue. 3. Adequacy of enquiries made by the Assessing Officer during assessment proceedings. 4. Whether the subject matter of appeal before CIT(A) bars the invocation of Section 263. Detailed Analysis: 1. Assumption of Jurisdiction under Section 263: The assessee argued that the Principal Commissioner of Income Tax (PCIT) erred in assuming jurisdiction under Section 263 of the Income Tax Act, 1961. The PCIT issued a notice under Section 263 stating that the difference in closing stock of Rs. 21,87,38,966/- was undisclosed and should be added to the income of the assessee. The PCIT held that the assessment order was erroneous and prejudicial to the interest of the Revenue because the Assessing Officer (AO) did not add this difference under Section 68 of the Act. The assessee contended that the entire addition of net profit on the alleged difference in closing stock was already the subject matter of appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. Assessment Order Being Erroneous and Prejudicial to the Interest of Revenue: The PCIT held that the assessment order was erroneous and prejudicial to the interest of the Revenue because the AO did not make the addition of the alleged difference in closing stock under Section 68 of the Act. The assessee argued that the alleged net profit of Rs. 19,90,13,470/- already took into account the impact of the closing stock of Rs. 30,31,62,405/- and that this difference was merely an arithmetical calculation. The assessee contended that during the survey, no material was found to show that this alleged difference was actual. 3. Adequacy of Enquiries Made by the AO: The PCIT argued that the AO did not make proper enquiries or verification to arrive at the correct and complete facts. However, the assessee submitted that the AO had made all necessary enquiries and examined the evidences, submissions, and replies filed by the assessee. The AO had required the assessee to furnish explanations regarding the difference in stock, and the assessee had provided a reconciliation of the data between the stock summary and the audited balance sheets. The assessee contended that the PCIT failed to point out any deficiency in the enquiries made by the AO. 4. Subject Matter of Appeal Before CIT(A): The assessee argued that since the entire addition of net profit on the alleged difference in closing stock was already the subject matter of appeal before the CIT(A), the assumption of jurisdiction by the PCIT under Section 263 was bad in law. The assessee relied on various judicial decisions, including the jurisdictional High Court decision in CIT Vs. Vam Resorts & Hotels (P) Ltd., which held that when an appeal is pending before the CIT(A), the exercise of jurisdiction under Section 263 by the PCIT is barred. Tribunal's Findings: The tribunal observed that the larger issue of whether there was any difference in closing stock at all was the subject matter of appeal before the CIT(A) and was still pending adjudication. Therefore, the PCIT could not have assumed jurisdiction under Section 263. The tribunal also noted that the AO had made necessary enquiries and examined the evidences provided by the assessee during the assessment proceedings. The tribunal held that the PCIT failed to demonstrate how the assessment order was erroneous and prejudicial to the interest of the Revenue. The tribunal relied on the decision of the jurisdictional High Court and other judicial precedents to conclude that the assumption of jurisdiction by the PCIT under Section 263 was bad in law. Conclusion: The tribunal set aside the order of the PCIT and allowed the appeals of the assessee for the assessment years 2014-15 and 2015-16, holding that the assumption of jurisdiction under Section 263 by the PCIT was bad in law. The tribunal emphasized that the subject matter of appeal before the CIT(A) barred the invocation of Section 263 and that the AO had made adequate enquiries during the assessment proceedings.
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