2024 (1) TMI 1230 - HC - Income Tax

Validity of Revision u/s 263 by CIT - ITAT set aside revision proceedings as CIT could not establish order u/s 143(3) as erroneous and prejudicial to the interest of the revenue - Under statement in closing stock - HELD THAT - As tribunal examined the factual aspects as well and noted that the assessee has furnished full details of the stock and the revenue was not able to point out that there is a shortage of stock or how the value declared by the assessee is less in terms of the value as well as in the terms of the quantity. Further the tribunal has also noted that the CIT has not dealt with the aspect as to whether the details were not available before the assessing officer or not during the course of the original proceedings. Secured loan and Commission - Taking note of the aspect that the stock statement submitted by the bank and the stock as per the stock register were exactly matching with each other, the tribunal agreed with the assessee s submission that the assessing officer has conducted due enquiry and thereafter completed his scrutiny assessment. The tribunal also noted that the CIT in his order under Section 263 has only observed that there is a possibility of understatement in the closing stock without a specific finding on the said aspect. Thus, the case on hand is not one such case where no enquiry was conducted by the assessing officer. Thus due enquiry was conducted by the assessing officer and after perusal of the documents, stock register etc. the assessment was completed. The tribunal also re-appreciated the factual position and found that the CIT while exercising power under Section 263 of the Act has not recorded a specific finding that it is as case of no enquiry by the assessing officer rather the observation was there could be a possibility of understatement of the closing stock. Thus, we are satisfied that the tribunal rightly interfered with the order passed by the CIT and allowed the appeal of the assessee. - Decided against revenue.

Summary

Issues involved:
The appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal "B" Bench, Kolkata in ITA No. 416/Kol/2014 for the assessment year 2009-2010.

Details of the judgment:

Issue (a):
The appeal raised the question of whether the Income Tax Appellate Tribunal erred in quashing the order under Section 263 of the Income Tax Act, 1961 passed by the Commissioner of Income Tax, Kolkata-XII. The Commissioner invoked his powers under Section 263 alleging that the assessing officer completed the assessment hastily without proper inquiry. The assessee submitted their reply, but the CIT rejected it, directing further investigation. The tribunal examined the details provided by the assessee regarding the valuation of closing stock and found no understatement. The tribunal noted that the CIT did not address whether the details were available to the assessing officer during the original proceedings.

Issue (b):
The second issue questioned whether the CIT could establish the order under Section 143(3) as erroneous and prejudicial to the revenue's interest. The tribunal found that the assessing officer had conducted due enquiry and completed the scrutiny assessment. The CIT's order under Section 263 only mentioned a possibility of understatement in closing stock without specific findings. The tribunal concluded that the assessing officer had conducted a proper inquiry, and the CIT's order was not justified.

Issue (c):
The last issue raised concerns about the validity of the impugned order, alleging it to be arbitrary, illegal, and a non-application of mind by the Income Tax Appellate Tribunal, Kolkata. The tribunal reviewed the assessing officer's scrutiny assessment and found that due enquiry was conducted. The tribunal disagreed with the CIT's observation of a potential understatement in closing stock and ruled in favor of the assessee.

In conclusion, the High Court dismissed the appeal, holding that the tribunal correctly interfered with the CIT's order under Section 263. The substantial questions of law were answered against the revenue, affirming the tribunal's decision.