2024 (2) TMI 865 - AT - Income Tax

Revision u/s 263 - assessment order framed u/s 147 r.w.s 143(3) questioned - non-verification/non-application of mind by the AO - HELD THAT - As regards to the non-verification/ mismatching in the amount of freight advances vis-a-vis freight charges shown in the balance sheet as on 31/03/2012, we note that the AO has verified the necessary details during the income escaping proceedings and reached to the conclusion that there is no mismatch in the amount of freight advances shown in the ledger vis-a-vis shown in the balance sheet requiring any addition. There remains no ambiguity to the fact that the AO has applied his mind during the assessment proceedings and therefore assessment order cannot be held as erroneous in so far prejudicial to the interest of revenue on account of non-verification. In holding so, we draw support and guidance from the judgment of Design mate India (P.) Ltd. 2017 (8) TMI 959 - GUJARAT HIGH COURT As perused the copy of the ledger under the head Cement Freight paid advance the entire amount of such advance was adjusted against the cement freight expenses and therefore, no closing balance shown against such cement freight paid advance in the balance sheet. As such, what we find is this that the Ld. PCIT has referred to the cement freight paid advances ledger showing under the debit column after ignoring credit shown under such advance ledger. PCIT after ignoring the credit entries in such ledger has wrongly assumed that the advances shown under the debit column should match with the advances shown in the balance sheet as on 31/03/2012. However, we find that the approach adopted by the PCIT was erroneous as he cannot pick and choose only debit side of ledger after ignoring credit entries shown in such ledger account. In view of the above, we dis-agree with the findings of the Ld. PCIT. Who will acquire the satisfaction as provided under the provision of 147? - It is the satisfaction of the AO who can touch the issues which came to his/her notice during the proceeding u/s 147 of the Act but same was not subject matter of reopening of the assessment u/s 147 of the Act. PCIT cannot go to touch those issues with respect to which the AO was satisfied in the proceeding s u/s 147 of the Act, and therefore he chooses not to touch those other issues. Admittedly, the assessee did not appear before the ld. PCIT, yet the ld. PCIT has to pass the order within the framework of the law. In the present case the ld. PCIT has picked up part of the information from the ledger copy discussed above to hold the order of the AO as erroneous in so far prejudicial to the interest of the revenue. In our considered view, such basis is not permissible under the provision of law. Decided in favour of assesse.

Summary

Issues Involved:
1. Whether the assessment order passed by the AO under Section 147 r.w.s 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of revenue as per Section 263 of the Act.
2. Non-verification of freight advances.
3. Payments made in cash violating Section 40A(3) of the Act.
4. Discrepancy in the profit share of a partner.
5. Verification of outstanding sundry creditors.

Summary:

1. Assessment Order Under Section 147 r.w.s 143(3):
The assessee, a partnership firm engaged in the transportation business, filed its return declaring an income of Rs. 2,53,12,550/-. The case was selected for scrutiny, and the AO estimated the gross profit, resulting in an addition to the total income. Proceedings under Section 147 were initiated due to a mismatch in advance freight charges, but the AO, after verification, accepted the income computed earlier. The PCIT, however, found defects in the reassessment order and held it as erroneous and prejudicial to the interest of revenue under Section 263.

2. Non-verification of Freight Advances:
The PCIT observed a mismatch in freight advances shown in different ledgers and the financial statement. The AO did not examine this discrepancy during the assessment proceedings. However, the tribunal noted that the AO had verified the necessary details during the income escaping proceedings and found no mismatch requiring any addition.

3. Payments Violating Section 40A(3):
The PCIT highlighted certain cash payments made in contravention of Section 40A(3), which the AO failed to disallow. The tribunal found that the AO had verified these transactions during the original assessment proceedings, indicating the application of mind.

4. Discrepancy in Partner's Profit Share:
One partner's profit share indicated a higher total profit for the firm than what was declared in the income tax return. The PCIT believed this discrepancy was not verified by the AO. The tribunal, however, held that the AO could only assess issues that came to notice during the reassessment proceedings and not beyond the scope of the original reasons for reopening the assessment.

5. Verification of Sundry Creditors:
The PCIT noted that certain sundry creditors were shown as doubtful but were not independently verified by the AO. The tribunal emphasized that the AO's satisfaction during the reassessment proceedings should limit the scope of verification, and the PCIT could not extend it beyond the AO's findings.

Conclusion:
The tribunal concluded that the PCIT exceeded his jurisdiction by directing the AO to make additions/disallowances beyond the scope of the reassessment proceedings. The tribunal quashed the PCIT's order, holding that the assessment order was not erroneous or prejudicial to the interest of revenue. The appeal of the assessee was allowed.