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TMI Blog2016 (5) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts in case the same are incorrect or incomplete so as to ascertain the correct profits and applied the reasonable rate of profit on the turnover. When the books of accounts have initially been examined by the AO on the test check basis and then have been duly produced before ld. CIT during proceedings u/s 263 who got an opportunity to scrutinize the same, it would not be fair to put the assessee in the initial stage of assessment again and again without any of his fault. So, we are of the considered opinion that on merits, order u/s 263 is also not sustainable - Decided in favour of assessee Non charging of interest on advances - interest disallowed on proportionate basis - Held that:- When the assessee has categorically claimed to have not paid any interest on any of his unsecured loan during the assessment year under consideration, no disallowance needs to be made on this issue. So, we are of the considered view that ld. CIT has hurriedly decided this issue without controverting submissions made by the assessee during proceedings u/s 263 of the Act nor has conducted any independent enquiry. - Decided in favour of assessee Addition of sundry creditors - Held that:- Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the AO. was neither erroneous nor prejudicial to the interest of revenue. (b) The ld. CIT had no jurisdiction to invoke section 263 of the I.T. Act, 1961. (c) The ld. AO. has passed the order dt. 06.12.2010 u/s 143(3) after proper application of mind. (d) Various Observations and directions made by the ld. CIT in his section 263 order are either incorrect or are untenable in law and various case laws relied upon by the Id. CIT are not applicable to the appellant's case, being distinguishable on facts. 2. That, without prejudice to ground no.1 above the direction of Id. CIT to AO vide Para 8 to disallow proportionate interest paid by the assessee on advances are also illegal, unjust and untenable. 3. That without prejudice to above, grounds, the ld. CIT has grossly erred in law by making additions of ₹ 21,25,298/- and ₹ 28,30,711/- u/s 68 of the I.T. Act,1961 holding that the total amount of sundry creditors including expenses payable and total unsecured loans outstanding as on the last date of the previous year (including opening balance thereof brought over from earlier years) remained unexplained and unproved and the action of ld. CIT is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. A bare perusal of the impugned order passed by the ld. CIT u/s 263 goes to prove that the issue as to the tax audit report and as to the quantitative details etc. has never been raised by the ld. CIT in the show-cause notice dated 12.12.2013 issued u/s 263 of the Act and as such, the impugned order is not sustainable on account of denial of opportunity of being heard. 7. Ld. CIT in order to review the assessment order passed by the AO issued a notice u/s 263 of the Act, which is reproduced for ready reference as under :- (a) Huge loss of ₹ 19,15,618/- on sales of ₹ 1,68,40,824/- and other income of ₹ 1,64,947/- claimed and allowed without enquiring into the correctness of the same. (b) Assessee has paid the interest on unsecured loans, but he has not charged the interest on advances. Therefore, the interest shall be disallowed on proportionate basis. (c) Sundry creditors of ₹ 21,25,298/- have not been enquired into properly before accepting the same. (d) Similarly, unsecured loans of ₹ 28,30,711/- have not been enquired into properly before accepting the same. 8. Ld. CIT, pursuant to the show cause notice, referred to above, ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertained or verified. The issue is, therefore, set aside with the specific directions to the AO to inquire into the actual profits earned by the assessee, reject the books of account in case the same are incorrect and incomplete so as to ascertain correct profits and apply the reasonable rate of profit on the turnover to be arrived at by the AO after considering the relevant accounts properly. While doing so, the assessee may be provided reasonable opportunity of being heard and furnishing, producing the evidence, if any, and explaining about the correctness of the books of account. 9. Ld. CIT raised the first query, in the show cause notice as to huge loss of ₹ 19,15,618/- on sales of ₹ 1,68,40,824/- and other income of ₹ 1,64,947/- claimed and allowed without enquiring into the correctness of the same and proceeded to decide the same on the basis of findings returned in the tax audit report. 10. In the judgments cited as Commissioner of Customs vs. Toyo Engineering India Ltd. (2006) 7 SCC 592 and Commissioner of Income-tax vs. Ashish Rajpal (2010) 320 ITR 674 (Del.). Hon ble Supreme Court and High Court have thrashed the identical issue. Ratio o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case. 14. Ld. CIT further returned the findings that it is not ascertainable as to how from the final accounts the true profit could be deduced, ascertained or verified. It is reiterated at the cost of repetition that the losses on the turnover of trading in the items dealt with by the assessee or on other income as credited to the profit loss account was as such not acceptable unless and until the same was duly verified form the books of accounts and records which also needed to be correct and complete and maintained in such a manner from which true profits could be deduced, ascertain or verified. 15. However, from the bare perusal of the assessment order, it is apparently clear that the AO, after duly examining written submissions, audited copies of balance sheet, trading and profit loss account, books of account, bills and vouchers, applied his mind and proceeded to make the disallowance of ₹ 35,000/- out of expenses. Whereas, on the other hand, ld. CIT, without examining the books of accounts and bills/vouchers, during the proceedings u/s 263, returned the findings on the basis of assumptions. It is un-understandable that from the cash book, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made an addition of ₹ 21,25,298/- and ₹ 28,30,711/- on account of sundry creditors and unexplained unsecured loans respectively being totally unexplained u/s 68 of the Act. 19. It is also clear from the documents on record that during assessment proceedings, the assessee has placed on record vide letter dated 20.05.2010 list of sundry creditors, copies of accounts of various sundry creditors in the books of assessee s accounts along with confirmation copy of accounts of assessee and vide letter dated 24.11.2010, assessee explained/reconciled minor discrepancies in the books of four sundry creditors which have been accepted by the AO. 20. Moreover, when the assessee had already paid balance due to the various sundry creditors in the subsequent year which has been duly accepted by the revenue, an addition of ₹ 21,25,298/- u/s 68 of the Act is not sustainable. Moreover, on the one hand, ld. CIT has directed the AO to reject the books of account in case the same are incorrect and incomplete and on the other hand, made an addition u/s 68 of the Act. It is settled principle of law that in case, books of accounts were rejected, no addition can be made u/s 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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