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TMI Blog2019 (11) TMI 1358X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings, the Assessing Officer considered all issues in respect of trading result or in respect of profit and loss account, then there is no justification to draw a different view by invoking the provision of section 263 of the income tax act. 4. That in any view of the matter, the Commissioner of Income Tax while passing the order u/s 263 of the income tax act wrongly interpreting the facts/expenditure issue, hence the order u/s 263 of the income tax act is liable to be cancelled. 2. The assessee has also filed before us the statement of facts in this case, which, for the sake of reference, is reproduced hereunder: "The appellant is a firm engaged in the business of rice mill and the year under consideration was not the first year of business but the appellant engaged in such business for last number of years. In respect of such business regular books of accounts have been maintained which are audited and audit report duly filed along with the return. In compliance to notice u/s 143(2) of the income tax act books of account were produced from time to time which were thoroughly scrutinized which will appeal from order sheet. The method of valuation adopted by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before us with the submission that the initiation of proceedings under section 263 of the Act is totally unjustified, incorrect, illegal and against the judicial norms, insofar as the Assessing Officer in his order dated 30/12/2011, had made various additions/disallowances; that the ld. CIT(A) confirmed the order of the Assessing Officer by passing an ex-parte order dated 15/11/2012; that the Tribunal vide its order dated 1/5/2013 in ITA No.62/A/2013 allowed the appeal, granting full relief to the assessee; and that thus, the Assessing Officer's order and the ld. CIT(A)'s order have merged in the order of the Tribunal dated 1/5/2013. The ld. Counsel for the assessee has also placed reliance on various judicial pronouncements. 5. The ld. D.R., on the other hand, placing reliance on the order of the ld. CIT, has submitted that the Assessing Officer had not made necessary enquiry which was required to be done by him; and that therefore, the assessment order is erroneous and prejudicial to the interest of the Revenue, as correctly held by the ld. CIT. 6. Heard. It is an undisputed fact hat in the case of the assessee, the assessment order, dated 30/12/2011 has been passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom or the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee. Under the subsection (3) of section 145 in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation has to be made upon such basis and in such manner as the Income-tax Officer may determine. However, if the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where no method of accounting has been regularly employed by the assessee, the Income-tax Officer may make the assessment in the manner, provided in section 144. Section 145 is mandatory and the Revenue is bound by the assessee's choice of a method regularly employed unless by that method the true income, profits and gains cannot be arrived at. In other words, section 145 enacts that for the purpose of section 28 (profits and gains of business, profession or voc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im to apply the provisions of s. 145 of the I.T. Act and make the assessment in an appropriate manner. In the present case, there is no material to indicate why the ITO considers the system of accounting regularly, followed by the assessee to be defective, or the system of accounting followed to be such that correct profits cannot be deduced there from. The ITO's power to substitute a system of accounting for the one followed by the assessee, flows from the provisions of s. 145 of the I.T. Act. It is, therefore, imperative that before rejecting the system of accounting followed by the assessee, the ITO must refer to the inherent defect in the system and record a clear finding that the system of accounting followed by the assessee is such that correct profits cannot be deduced from the books of account maintained by the assessee. As already observed above, there is no finding to that effect in this case. The ITO's view that there could be a better system of accounting is no reason to the application of the provisions of s. 145 of the I.T. Act, especially in view of the fact that this system of accounting is followed by the assessee uniformly and regularly for the past severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly employed and by appropriate adjustments from the accounts maintained taxable profit may properly be deduced, the Income-tax Officer is bound to compute the profits, in accordance with the method of accounting. But where in the opinion of the Income-tax Officer, the profits cannot properly he deduced from the system of accounting adopted by the assessee it is open to him to adopt a more suitable basis for computation of the true profits." 16. In the case of Md. Umer v. CIT [1997] 101 ITR 525, the Hon'ble Patna High Court have categorically, stated at page 530, "once, therefore, the method of accounting employed by the assessee has been regularly employed and income, profits and gains can properly be deduced from such regularly employed method of accounting, that is the end of the matter for the purpose of proviso to sub-section (1) of section 145". 17. The profit or loss made by the businessman from that business, as aptly described in the case of Sunil Siddharthbhai v. CIT. [1585] 156 ITR 509/23 Taxman 14W (SC) at page 521 remains in the "Womb of future". The measurement of periodic income is, to that extent, a matter of estimation on the basis of certain acceptable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regularly maintained by the assessee. The Hon'ble Bombay High Court in the case of R.B. Jessaram Fetehchand (Sugar Dept.) vs. CIT, 75 ITR 33 wherein it has been held that the assessee's account books are to be accepted, unless, on verification, they disclosed any faults or defects, which cannot be reasonably and satisfactorily explained by the assessee. Hon'ble Allahabad High Court in the case of CIT vs. Krishna Gopal Kapoor & Sons, 325 ITR 214 (All.) wherein it has been held that the method of accounting followed by the assessee cannot be disturbed. If we consider the facts of the case under consideration, we notice that the assessee has explained the reasons for fall in G.P. that during the year under consideration the business activities of the assessee were different than earlier year. The assessee has demonstrated this fact by facts and figures which are reproduced while recording submission of the Id. Authorized Representative in this order in para Nos.6 to 9. The assessee has explained that production and sale was carrier! out under the supervision of Government authorities and respective authority did not find any defect in the books of account maintained by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the same manner or to the same extent and depth is immaterial. When the claim for deduction was on that basis, the exception as contained in clause (c) to Explanation 1 to sub-section (1) of section 263 would not apply. The question of considering the wells of the assessee as an undertaking was not accepted by the Assessing Officer through the claim of mineral based industry was not rejected. Whether such acceptance was erroneous and whether the ld. CIT(A) has committed an error in allowing the claim will lose its relevance."
10. No decision contrary to Pr. CIT & Anr. Vs. Oil India Ltd.' (supra) has been brought to our notice.
11. In this view of the matter, we are of the view that since the assessment order and the order of the first appellate authority stood merged in the order of the Tribunal, and there was no assessment order in existence as on the date of issuance of notice under section 263, i.e., on 8/8/2013, the revisionary proceedings initiated by the ld. CIT under section 263 are not valid in the eyes of law. Accordingly, we set aside the order.
12. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 20/11/2019. X X X X Extracts X X X X X X X X Extracts X X X X
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