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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 ..... 9 - Shri. A. D. Jain, Vice President And Shri T. S. Kapoor, Accountant Member For the Appellant : Shri Praveen Godbole, C.A. For the Respondent : Shri S. K. Madhuk, CIT (DR) ORDER PER A. D. JAIN, V.P.: This is assessee s appeal against the order of the ld. CIT, dated 36/3/2014, passed under section 263 of the Income Tax Act, 1961, taking the following grounds: 1. That in any view of the matter, order passed u/s 263 of the income tax Act by the Commissioner of Income Tax is bad both on the facts and in law and the reasons narrated in the order are incorrect and contrary to the actual facts, therefore such order is liable to be cancelled. 2. That in any view of the matter, order passed u/s 143(3) of the income tax Act dated 30.12.2011 is well reasoned order passed by the Assessing Officer after considering the books, audit reports, various explanations, then there is no justification to cancel valid and reasoned order in vague manner. 3. That in any view of the matter, when during the assessment proceedings, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case are that the assessee is a firm engaged in the business of rice and other byproducts; that the assessee maintains the books of accounts, which are audited and the audit report are also filed along with the return. For the year under consideration, the Assessing Officer determined the total income of the assessee at ₹ 29,39,910/-, by making addition on account of extra profit and disallowances were also made. Against the addition/disallowances, the assessee filed an appeal before the ld. CIT(A), who, by his order dated 15.11.2012, confirmed the action of Assessing Officer by passing an ex-parte order. Against the order of the ld. CIT(A), the assessee preferred an appeal before the Tribunal, which vide order dated 1/5/2013 in ITA No.62/A/2013 allowed the appeal, granting full relief to the assessee. Thereafter, the ld. CIT, vide order dated 26/3/2014, exercising his power under section 263 of the Act set aside the order of the Assessing Officer, dated 30/12/2011 passed under section 143(3) of the Act to the limited extent of proper valuation of the closing stock and directed the Assessing Officer to include all the relevant costs to such valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and records perused. To examine this issue, first we would like to refer section 145 which reads as under: 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144] 12. It is to note that under section 145(1), the income chargeable under the head Profits and gains of business or profession or Income from other sources has to be comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly. 13. The basic question for consideration is, whether the assessee has been following an acceptable method of accounting for declaring its income and whether the method employed by the assessee is such that correct profits cannot be deduced from the accounts of the assessee, so that the provisions of s. 145 of the I.T. Act could apply. In the case under consideration, the assessee has followed a consistent system of accounting and regularly employing the same system of accounting for computing its income from year to year. It is also not in dispute that this system of accounting was not found to be defective by the ITO. It must be said at the outset that the choice to account for income on an acceptable basis is that of the assessee, and not of the Department. This is, however, not an unlimited choice, because the ITO has always the liberty to examine the system of accounting regularly employed by the assessee, to determine whether the system of accounting is defective, and whether by following such system of accounting, correct profits cannot be deduced from the account books maintained by the assessee. If, on such scrutiny, the ITO comes to the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. CIT [1953] 23 ITR 230, the Hon'ble Supreme Court held that the provisions of section 13 of 1922 Act (corresponding to section 145 of 1961 Act) was compulsory on the income-tax authorities and imposed upon them an obligation to accept the mode of accounting regularly adopted by the assessee except in cases when the proviso to that section came into operation. The profits earned and credited in the books of account were to be taken as the basis for computation of income. 15. In CIT v. A. Krishnaswamy Mudaliar [1964] 53 ITR 122, the Supreme Court reiterated that the Income-tax Officer is bound to compute the profits by appropriate adjustments from the accounts maintained by an assessee where a system of account is regularly employed. The Court held: The only departure made by section 13 of the Indian Incometax Act from the legislation in England is that whereas under the English legislation, the Commissioner is not obliged to determine the profits of a business venture, according to the method of accounting adopted by the assessee, under the Indian Income-tax Act, prima facie, the Income-tax Officer has for the purpose of sections 10 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court held in the case of CIT v. Tata Iron Steel Co. Ltd. [1977] 106 ITR 363 that if the method of accounting followed by an assessee cannot be said unreasonable, the same has to be given effect to even if a better method can be visualized. Following judgments may also issue:- CIT EPT v. Chari and Rant [1949] 17 ITR I (Mad) ; CIT v. Srimati Singari Bai [ 1945] 13 ITR 224 (All); CIT v. Doddabasaopa [1964] 54 ITR 221 (Mys); Juggilal Kamlapat, Bankers v. CIT [1975] 101 ITR 40 (All). (2005) 273 ITR 262 (Mad) CIT V Anandha Metal Corporation Jessaram Fetehchand (R.B.) (Sugar Dept.) v. Commissioner of Income-tax 75 ITR 33 (Bomb) Calcutta Company Limited vs Commissioner of Income-Tax, West Bengal 37 ITR 1 (SC) Commissioner of Income-tax v. Margadarsi Chit Funds (P.) Ltd. 155 ITR 442 (AP) CIT vs. Gotanlime Khamj Udyog, 256 ITR 243 (Raj) CIT vs. Smt. Poonam Rani (Delhi) 326 ITR 223 18. These are all decisions which lend support to the proposition that the Department is bound by the assessee's choice of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT under section 263 of the Act relates to the extra profit addition of ₹ 18,85,630/- made by the Assessing Officer, and according to the ld. CIT, the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue insofar as the manufacturing cost for production of rice were not correctly worked out. As reproduced above, the addition so made by the Assessing Officer and confirmed by the ld. CIT(A) has been deleted by the Tribunal. 8. From the above order of the Tribunal, it is evident that the original assessment order, wherein, the additions/ disallowances had been made and also confirmed by the ld. CIT(A), stand merged in the order of the Tribunal dated 1/5/2013. The provisions of section 263 are attracted only if the assessment order is erroneous and prejudicial to the interests of the Revenue. Since the assessment order and the first appellate order stood merged in the order of the Tribunal, there was no assessment order in existence as on the date of issuance of notice under section 263, i.e., on 8/8/2013. 9. In Pr. CIT Anr. Vs. Oil India Ltd. , 175 DTR (Gau) 185, which is a decision directly on this iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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