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TMI Blog2005 (6) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... iduals engaged in the business of sale of sarees and dress materials on retail basis. During the course of survey under s. 133A of the Act on 5th March, 2001, excess unaccounted stock of Rs. 15,12,290 and Rs. 5,04,579 was found in the cases of Shaileshbhai Shah and Shri Deepakbhai S. Shah, respectively. The assessees in their statements recorded during the course of survey, declared the above amounts as unaccounted income of the current year and agreed to pay the taxes. Subsequently, while filing the return, the assessees have disclosed GP rate for pre-survey period at 10.16 per cent and 14.87 per cent and for the post survey period shown loss at the rate of 24.32 per cent and 29.97 per cent, respectively, by the above assessees. The CIT found that the AO without verifying and making proper investigation and inquiry in this regard has made the assessment and almost accepted the book results by making petty additions. The unusual loss shown in trading results for the post-survey period has neither been properly investigated by the AO. After considering the submission of the assessees, the CIT found that the objection raised by the assesses are not acceptable. The AO has failed to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sarees and rate of discount vary from customer to customer. This is a seasonal business and March is considered off-season due to liquidity problems in general market due to March ending. (2) The main reason of loss during the second prior, i.e., after survey, was we have offered 'genuine stock clearance sale'. There was 'sale' of sarees wherein heavy discount has been offered to dispose of defective sarees as well as out of fashion and old sarees. The discount offered during the sale is between 15 per cent to 50 per cent. The main purpose of sale is as under: (a) To dispose of defective sarees and out of fashion sarees, which in normal circumstances, are difficult to sale as per our business expediency. (b) To generate more cash sales through stock clearance sale to payoff Government liabilities, i.e., income-tax liabilities within time allowed to cooperate with Government Department. (c) To payoff the creditors which are due and pressured for their payment before March ending. (d) Due to March ending, we are unable to generate cash balances from general debt market and bank finance is also not possible to get within short time allowed. (e) It was difficult to get m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered 50 per cent discount and that affidavits were also filed before the AO. The AO has also observed in his order that the assessee has failed to produce some of the parties during the course of assessment proceedings. After examining all the materials, the AO has given categorical finding that after considering the material facts brought on record by the assessee during the course of assessment proceedings, the rate declared by the assessee found to be excessively lower and need to be augmented. Keeping in (view) all these facts, the AO (has) given his finding that disproportionate discount to the customers at the time of sale, which ultimately affected the GP rate to a large extent, therefore, it will be reasonable to disallow a whole, two third portion of the claim of expenses incurred in respect; of fall-bedding, polishing and packaging and the same was added as GP addition. The AO has also examined shop expenses which were also found extremely exceeded the expenses incurred under the same head in the earlier years. The AO has also disallowed some of the portion of the expenses on this account. The submission of the learned Authorised Representative that in view of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1) of the Act. 8. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. 9. The phrase 'prejudicial to the interest of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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