2012 (12) TMI 628 - AT - Income Tax

Tribunal rules in favor of assessee, dismissing CIT's order due to jurisdictional errors

M/s. Shree Vinayak Rice Mill Versus Income-tax Officer, Bargarh.

M/s. Shree Vinayak Rice Mill Versus Income-tax Officer, Bargarh. - TMI Issues Involved:1. Legality of the order under Section 263.2. Stock shortage valuation and gross profit rate application.3. Estimation of unexplained investment in factory building.4. Ad hoc disallowance of expenses.5. Verification of various accounts.Issue-wise Detailed Analysis:1. Legality of the order under Section 263:The assessee challenged the legality of the order passed under Section 263, arguing that the learned CIT could not adjudicate issues already dealt with by the CIT(A) without pointing out any error prejudicial to the interest of the Revenue. The Tribunal found that the assumption of jurisdiction by the learned CIT under Section 263 was faulty in law and facts. The issues had already been addressed by the Assessing Officer in his order under Section 143(3) and by the CIT(A) in his order dated 11.10.2011. Thus, the Tribunal quashed the impugned order under Section 263, allowing the appeal of the assessee.2. Stock shortage valuation and gross profit rate application:The CIT had directed the Assessing Officer to reconsider the stock shortage valuation and the gross profit rate applied. The Tribunal noted that the gross profit was estimated at the time of the survey based on sales up to 31.3.2008. The valuation was erroneous as the purchases, sales, and closing stock had been accepted. The Tribunal held that the enhancement in the closing stock would have to be allowed as an enhancement in the opening stock of the subsequent year. Therefore, the issue could not be dealt with by the CIT under Section 263, as it had already been adjudicated by the CIT(A).3. Estimation of unexplained investment in factory building:The CIT had directed the Assessing Officer to reconsider the unexplained investment in the factory building. The Tribunal found that this matter had been fully adjudicated by the CIT(A), who deleted the addition on the grounds that it was based on eye estimation and not supported by any expert opinion. The Tribunal held that revisional power could not be extended to this issue, as it had already been dealt with by the CIT(A).4. Ad hoc disallowance of expenses:The assessee challenged the ad hoc disallowance of Rs. 50,000 made by the Assessing Officer, which was reduced to Rs. 25,000 by the CIT(A). The Tribunal noted that the assessee had not pressed this issue. Therefore, the ground raised by the assessee was dismissed as not pressed.5. Verification of various accounts:The CIT had directed the Assessing Officer to verify various accounts, including unsecured loans, sundry debtors, and purchases. The Tribunal found that the CIT could not ask the Assessing Officer for a roving enquiry based on a view not specified in his order. The Tribunal held that the CIT should have assumed jurisdiction under Section 263 only if errors committed by the Assessing Officer were prejudicial to the interest of the Revenue. The Tribunal quashed the order under Section 263 for this issue as well.Conclusion:The Tribunal allowed the appeal of the assessee regarding the legality of the order under Section 263 and the stock shortage valuation. The Tribunal also quashed the order under Section 263 for the unexplained investment in the factory building and verification of various accounts. The ad hoc disallowance of expenses was dismissed as not pressed. Consequently, ITA No.141/CTK/2012 was partly allowed, and ITA No.142/CTK/2012 was allowed.