2014 (8) TMI 714 - AT - Income Tax

Tribunal upholds Commissioner's revision decision under Income Tax Act, 1961

The Tribunal upheld the Commissioner's decision to invoke revisional jurisdiction under Section 263 of the Income Tax Act, 1961, finding the assessment ... Revisional jurisdiction of CIT u/s 263 – Order passed after proper examination of record or not – Held that:- While invoking revisional jurisdiction u/s 263 of the Act, the Commissioner found that the net profit shown by the assessee is quite low and also there is a decline in net profit in comparison to last year - the net profit shown by the assessee is very low, the assessment order is not only erroneous but certainly prejudicial to the interest of Revenue - the AO has not considered the true facts and even has not compared the like business of other assessee and merely accepted the version of the assessee – Relying upon Malabar Industrial Co. Ltd. Versus Commissioner of Income-Tax [2000 (2) TMI 10 - SUPREME Court] - The assessment order becomes erroneous where it is found that proper and due inquiry has not been made by the AO and due tax has not been collected from the assessee - the books of the assessee were held to be not complete and the actual profit could not be ascertained - the principle of consistency must be followed before invoking revisional jurisdiction but at the same time it is equally important that mistake cannot be perpetuated - the order passed by the I.T.O would obviously be prejudicial to the Revenue and would give jurisdiction to the Commissioner u/s 263 as held in CIT Vs Pushpa Devi [1986 (6) TMI 20 - PATNA High Court] - the unsecured loan also remained to be examined by the AO – Decided against Assessee. Issues Involved:1. Invocation of revisional jurisdiction under Section 263 of the Income Tax Act, 1961.2. Assessment of net profit rate and adequacy of inquiry by the Assessing Officer.3. Rejection of books of account under Section 145(3) of the Income Tax Act, 1961.4. Examination of unsecured loans.Issue-Wise Detailed Analysis:1. Invocation of Revisional Jurisdiction under Section 263 of the Income Tax Act, 1961:The assessee challenged the order dated 21.3.2013 by the Commissioner invoking revisional jurisdiction under Section 263. The Commissioner found the net profit reported by the assessee to be low and noted a decline in comparison to the previous year. The Commissioner deemed the assessment order erroneous and prejudicial to the interest of Revenue, citing the Hon'ble Apex Court decision in M/s Malabar Industries. The Commissioner's decision was based on the inadequacy of the Assessing Officer's inquiry and the low net profit rate without considering the assessee's past history.2. Assessment of Net Profit Rate and Adequacy of Inquiry by the Assessing Officer:The assessee argued that the Assessing Officer had passed a well-reasoned order after due examination of records. However, the Commissioner observed that the net profit rate was extremely low for the retail trading of sarees and dress material. The Assessing Officer had made a lump sum addition of Rs. 1,50,000 without proper verification of the details furnished by the assessee. The Tribunal agreed with the Commissioner's conclusion that the net profit rate was not only low but also indicative of inadequate inquiry by the Assessing Officer, making the order erroneous and prejudicial to the Revenue.3. Rejection of Books of Account under Section 145(3) of the Income Tax Act, 1961:The Commissioner noted several discrepancies in the assessee's books of account, such as incomplete maintenance of records and the absence of quantitative details of stock inventories. Despite repeated opportunities, the assessee failed to produce the books of account. The Commissioner held that the books were maintained in a manner that did not allow for the ascertainment of true profits, thus invoking Section 145(3) to reject the books. The Tribunal supported this view, highlighting that the books were not reliable for assessing income and profits due to the lack of proper documentation and verification.4. Examination of Unsecured Loans:The Tribunal noted that the issue of unsecured loans remained unexamined by the Assessing Officer. This oversight further justified the Commissioner's invocation of revisional jurisdiction under Section 263. The Tribunal affirmed that the Assessing Officer's failure to scrutinize unsecured loans contributed to the erroneous nature of the assessment order.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the Commissioner's order invoking revisional jurisdiction under Section 263. The Tribunal agreed that the assessment order was erroneous and prejudicial to the interest of Revenue due to inadequate inquiry, low net profit rate, and failure to properly examine the books of account and unsecured loans. The decision was pronounced in the open court on 14.8.2014.