2015 (1) TMI 866 - AT - Income Tax

Tribunal reinstates original assessment order, finding Commissioner's decision based on change of opinion.

The tribunal held that the Commissioner of Income Tax's decision to set aside the assessment order under Section 263 was based on a change of opinion ... Revision u/s 263 - Disallowance of interest under section 14A read with Rule 8D of the IT Rules and provision against development expenses - Held that:- The Assessing Officer has accepted the claim of assessee on raising a proper query and documents/details produced before him on which the proposed proceedings under section 263 have been initiated. The similar claims have been accepted in earlier years by the Assessing Officer. Therefore, when the Assessing Officer adopted one of the courses admissible in law, the view taken by the Assessing Officer was held not to be unsustainable in law. The ld. CIT should not substitute the opinion of the Assessing Officer on the same facts in proceedings under section 263 of the Act. It would, therefore not give revisional jurisdiction to the ld. CIT to set aside the assessment order in question. In view of the above discussion, we are satisfied that Assessing Officer has properly enquired into the claim of assessee on all above items at the assessment stage and has carried out proper verification. Therefore, ld. CIT was not justified in invoking jurisdiction under section 263 of the Act. The decisions cited by ld. DR would not, thus support the case of the revenue. In view of the above discussion, we set aside the impugned order under section 263 of the Act because the assessment order dated 29.12.2009 could not be said to be erroneous in so far as prejudicial to the interests of the revenue and quash the same. - Decided in favour of assessee. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act.2. Application of mind and verification by the Assessing Officer (AO).3. Consideration of assessee's submissions and documentary evidence.4. Consistency with judicial precedents and accounting policies.5. Specific disallowances and additions proposed by the Commissioner of Income Tax (CIT).Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act:The primary issue is whether the Commissioner of Income Tax (CIT) was justified in assuming jurisdiction under Section 263 of the Income Tax Act, which allows for the revision of an assessment order if it is deemed erroneous and prejudicial to the interests of the revenue. The CIT believed that the assessment order dated 29.12.2009 was erroneous and prejudicial to the interests of the revenue due to improper completion and lack of proper inquiries by the AO.2. Application of Mind and Verification by the Assessing Officer (AO):The CIT contended that the AO did not apply his mind or conduct proper verification during the assessment process. The AO had completed the assessment by disallowing certain interest and unvouched expenses but failed to add various items of income and conduct necessary inquiries. The assessee argued that the AO had applied his mind and verified the details, as evidenced by the detailed replies and documentation submitted during the assessment proceedings.3. Consideration of Assessee's Submissions and Documentary Evidence:The assessee submitted that it had provided detailed replies and documentary evidence during the assessment proceedings, which the AO had duly considered. The CIT, however, did not appreciate these submissions and documentary evidence, leading to the setting aside of the assessment order. The assessee emphasized that the CIT failed to consider the consistent accounting policies and practices followed by the company.4. Consistency with Judicial Precedents and Accounting Policies:The assessee argued that it followed the project completion method of accounting consistently, which had been accepted by the revenue department in previous years. The CIT's decision to set aside the assessment order contradicted judicial precedents, including the judgment of the Punjab & Haryana High Court in the case of M/s Kanda Rice Mill, which emphasized the importance of consistency in accounting policies and the need for firm decisions by the CIT.5. Specific Disallowances and Additions Proposed by the Commissioner of Income Tax (CIT):The CIT proposed several specific disallowances and additions, including:- Adding development expenses and external development charges to the closing stock.- Disallowance of expenses under Section 14A of the Act as per Rule 8D.- Proportionate disallowance of interest on loans and advances.- Addition of amounts from the suspense account under Section 2(22)(e) of the Act.- Disallowance of provisions for development expenses and maintenance deposits.- Treating advances from customers as trading receipts.The assessee provided detailed explanations and relied on judicial decisions to support its claims. The CIT, however, did not accept these contentions and directed the AO to make fresh inquiries and verifications.Conclusion:The tribunal found that the AO had conducted proper inquiries and verifications during the assessment process, and the assessee had consistently followed the same accounting policies. The CIT's decision to set aside the assessment order was based on a change of opinion rather than any substantive errors or lack of inquiry by the AO. Consequently, the tribunal set aside the CIT's order under Section 263 and restored the original assessment order dated 29.12.2009, thereby allowing the appeal of the assessee.