2015 (2) TMI 411 - HC - Income Tax

ITAT Quashes CIT's Order Under Section 263 for AY 2006-07, Rules in Favor of Assessee

The Income Tax Appellate Tribunal (ITAT) quashed the Commissioner of Income Tax's (CIT) order under Section 263 for Assessment Year 2006-07, as the ... Revision u/s 263 - surrendered amount had not been disclosed over and above normal income and the surrendered stock was not accounted for properly, in addition to other existing discrepancies - ITAT quashed the order of Commissioner passed u/s 263 - Held that:- Whilst a consistent behaviour, of disclosing a pattern, might justify a conclusion which warrants rejection of the books of accounts, the explanation of the assessee that but for such sales, the stocks would have been inaccessible for an inordinately long period of time, thus considerably risking its business, as against which it chose to liquidate its stocks, cannot be characterized as unreasonable. Therefore, to seize upon this or the circumstance that a 60% discount was offered ipso facto was insufficient to take a different view. The various authorities of the Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000 (2) TMI 10 - SUPREME Court] has highlighted that the power under Section 263 cannot be invoked to correct a mere error of an AO, based upon an incorrect assumption of fact. There has to be something more to hold that the determination is both erroneous and prejudicial to the interests of the Revenue. Case of Sunbeam (2009 (9) TMI 633 - Delhi High Court) cited by the assessee also notices the same aspect. Considering the totality of the circumstances, no substantial question of law arises. The ITAT merely applied the prevailing law on the subject. - Decided in favour of assessee. Issues:1. Invocation of Section 263 of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal (ITAT) for Assessment Year (AY) 2006-07.2. Discrepancies found during a survey under Section 133A of the Act.3. CIT's decision to reexamine the assessment under Section 263 of the Act.4. Consideration of discounted sales by the CIT.5. ITAT's decision in favor of the assessee and the subsequent appeal.Issue 1: Invocation of Section 263 by ITATThe Revenue challenged ITAT's order allowing the assessee's appeal for AY 2006-07, arguing that Section 263 of the Income Tax Act was wrongly invoked. The ITAT found that the assessing officer had examined the discrepancies and the explanations provided by the assessee adequately. The ITAT held that the AO's order did not lack inquiry or application of mind, following the precedent set by the Delhi Court in the case of Sunbeam Auto Ltd. Therefore, the ITAT quashed the CIT's order under Section 263.Issue 2: Discrepancies Found During SurveyDuring a survey under Section 133A, discrepancies amounting to Rs. 1,00,05,388 were found in the assessee's accounts, with excess stocks of Rs. 89,91,576 and excess cash. The assessee surrendered this amount, which was duly reflected in the final books produced during the assessment proceedings for the year ending 31.03.2006.Issue 3: Reexamination by CIT under Section 263The CIT reexamined the assessment under Section 263, considering the surrendered amount and discrepancies in the stock valuation. The CIT added substantial amounts to the assessment, influenced by the discounted sales conducted by the assessee and the alleged improper accounting of surrendered stock.Issue 4: Consideration of Discounted Sales by CITThe CIT was significantly influenced by the discounted sales conducted by the assessee, especially the sale of stock initially valued at Rs. 17 lakhs but sold for Rs. 1,35,400. The CIT applied a 20% G.P. rate on the normal sales, resulting in substantial additions to the assessment.Issue 5: ITAT's Decision and Subsequent AppealThe ITAT ruled in favor of the assessee, holding that the exercise of power under Section 263 was unwarranted in the present case. The ITAT emphasized that the assessing officer had considered all relevant facts and explanations provided by the assessee. The ITAT dismissed the Revenue's appeal, stating that no substantial question of law arose, as the ITAT correctly applied the prevailing law on the subject.This comprehensive analysis covers the invocation of Section 263, discrepancies found during the survey, reexamination by the CIT, consideration of discounted sales, and the ITAT's decision in favor of the assessee. The judgment provides a detailed examination of each issue involved in the case, including the legal arguments, factual circumstances, and the application of relevant legal principles.