2015 (2) TMI 938 - AT - Income Tax

Commissioner's Order Under Section 263 Found Unlawful & Without Jurisdiction

M/s Pacific Leather Finishers Versus Dy. CIT-3Kanpur

The Tribunal found that the Commissioner's order under section 263 was without jurisdiction and bad in law. It concluded that the Assessing Officer had ... Revision u/s 263 - AO has failed to disallow/make addition on account of commission to foreign agents - Held that:- Detailed explanation furnished by the assessee was examined by the Assessing Officer before accepting the claim of the assessee. Moreover, on this issue there are series of orders of the Tribunal and the judgment of the jurisdictional High court, in which it has been held that TDS is not required to be deducted on the payment of commission to foreign agent. In the light of these facts, we are of the view that this issue was duly examined by the Assessing Officer. Therefore, the order of the Assessing Officer cannot be held to be erroneous and prejudicial to the interest of the Revenue on account of lack of enquiry - Decided in favour of assessee. AO failure to inquire into the source of the additional capital brought by the partners - Held that:- In the instant case, undisputedly the Assessing Officer has raised queries through questionnaire and in response thereto the assessee has filed reply furnishing complete details which were duly examined by the Assessing Officer before accepting the claim of the assessee. There is nothing on record to establish that the assessment order on this issue is erroneous and prejudicial to the interest of the Revenue on account of lack of enquiry. Therefore, we find no merit in the order of the ld. Commissioner of Income-tax in this regard, as the Assessing Officer has made enquiry on the issue of additional capital brought by the partners.- Decided in favour of assessee. Unsecured loans not verifiable - Held that:- In this regard, the Assessing Officer has issued questionnaire and through query No.8, the assessee was asked to furnish details of unsecured credit along with address, PAN, address of the Assessing Officer, confirmations and copy of income-tax returns. In response thereto the assessee has furnished requisite information vide reply dated 28.7.2011.Therefore, it can be presumed that the Assessing Officer has made proper verification of the information furnished before him before accepting the claim of the assessee. Since the Assessing Officer has made necessary enquiry on the issues, the order of the Assessing Officer cannot be called to be erroneous and prejudicial to the interest of the Revenue on account of lack of enquiry. - Decided in favour of assessee. AO failure to make enquiries in respect of payments made to the persons covered by section 40A(2)(b) - Held that:- Assessing Officer has made query through questionnaire dated 12.7.201 vide query No.25 which is available of the compilation of the assessee and the query was duly replied by the assessee vide reply dated 28.7.2011. Therefore, with regard to this issue, it can be held that the Assessing Officer has applied his mind to the information furnished before him and the assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue. - Decided in favour of assessee. Closing stock wrongly valued - Held that:- The assessee has furnished relevant information pursuant to the query raised by the Assessing Officer. Therefore, it can be presumed that the Assessing Officer has applied his mind to the information furnished before him before accepting the claim. As held in the foregoing paragraphs that the Assessing Officer is not required to record reasons and findings on each and every issue, on which he is satisfied with the explanations of the assessee and the ld. Commissioner of Income-tax cannot set aside the order of the Assessing Officer only for the simple reason that the finding of the Assessing Officer is not acceptable to him - Revision order u/s 263 setaside - Decided in favour of assessee. Issues Involved:1. Jurisdiction and legality of the notice and order under section 263 of the Income-tax Act, 1961.2. Determination of whether the order passed by the Income Tax Officer (ITO) under section 143(3) was erroneous and prejudicial to the interest of the revenue.3. Independent inquiries by the Commissioner under section 263(1).4. Detailed inquiries by the Assessing Officer (AO) under section 143(3).5. Disallowance/addition on account of commission to foreign agents.6. Inquiry into the source of additional capital brought by partners.7. Verification of unsecured loans.8. Enquiries in respect of payments made to persons covered by section 40A(2)(b).9. Valuation of closing stock.10. Consideration of detailed replies and enclosures by the CIT.11. Overall jurisdiction and legality of the order passed.Detailed Analysis:1. Jurisdiction and Legality of the Notice and Order under Section 263:The assessee contended that the notice issued and the subsequent order passed by the CIT under section 263 were without jurisdiction and bad in law. The Tribunal examined the jurisdictional aspect and found that the CIT had the authority to issue the notice and pass the order under section 263 if the conditions stipulated in the section were met.2. Erroneous and Prejudicial Order under Section 143(3):The CIT held that the order passed by the ITO under section 143(3) was prejudicial to the interest of the revenue. The Tribunal reviewed this finding and noted that the CIT must establish that the order was both erroneous and prejudicial to the interest of the revenue. The Tribunal cited various judicial precedents to support the principle that both conditions must coexist for section 263 to be invoked.3. Independent Inquiries by the Commissioner:The assessee argued that the CIT failed to make independent inquiries as mandated by section 263(1). The Tribunal observed that the CIT did not conduct or cause to be conducted any independent inquiries, which is a prerequisite under section 263(1). The Tribunal found merit in the assessee's contention and held that the order under section 263 was bad in law due to the lack of independent inquiries.4. Detailed Inquiries by the Assessing Officer:The Tribunal noted that the AO had framed the assessment under section 143(3) after making detailed inquiries. The AO issued a questionnaire and scrutinized the replies and documents provided by the assessee. The Tribunal emphasized that the AO's inquiries were thorough and detailed, and the assessment was subject to approval by the Addl. CIT/CIT.5. Disallowance/Addition on Account of Commission to Foreign Agents:The CIT held that the AO failed to disallow or make an addition on account of commission paid to foreign agents. The Tribunal reviewed the AO's inquiries and found that the AO had examined the commission payments in detail, including the names and addresses of the agents, the percentage of commission, and the nature of services rendered. The Tribunal concluded that the AO had applied his mind and made necessary verifications before accepting the claim.6. Inquiry into the Source of Additional Capital Brought by Partners:The CIT contended that the AO failed to inquire into the source of additional capital brought by the partners. The Tribunal found that the AO had raised specific queries regarding the source of the additional capital and had received detailed replies from the assessee. The Tribunal held that the AO had made proper inquiries and applied his mind before accepting the claim.7. Verification of Unsecured Loans:The CIT held that the unsecured loans were not verifiable. The Tribunal found that the AO had raised queries regarding the unsecured loans and had received confirmations and other relevant documents from the assessee. The Tribunal concluded that the AO had made necessary verifications and applied his mind before accepting the claim.8. Enquiries in Respect of Payments Made to Persons Covered by Section 40A(2)(b):The CIT held that the AO failed to make inquiries regarding payments made to persons covered by section 40A(2)(b). The Tribunal found that the AO had raised specific queries and received detailed replies from the assessee. The Tribunal held that the AO had made proper inquiries and applied his mind before accepting the claim.9. Valuation of Closing Stock:The CIT held that the closing stock was wrongly valued. The Tribunal found that the AO had raised queries regarding the valuation of closing stock and had received detailed replies and supporting documents from the assessee. The Tribunal concluded that the AO had made necessary inquiries and applied his mind before accepting the claim.10. Consideration of Detailed Replies and Enclosures by the CIT:The assessee argued that the CIT failed to consider the detailed replies and enclosures provided during the assessment proceedings. The Tribunal found that the AO had thoroughly examined the replies and documents provided by the assessee. The Tribunal held that the CIT's order was not justified as the AO had made proper inquiries and applied his mind.11. Overall Jurisdiction and Legality of the Order Passed:The Tribunal concluded that the CIT's order under section 263 was without jurisdiction and bad in law. The Tribunal emphasized that the AO had made detailed inquiries and applied his mind before accepting the claims of the assessee. The Tribunal set aside the CIT's order and allowed the appeal of the assessee.Conclusion:The Tribunal allowed the appeal of the assessee, setting aside the CIT's order under section 263. The Tribunal held that the AO had made detailed inquiries and applied his mind before accepting the claims of the assessee, and therefore, the assessment order could not be held to be erroneous and prejudicial to the interest of the revenue.