2015 (7) TMI 869 - AT - Income Tax

Commissioner's order under Section 263 overturned, emphasizing assessing authority's diligence.

Vemula Laxminarayana, Warangal Versus The Asst. Commissioner of Income Tax, Circle-I, Warangal

The judgment set aside the Commissioner's order under Section 263, allowing the appeal against the decision to revise the assessment. It concluded that ... Revision u/s 263 by CIT(A) - amount of income covered by TDS was not offered to tax, disallowance of deprecation and unaccounted personal drawings - Held that:- In this case, there was survey during the course of accounting year itself and also on the basis of the survey, the case was selected for scrutiny. The TDS made on behalf of assessee was itself reflected in 26AS of the department and the same amount was given credit. In view of this, the Ld. CIT’s presumption that this amount of income covered by TDS was not offered to tax and assessee’s concealed income cannot be accepted. With reference to the depreciation claimed of ₹ 5,698/- it was the contention that assessee purchased a scooter and the same was being used in the business. In the event the asset is not figuring in assessee’s Balance sheet or accounts schedules, one can doubt the claim of depreciation. Assessee is doing small business of bill discounting and use of scooter by assessee in the proprietary concern business cannot be doubted. Personal drawings at ₹ 20,000/- per month, the same was also found debited in the personal account. In view of the above, considering the fact that AO has completed the assessment u/s. 143(3) after issuing the show cause notice dt. 15-02-2013 u/s. 142(1) calling various details under 11 heads including confirmation of loans and advances in respect of cheques discounted, source of advances made in the finance business etc. These indicate that all aspects have been examined by the AO. Therefore, the CIT’s observation that AO has not examined these issues does not have any basis. Moreover, when assessee has pointed out the same before the CIT in the proceedings u/s. 263, it is incumbent upon the CIT to examine the contentions and give findings rather than setting aside the assessment, which is already subject matter of appeal before CIT(A) on other issues. As can been seen from the notice issued and the assessment order by AO do indicate that he has applied his mind to the issues. If there was an enquiry, even if it is inadequate that would not by itself give occasion to the CIT to pass order u/s. 263. Respectfully following the principles laid down Spectra Shares and Scrips Pvt. Ltd., Vs. CIT [2013 (6) TMI 173 - ANDHRA PRADESH HIGH COURT ] proper case has not been made out by the Ld. CIT in exercising jurisdiction u/s. 263. Not only that considering the explanation given by assessee, he should have dropped proceedings rather than directing the AO to make unnecessary enquiries which are not warranted in this case. - Decided in favour of assessee. Issues:Appeal against Commissioner's order setting aside assessment under section 143(3) of the Income Tax Act for Assessment Year 2010-11.Analysis:1. Issue of TDS and Interest Income:The Commissioner set aside the assessment order based on discrepancies found in the TDS claimed and interest income not offered for tax. The assessee argued that the interest income was included in the disclosed profit and loss account. However, the Commissioner contended that the interest income was not separately disclosed in the return or profit and loss account during scrutiny. The Commissioner invoked Section 263 to revise the assessment, citing errors prejudicial to revenue.2. Depreciation Claim and Personal Drawings:The Commissioner also raised concerns regarding depreciation claimed for a scooter used for business and personal drawings not adequately examined by the Assessing Officer. The Commissioner found errors in the assessment order, stating that the AO did not properly scrutinize these aspects. The Commissioner relied on various judicial decisions to support the revision under Section 263.3. Assessment Completion and Jurisdiction under Section 263:The Counsel argued that all relevant details were provided during assessment, and the AO had examined the issues thoroughly. The Counsel emphasized that the CIT cannot direct roving inquiries and referred to a High Court case supporting this argument. The Commissioner, however, maintained that the AO did not verify the information provided by the assessee, leading to errors in the assessment.4. Principles Governing Section 263 Jurisdiction:The judgment highlighted principles from a High Court case regarding the exercise of jurisdiction under Section 263. It emphasized the need for the Commissioner to be satisfied of errors prejudicial to revenue before revising an assessment. The judgment outlined conditions for invoking revisional powers and cautioned against initiating inquiries in concluded matters.5. Conclusion and Decision:After analyzing the arguments and principles, the judgment concluded that the CIT did not establish a proper case for invoking Section 263. It noted that the AO had applied due diligence in assessing the issues raised. The judgment set aside the Commissioner's order, allowing the appeal against the decision to revise the assessment.In summary, the judgment addressed discrepancies in TDS, interest income, depreciation, and personal drawings, evaluating the application of Section 263 and the jurisdiction of the Commissioner in revising the assessment. The decision favored the assessee, emphasizing the importance of thorough examination by the assessing authority before invoking revisional powers.