2015 (11) TMI 1449 - AT - Income Tax

Tax Tribunal overturns 263 orders for 2002-03, 2003-04, dismisses 2004-05 appeal.

The Tribunal allowed the appeals for A.Y. 2002-03 and 2003-04, setting aside the orders under section 263 and restoring the AO's original orders. However, ... Revision u/s 263 - telescoping the un-reconciled creditors into estimated income - Held that:- What amount was considered for addition is the amount as per P & L Account submitted to the ROC. Assessee has calculated the amount of loss as per P & L Account being set off by the income offered in the P & L Account and only the additional income was offered to tax. The computation of income started with that of originally assessed income, consequent to the orders of the Ld. CIT(A) and the additional income as per the P & L Account subsequently filed. Net profit or loss as per the books of accounts was offered in the revised proceedings. Consequently, the opinion of the Ld. CIT that A.O. has telescoped the incomes is not correct. What the Addl. CIT has directed is the net income as per the P & L Account to be added to the already assessed income on the same turnover. In fact, the proceedings under section 148 resulted in assessing the assessee’s profit in business on estimation basis, having rejected the books of accounts and also making additions on the basis of books of accounts. Thus the orders passed by the A.O. are in fact is not prejudicial to the interest of the Revenue. One of the item which Ld. CIT has directed in his order under section 263 is also on interest income. The computation for A.Y. 2002-2003 indicates the original income as per the consequential order dated 17.07.2007 at ₹ 29,42,079 + Additional Income offered as per the P & L Account at ₹ 24,17,340 + Interest Income that too from the same P & L Account of ₹ 22,97,203 hereby determining the total income of ₹ 76,56,622. We are unable to find any error or mistake committed by the A.O. in assessing the higher figure than what was required under the Law. Similar is the case for A.Y. 2003-04 wherein the income as determined consequent to the order dated 04.05.2007 at ₹ 29,18,047 was taken and addition as per P & L Account filed subsequently at ₹ 24,14,094 was also added along with the interest income of ₹ 16,52,200 which according to the assessee is sale of scrap already considered in the P & L Account. Thus the revised income was determined at ₹ 69,84,340. As seen from the reasons recorded for reopening the assessment for A.Y. 2002-03, A.O. reopened the assessment for bringing to tax amount of ₹ 1,93,703 not disclosed in the original income but received as interest income and for A.Y. 2003-04 the interest income was at ₹ 2,89,800. In fact, the A.O. has added many times these amounts on which the assessment was reopened. Therefore, in our opinion, the proceedings of A.O. under section 143(3) read with section 147 are not prejudicial to the interests of Revenue and there is no error as considered by the Ld. CIT. - Decided in favour of assessee. Issues Involved:1. Condonation of delay in filing appeals.2. Validity of the orders under section 263 of the IT Act, 1961.3. Set-off of losses against other income.4. Telescoping of un-reconciled creditors into estimated income.5. Consequential orders based on section 263 for A.Y. 2004-05.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing Appeals:The assessee filed appeals with a delay of 731 days, explaining that they were under the impression that the order under section 263 was not required to be appealed as it merely set aside the assessment for redoing. The Tribunal condoned the delay, accepting that the assessee was prevented by sufficient cause, including disputes between promoter groups and changes in counsel, which led to improper advice.2. Validity of the Orders Under Section 263 of the IT Act, 1961:The Tribunal examined the orders issued under section 263 by the CIT, which identified two main errors: allowing set-off of a loss without a valid return and telescoping un-reconciled creditors into estimated income. The Tribunal found that the CIT did not exercise jurisdiction properly. Specifically, the Tribunal noted that section 71 allows set-off of losses within the same year, and the condition of filing a return in time applies to carry forward losses under section 72, not section 71. Thus, the CIT's opinion that the AO's order was erroneous did not hold.3. Set-off of Losses Against Other Income:The Tribunal clarified that the loss determined in the current year can be set off against other income under section 71, even if the return was filed late. The CIT's interpretation was incorrect, as the provision for timely return filing applies to carry forward losses, not intra-year set-offs.4. Telescoping of Un-reconciled Creditors into Estimated Income:The Tribunal addressed the CIT's direction to add un-reconciled creditors to the estimated income. The Tribunal found that the AO had already considered the additional income from un-reconciled creditors in the revised assessment proceedings, following the directions from the Addl. CIT. The Tribunal held that the CIT's direction was a substitution of opinion, which is not permissible under law, especially since the AO's assessment was based on a turnover estimation after rejecting the books of accounts.5. Consequential Orders Based on Section 263 for A.Y. 2004-05:For A.Y. 2004-05, the assessee did not challenge the order under section 263. Consequently, the AO followed the CIT's directions to add un-reconciled creditors to the estimated income. The Tribunal noted that while the assessee's contentions had merit, the lack of challenge to the section 263 order meant the CIT's directions stood. Therefore, the Tribunal could not modify the consequential order, and the assessee's grounds were rejected.Conclusion:The Tribunal allowed the appeals for A.Y. 2002-03 and 2003-04, setting aside the orders under section 263 and restoring the AO's original orders. However, the appeal for A.Y. 2004-05 was dismissed as the order under section 263 was not challenged, and the AO's consequential order followed the CIT's directions.