2017 (4) TMI 1435 - HC - Income Tax

High Court affirms ITAT decision on Section 263 revision for Assessment Year 2011-12. Assessing Officer's 8% income estimate upheld.

PR. COMMISSIONER OF INCOME TAX-12 Versus LAKSHYA SETH

The High Court upheld the ITAT's decision in a case involving revision under Section 263 of the Income Tax Act for the Assessment Year 2011-12. The Court ... Revision u/s 263 - addition of business income @ 8% of the gross receipts - HELD THAT:- In ITO v. DG Housing Projects Ltd. [2012 (3) TMI 227 - DELHI HIGH COURT] this Court held that: 'In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law.' In the instant case, the order of the CIT did not fulfil the above test. The Court is unable to discern any legal infirmity in the impugned order of the ITAT. The question framed is answered in the negative i.e. against the Revenue and in favour of the Assessee. Issues:1. Revision under Section 263 of the Income Tax Act, 1961.2. Justification of assessment by the Assessing Officer.3. Adequacy of inquiry conducted by the Assessing Officer.4. Interpretation of relevant provisions for estimation of business income.Revision under Section 263 of the Income Tax Act, 1961:The case involved an appeal by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2011-12. The central question was whether the ITAT erred in interfering with the findings of the Commissioner of Income Tax (Appeals) under Section 263 of the Income Tax Act. The Commissioner observed that the Assessing Officer did not conduct any inquiry into the Assessee's business and the Assessee failed to produce any relevant documents. The ITAT ultimately concluded that the AO's approach in the original assessment order was justified and in accordance with the Act.Justification of assessment by the Assessing Officer:The Assessing Officer had made an addition to the Assessee's business income based on gross receipts. The ITAT noted that the Assessee had provided details of bank accounts and cash deposits but could not produce books of accounts as they were misplaced. The AO estimated the business income at 8% of gross receipts, which was higher than the Assessee's requested 5%. The ITAT found the AO's approach reasonable, considering the circumstances.Adequacy of inquiry conducted by the Assessing Officer:The Standing Counsel for the Department argued that the AO had merely accepted the Assessee's version without conducting a thorough inquiry. However, the ITAT highlighted that the AO had inquired about the cash deposits and, upon the Assessee's explanation of lost records, estimated the business income at 8% of gross receipts. The Court found no legal infirmity in the ITAT's decision, emphasizing the reasonableness of the AO's actions.Interpretation of relevant provisions for estimation of business income:The ITAT's order referenced Section 44 AF of the Act, which allowed the AO to estimate business income based on the available information. The Court cited a previous judgment emphasizing that revision under Section 263 requires a finding of error or mistake in the assessment order. In this case, the Court found that the CIT did not meet this standard, leading to the dismissal of the appeal in favor of the Assessee.In conclusion, the High Court upheld the ITAT's decision, ruling against the Revenue and in favor of the Assessee. The appeal was dismissed with no order as to costs.